Najib's govt used money raised from Khazanah to pay 1MDB dues: Sources

Najib's govt used money raised from Khazanah to pay 1MDB dues: Sources

KUALA LUMPUR: The government of former Malaysian Prime Minister Najib Razak used money raised from a deal with sovereign wealth fund Khazanah Nasional Berhad to pay for some of the liabilities of state fund 1Malaysia Development Berhad (1MDB), two sources told Reuters.

Khazanah paid the government RM1.2 billion (US$301.05 million) in mid-2017 in exchange for redeemable shares that the finance ministry owned, the sources said, adding that the funds were used to pay some of 1MDB's dues to Abu Dhabi fund IPIC.

1MDB had agreed to pay US$1.2 billion to IPIC as part of a settlement agreement reached in April 2017 after 1MDB defaulted on its bonds.

The finance ministry did not immediately respond to requests for comment.

Khazanah told Reuters in an email that the ministry of finance exercised its right in August 2017 to redeem outstanding Redeemable Convertible Cumulative Preference Shares amounting to RM1.2 billion, which were issued to the ministry in 2011.

However, it did not comment on whether the funds were used for repaying 1MDB's dues.

Najib's government also used about RM2 billion (US$502 million) raised from a land sale agreement with the central bank to pay some of 1MDB's liabilities to IPIC, Reuters reported earlier, citing two sources.

The ministry had made use of government assets to make several payments to bail out 1MDB, one source said.

The sources did not want to be identified as they were not authorised to talk to media.

In a statement to Reuters, the central bank said it has handed details of the transaction to the country's anti-graft agency. 

"The transaction complied with all the governance requirements and relevant laws that govern the bank," Bank Negara Malaysia said. 

In a press statement posted on its website, the central bank said that the purchase of land was initiated by the bank and that the transaction was conducted at an "arms-length" and at a "fair value" that was determined by an independent private sector valuer. 

"The Bank shall continue to be transparent on this matter," they said. 

PREVIOUS GOVERNMENT HAD BEEN BAILING OUT 1MDB: FINANCE MINISTER

The payment from the central bank was first reported on Wednesday by the Wall Street Journal.

The news comes as Malaysia's new finance minister said this week that Najib's government had deceived the public and parliament over the country's financial situation and 1MDB.

The previous government has been bailing out debt-burdened 1MDB since April 2017, paying a total of RM6.98 billion so far, Lim Guan Eng said, adding that 1MDB directors confirmed the fund was insolvent.

1MDB had agreed to pay US$1.2 billion to IPIC as part of a settlement agreement reached in April 2017 after 1MDB defaulted on its bonds.

The total settlement amount was to be paid to IPIC over two instalments – one by the end of July, which 1MDB paid in August – and another by December.

1MDB said on December 27 that it had paid the second tranche and that the entire settlement amount was paid through funds raised by an "on-going rationalisation" programme.

However, the sources said the second instalment to IPIC was paid by the ministry of finance through funds from the land sale agreement with the central bank.

Bank Negara Malaysia said on Jan 4 that it had agreed to purchase a plot of land from the Malaysian government for about RM2 billion after several months of discussions.

1MDB is the subject of money-laundering investigations in at least six countries, including the United States, Switzerland and Singapore. In civil lawsuits, the US Justice Department has alleged that about US$4.5 billion was misappropriated from 1MDB.

The Malaysian fund has denied any wrongdoing and Najib, who founded 1MDB, has denied all allegations of corruption against him.

He was defeated in a general election earlier this month and was succeeded by Mahathir Mohamad, who immediately opened investigations into the state fund and barred Najib from leaving the country. 

Source: Reuters/cy/na

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