Wednesday, 11 November 2015

[ouch! Tun Mahathir was right! truth hurts]..1 MDB's Cayman "units" could not have been "redeemed" : Mahathir was right, the USD 2.2 billion is all gone

by Ganesh Sahathevan
While Australian investigators have  still not found  any evidence   of 1 MDB's Cayman "units",  re-reading statements from 1 MDB  and  Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah reveals a probable cover-up of the fact that some USD $ 2 .2 billion is gone,forever lost.

The first statement which suggested something was amiss came from then 1 MDB CEO Hazem Abd Rahman,who in announcing 1 MDB's financial results for the year ended 31 March 2014 said:
Since the end of the financial year in March 2014, 1MDB has also redeemed a total of over RM4 billion from its investments in Segregated Portfolio Companies registered in the Cayman Islands, with the balance expected to be fully redeemed by November 2014. A dividend of RM435 million, from these investments, has also been received subsequent to the financial year end March 2014 and will be accounted for in the next financial year ending March 2015.
Hazem's reference to " investments in Segregated Portfolio Companies" should have raised the alarm even then, given that the  Cayman Island segregated portfolio company structure comprises a single company under which there are many segregated portfolios. Hazem is a highly qualified and experienced investment analyst and manager, so one cannot say that he would not have noticed the error.
Even so, there was another crucial problem, and this concerned the issue of redemption.As the diagram below illustrates, the Segregated Portfolio Company structure is  not the same as a unit fund,and there is no mechanism for redemption.Investors can only sell their shares in the company that sits right on top of the structure..

Hazem's error , intended or otherwise, and aggravated by his successor Arul Kanda , had to be corrected by Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah, but in doing so Husni  might as well have admitted that the money, ,all USD 2.2 billion, was lost forever:
Putrajaya admitted today that the US$1.103 billion (RM3.91 billion) redeemed from 1Malaysia Development Berhad’s (1MDB) Cayman Islands account had been mistakenly described as “cash” instead of just assets by the investment firm.
Explaining the matter, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah confirmed his ministry’s clarification earlier this week that the redemption, now parked in Singapore’s BSI Bank, is in the form of “units” and not US dollars as previously claimed by 1MDB CEO Arul Kanda Kandasamy.
“There’s a mistake… mistake in the sense that, the impression (given by 1MDB) when they said they have redeemed (the funds) and saved (them) in the Singapore bank (Singapore BSI).... so the impression is that there’s cash, (but) actually that is a saving,” Ahmad Husni said told reporters at the Dewan Rakyat today.
“That (the redemption) is (in) unit... that’s what it is… in unit, and then, that is being backed sovereign wealth funds,” Ahmad Husni said, but declined to explain further what he meant by “units”..
As the diagram above shows, there are no "units" , only shares that might have been redeemed, even if that was possible. As Tun Mahathir put it, "The money is gone (duit tak ada)," 

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