Malaysia’s Investment Fund Disaster

By admin-s On Dec 8, 2014

A champagne-swilling youth leads the PM into a bog of debt and scandal

John Berthelsen, Asia Sentinel

In 2008, a boisterous young man by the name of Jho Low Taek, a Penang-born Wharton grad with a taste for Cristal champagne and Broadway blondes, approached Malaysia’s Terengganu state government with a proposal to use the state’s authority to sell RM10 billion (US$2.87 billion) in bonds to start a state-backed investment fund.

That proposal has led to what Tony Pua, a Democratic Action Party lawmaker, has called “the mother of the mother of the mother of all scandals in the history of Malaysia.”

That might be one mother too many, but Pua is not alone, with critics coming from outside the opposition as well. It is certain that the proposed Terengganu Investment Authority has metastasized into a mess that can properly be called huge and has put Prime Minister Najib Tun Razak’s tattered reputation on the line yet again. Much of the story has been detailed in two Malaysian pubLications, The Edge and the online news portal Malaysiakini’s business unit, Kinibiz.

Najib, the head of the 1MDB advisory board, has faced a barrage of questions from opposition lawmakers in Parliament for weeks and an attack on his own flank from former Prime Minister Mahathir Mohamad and his allies, including former Finance Minister Daim Zainuddin, over what can only be regarded as an astonishing level of mismanagement.

The question was why Malaysia needed another government-backed investment fund in the first place, especially one dreamed up by a young friend of the family. It has Khazanah Nasional Bhd., the 23-year-old investment holding arm that manages Malaysia’s assets and makes strategic investments, and the Employee Provident Fund, which also invests employee pension funds. Both are creatures of the Ministry of Finance.

The Terengganu Sultan, Mizan Zainal Abidin, had misgivings over the plan by Jho Low, as he calls himself, so the 27-year-old Low went to the parents of a friend he had made in the rarefied atmosphere among Malaysia’s privileged in the UK. While anti-colonial rhetoric still spews at home, Malaysia’s wealthy have always known where to send their scions. Jho Low was at the exclusive 450-year-old Harrow, his friend Riza Aziz at nearby 150-year-old Haileybury, which trained English youth for service in India. Riza’s mother is Rosmah Mansor, Najib’s second wife.

Thus the proposed Terengganu Investment Authority metamorphosed into 1Malaysia Development Bhd., or 1MDB, also under the Ministry of Finance. Today 1MDB has accumulated debt of RM36.25 billion (US$10.4 billion) that is only covered by repeated accounting upgrading of the value of property handed to it at a knock-down price by the government to get it started – a 196-hectare former air force base near the center of Kuala Lumpur.

In recent months, the government, in an attempt to build up the fund so it can be listed, has strong-armed at least three no-bid contracts to 1MDB to build coal-fired and solar-powered power plants. One of those powerplants, in Port Dickson near Malacca, was awarded to 1MDB despite a lower bid from a joint venture of YTL International Bhd and SIPP, partly owned by the Sultan of Johor, who is said to have been enraged by the loss and is demanding privately that SIPP be given its own no-bid contract for another plant.

Although its dealings are opaque, sources in the know in Kuala Lumpur believe it was Jho Low, previously regarded as a savvy investor despite his tender years, who managed to drive 1MDB into disaster. Although the chairman of the Board of Directors is Lodin Wok Kamaruddin, who holds the high-ranking honorific of tan sri, he is regarded as a figurehead and many of 1MDB’s major decisions have Low’s fingerprints on them.