Did IPIC mislead London Stock Exchange?

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International Petroleum Investment Company (IPIC) could have misled the London Stock Exchange (LSE) by saying that the Finance Ministry had indemnified it in relation to its US$1 billion payment to 1Malaysia Development Bhd (1MDB).

This is the stand of DAP Petaling Jaya Utara MP Tony Pua, who based his claim on 1MDB’s denial that the government would guarantee US$4.71 billion (RM17.7 billion) to the Abu Dhabi-based petroleum company.

"The very simple question for 1MDB to answer is whether it is saying that IPIC misled LSE and its bondholders by claiming that the Finance Ministry provided an indemnity to IPIC over the above 'binding' agreement?" Pua asked.

Pua claimed yesterday the guarantee was provided in order to secure the agreement for IPIC to advance US$1 billion to 1MDB to settle its immediate outstanding loans, pay interests on 1MDB’s behalf for US$3.5 billion worth of bonds.

IPIC came into picture after Finance Minister II Ahmad Husni Hanadzlah ( photo ) announced the US$1 billion loan will be provided to 1MDB to pay its debts in May.

As of March 2014, 1MDB's debt had piled up to RM41.8 billion and Finance Ministry-run company needs to pay RM2.4 billion to RM2.7 billion as interest annually.

  

Despite 1MDB's denial, Pua said, it failed to address IPIC’s announcement , which stated that “1MDB and MOF have agreed to perform the obligations contemplated in the binding term sheet and to indemnify IPIC and Aabar for any non-performance, and vice-versa”.

"Indemnify” means both 1MDB and MOF signed a binding term sheet agreeing “to secure against future loss” or “to compensate for loss” by IPIC, he said.

"In simple terms, if 1MDB fails to transfer the necessary assets of the required 'aggregate value' to IPIC by June 30, 2016, MOF will be required to repay IPIC at the very least, whatever advances IPIC has made by that date.

"That will include the US$1 billion advance already paid, and an estimated US$209.7 million worth of interest incurred by the bonds over the next 12 months.

"If IPIC were to further assume the US$3.5 billion of bonds, it would mean the MOF would have to indemnify an additional US$3.5 billion to IPIC," Pua said.

That will total up MOF’s contingent liabilities in the agreement up to US$4.71 billion, he added.

‘Classic misdirection tactic’

"1MDB alleged that I had deliberately misled the public by failing to mention the crucial ‘and vice-versa’ clause in relation to the ‘indemnity’, in relation to performance of obligations by the parties.

"This is the classic misdirection tactic utilised by 1MDB whenever it is faced with difficult questions. I never disputed that IPIC also provided a “vice-versa” indemnity," Pua said.

But all the indemnity amounts to is the fact that IPIC has to advance the US$1 billion and pay for the year’s worth of interest, or 1MDB would not need to fulfil its part of the bargain on the “transfer of assets”, he said.

"Thus, there is absolutely no loss involved for IPIC in such an event."

Pua further argued that IPIC has fulfilled its obligation to advance US$1 billion to 1MDB, hence the question of IPIC indemnifying 1MDB is moot. 

 

"However, the MOF indemnifying IPIC isn’t moot," he said.

"The indemnity effectively means MOF has guaranteed to pay IPIC in the event 1MDB fails in its part of the bargain by June 30, 2016," he added.

The IPIC announcement was written as plainly in English as possible for the London Stock Exchange, targeted presumably at an English-speaking financial community, he said.

"Finally, if MOF was not needed to indemnify IPIC, then why should MOF be a party to the binding term sheet in the first place?  If it is strictly a ‘commercial transaction’, as claimed by 1MDB, why wasn’t it just between 1MDB and IPIC alone?" Pua asked.

1MDB should stop twisting and turning in its replies, or it will end up with eggs on its face again, just like the “redeemed units”, “cash” or “assets” farce, he warned.

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