Bank Negara’s hand in sabotaging 1MDB
Arul went into 1MDB in January 2015 and his job was to turn around the company. In June 2015, Arul presented his plan to the Cabinet, which were approved and which would have ensured that 1MDB would become viable. Then Bank Negara stepped in to sabotage all the moves that 1MDB made so that 1MDB will fail and the blame can be pinned on Najib.
THE CORRIDORS OF POWER
Raja Petra Kamarudin
On 13th August 2016, we wrote about how Tun Dr Mahathir Mohamad used Bank Negara Malaysia as the instrument to sabotage 1MDB. SEE: HOW MAHATHIR USED BANK NEGARA TO SABOTAGE 1MDB
Mahathir’s direct onslaught on 1Malaysia Development Berhad (1MDB) began with the police report that Khairuddin Abu Hassan made in December 2014. The following month, in January 2015, Arul Kanda Kandasamy took over as the new President and Chief Executive of 1MDB.
Arul’s job was to launch a turnaround exercise by reducing 1MDB’s debts and rationalise its activities. While all this was going on, Mahathir kept attacking 1MDB and Prime Minister Najib Tun Razak. Najib, however, did not respond to Mahathir’s attacks while Arul focused on the job he was being paid to do, which is to bring 1MDB back to viability.
Once Arul was clear in his mind as to what was going on and what needed to be done, in June 2015 he presented his plan to the Cabinet, which the Cabinet approved. Muhyiddin Yassin, of course, was the Deputy Prime Minister and a Cabinet Member at that time and he, too, endorsed 1MDB’s debt reduction and rationalisation plan.
Following the Cabinet’s approval, in that same month of June of last year, IPIC and 1MDB signed an agreement where IPIC would settle USD4.5 billion of 1MDB’s debt in return for the equivalent value of assets from 1MDB. As part of this deal, IPIC also paid 1MDB USD1 billion in cash.
This exercise was to be completed within a year or by June 2016 and was one of the three key rationalisation plans that 1MDB was going to adopt to reduce their RM42 billion debt. The other two are the sale of Edra and the sale of Bandar Malaysia.
Once this IPIC-1MDB exercise is completed, 1MDB would have been debt-free and Mahathir’s attacks would have to end since 1MDB would no longer have any financial or cash flow problem.
Since the year 2011, IPIC’s subsidiary, Aabar, had held a 21.09% stake in RHB Bank which Aabar bought from its sister company, Abu Dhabi Commercial Bank. Abu Dhabi Commercial Bank had initially bought this stake from KWSP in the year 2008 at a big profit to KWSP.
In September of last year, RHB had a rights issue. Legally, Aabar is entitled to subscribe to 21.09% of the rights shares to maintain their stake but Bank Negara Malaysia shocked the market by limiting Aabar’s right to subscribe to only 15% instead of their legally entitled 21.09%. The reason given by Bank Negara was that they wanted to limit foreign shareholdings in local banks.
Bank Negara has never done something like this before and should have not done it since corporate exercises involving shares are normally within the powers of the Securities Commission and not Bank Negara. Limiting the rights shares to 15% is even more shocking considering Bank Negara had actually approved Aabar’s increase of shareholding to 25% from their current 21.09%.
If Aabar was not allowed to take up their rightful rights shares, Aabar would lose at least RM300 million in profits and their ownership in RHB would be diluted. Market observers were not only stunned by Bank Negara’s abnormal action but Aabar and IPIC were furious as Bank Negara’s action was going against established rules.
In the end, Aabar decided not to subscribe for a single share and sold off their entire rights entitlement at 50% below market value, registering a big loss. This also caused the relationship between IPIC and 1MDB to fall apart.
A few months later, IPIC announced that the agreement between IPIC and 1MDB, which was a key part of 1MDB’s rationalisation plans, was now cancelled. Bank Negara had succeeded in sabotaging the 1MDB rationalisation exercise by pissing off the very party that would have turned around 1MDB and would have brought it back to viability.
Clearly Bank Negara was Mahathir’s tool in making sure that 1MDB is sabotaged and continues to have problems so that this can be used against Najib as the catalyst to oust him or force him to step down.
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The diminishing Aabar factor
(The Star, 19 Sep 2015) – Two days ago, a filing to the stock exchange by RHB Capital Bhd (RHB Cap) took the market by surprise. It said that the central bank had ordered a cap on the voting rights of Aabar Investments PJS in RHB Cap to 15%.
It was also revealed that RHB Cap is prohibited from issuing more than 15% of new shares to Aabar, which currently has a 21.09% stake in RHB Cap.
The statement alluded to the fact that this condition dates back to 2010 when the Ministry of Finance (MoF) gave its approval to Aabar to buy a 25% stake in RHB Cap.
This development is clearly new to the market.
This information was markedly absent from the offer document of the recently announced RHB Cap rights issue.
This in turn means that there is now a balance of over 6% of rights shares that do not have an entitled shareholder for them to be subscribed by . It isn’t clear how this ‘overhang’ will be solved.
It has been reported that Aabar has not given its commitment to subscribe to its portion of the rights issue, although that does not mean it would not buy into the rights.
In any case, the ruling, unless challenged, means that the significance Aabar can wield as a shareholder in RHB Cap has been dented.
In other words, despite being a 21.09% shareholder in RHB Cap today, it can only vote on 15% of those shares.
Aabar’s stake had been slightly diluted since 2010 mainly due to its decision to opt for cash instead of reinvesting its dividends under RHB Cap’s dividend reinvestment plan.
That is another indication of Aabar’s hesitation to pump more money into RHB Cap.
In April, RHB Cap announced a rights issue to raise RM2.5bil, which would bolster its capital base to meet Basel III and future growth requirements.
The rights issue has been approved by shareholders although it isn’t clear if Aabar voted in favour, opposed or abstained from voting on that decision.
RHB’s planned rights issue is seeking to deleverage its capital structure by issuing more equity at a time of an economic slowdown, a logical move no doubt.
However, going by Aabar’s track record, it has already been speculated that it isn’t keen on taking up this rights issue.
Aabar had bought its block of shares in RHB Cap from sister company Abu Dhabi Commercial Bank’ (ADCB) in 2011.
Aabar had acquired it for RM10.80 per RHB Cap share, valuing the bank then at 2.25 times book value.
ADCB had acquired the portion of RHB Cap’s shares earlier in 2008 at RM7.20 per share or 2.2 times book value.
If Aabar only subscribes to 15% of its entitlement for the rights, it would have to fork out some RM374.29mil for the 77.65 million new shares. It is likely that Aabar’s stake will be diluted to under 20% if the issuance is fully taken up.
Aabar has yet to give any undertaking to subscribe to the rights issue while both the Employees Provident Fund Board and OSK Holdings Bhd, the other substantial shareholders of RHB Cap, have provided written undertakings to subscribe in full for their respective entitlements.
If Aabar does not take up any of its rights entitlements, then it could potentially get diluted to as low as 17.5%.
Also, if that is the case, the issuers’ underwriters would have to deal with Aabar’s portion of the rights issue, which is made up of 545.78 million RHB Cap shares. That would amount to a total of RM2.6bil, going by the rights issue price of RM4.82.
Notably, the rights issue price is at a 20% discount to market.
Could this entice shareholders like Aabar, to buy into the rights issue and lower their cost of investment?
That is an unlikely scenario, points out a banker, considering that Aabar has not acquired more shares in RHB Cap since first buying into the company. “More importantly, Aabar can’t be too thrilled with the order issued by Bank Negara limiting their voting rights in RHB Cap,” he says.
This in turn leads to the question as to what will Aabar’s next move be?
Recall that it had been reported back when Aabar bought into RHB Cap that Bank Negara had imposed another condition on Aabar, namely that it must support the possible merger of RHB Cap with a local bank at a “market price” that would not weaken the merged entity.
Clearly this hints towards Bank Negara wanting Aabar to consider taking a lower price for its shares in the event a local banking M&A is on the cards. But that may mean Aabar would have to take a loss on its investment.
