THERE have been recent attempts to besmirch the good name of Prime Minister Datuk Seri Najib Razak by alleging impropriety behind the operations of 1 Malaysia Development Bhd (1MDB).
While it is understandable for Opposition parties like DAP to lead in the attacks, it is something else altogether for former Prime Minister Tun Dr Mahathir Mohamad to share the same platform with the likes of Tony Pua in condemning a fund that has done so much for the religion, race and country.
Even though the prime minister is within his rights in maintaining an elegant silence over the state of affairs in 1MDB, Dr Mahathirâ€™s heavy use of innuendoes could confuse people and lead them astray (much like the dog touching episode).
Some Umno bloggers have already fallen for the bait and have begun to question the wisdom of the prime minister and his advisers
It is feared that even wise Ketua Bahagian Umno leaders may be taken in by the relatively simplistic arguments put forth by Dr Mahathir and fail to praise the prime minister adequately in the upcoming Umno general assembly.
Thus, the task of defending 1MDB and the prime minister has fallen on me as chairman of a newly formed cyber NGO, Pertubuhan Bangsa Bangsa Bersatu 1 Malaysia (PBB1M).
In his diatribe, Dr Mahathir accuses 1MDB of many things. I will list down the allegations and answer them for the benefit of the public in general, and Umno division leaders in particular.
Paying an exceptionally high interest rate to borrow money
Dr Mahathir cites the 5.75% coupon for a 30-year RM5 billion Islamic bond in 2009 and paying 5.99% to place out a US$1.75 billion in the Eurodollar market.
In criticising the 5.75% coupon for the RM5 billion Islamic bond, Dr Mahathir alleges that the cost of government funding was 4% and Petronas paid only 3.6%, thus implying that the bright and smart ex-consultants of 1MDB had been forced to pay more than required to seek funds.
This point shows Dr Mahathirâ€™s shallow understanding of finance, which is even more embarrassing, considering that he was at one time the finance minister.
1MDB borrowed money for 30 years to match the cashflow from its project to the cashflow of its funding
When we borrow for 30 years, we must use the indicative 30-year rate and not a 10- or 20-year rate. The market at that time was pricing Malaysian government securities with a 20-year remaining term to maturity at 4.8% and not 4%.
But 1MDB wanted 30-year money, so it has to pay a higher rate because rates increase the longer the term of the loan. So paying an additional 100 basis points is not uncommon, especially since the issue was quite big and the issuer relatively new.
Paying commission and fees of US$473 million to Goldman Sachs to underwrite a US dollar facility of US$4.554 billion
Dr Mahathir argues this fee was excessive, considering that the great bank was only paid US$10 million to arrange a US$800 million facility for Equisar International, a Sarawak state government company.
The act of paying commissions and fees is a part and parcel of investment banking. If you want the best, then you have to pay more for their services.
In addition, these fees included the guarantee fees that were required to be paid to IPIC (International Petroleum Investment, an investment company of the Abu Dhabi government) to guarantee the bonds.
Paying above market price to acquire power assets
In corporate finance, it is understandable for one to pay a premium to acquire an asset. In merger and acquisition deals, this is called an â€œacquisition premiumâ€. You pay the required premium because you are confident that you can save costs by combining two related entities through synergies.
So, overpaying is not a new thing â€” many people considered Googleâ€™s IPO price of US$85 as being too high. Now the stock value has gone up 10 times!
How many Bumiputeras managed to participate in the Google IPO?
Thus, in conclusion, people should ignore this nonsense created by Dr Mahathir and focus more instead on supporting the prime minister.
Rest assured that the prime minister is fully aware of the details in 1MDB and has said that the fund is strong and will contribute towards the strategy of transformation and making Malaysia a high-income country.
This should be sufficient for all people â€” especially those who consider themselves as pro-Umno individuals, lest they be accused of conspiring with the Opposition in committing sedition.-WENGER KHAIRY (INDIAN KL MAN), HLB SINGAPORE ECONOMIST