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PUBLISHED: Feb 26, 2015 12:40am

1MDB joint venture with PetroSaudi misinterpreted

1MDB president and CEO Arul Kandasamy


Since things didn't work out between 1MDB and PetroSaudi, 1MDB asked for its money back and received a total of US$2.318 billion (including interest in Cayman). This money is confirmed to be fully redeemed by 1MDB president Arul Kanda Kandasamy (pic) recently, says the letter writer.

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Letters From The Rakyat

SARAWAK Report and The Malaysian Insider are very poor in their understanding of business.

The Sarawak Report said it had obtained secret agreements that said 1MDB loaned US$1 billion to PetroSaudi, but PetroSaudi used the money to repay US$700 million in shareholders advance back to parent company PetroSaudi International (PSI) and hence leaving only US$300 million to Invest.

I don’t know if Sarawak Report reporters understand this concept or not.

Imagine my holding company LSS International (LSSI) starts up a subsidiary company called LSS-1MDB Ltd (LSS1MDB) and then I advance RM700 to the company. Now, LSS1MDB has RM700 cash in it.

Then 1MDB wants to buy into my LSS1MDB by injecting RM1,000 into LSS1MDB. Therefore, LSS1MDB now has RM1,700 cash.

LSS1MDB then uses RM700 to pay back LSSI — thus leaving LSS1MDB with RM1,000.

Thus, using the same analogy, LSS1MDB will still have RM1,000 cash to invest and play with and not RM300.

The concept is simple but irresponsible news publications don’t seem to understand.

Note that 1MDB put in US$1 billion (plus loaned another US$500 million later) and PetroSaudi injected an asset valued at US$1.5 billion,

Secondly, Sarawak Report also said that PetroSaudi is not a credible company and in their words: “Another falsehood promoted by Najib and 1MDB’s publicity machine at the time of the joint venture on 29th September 2009 was the suggestion that PetroSaudi was somehow officially connected to the State of Saudi Arabia”.

Observers, including Sarawak Report, later proved that the company was in fact a private venture set up by a little-known Saudi businessman called Tarek Obaid and his pal, who happened to be one of the many princes of Saudi Arabia.

Well, the said Prince is Prince Turki bin Abdullah Al Saud. He served as deputy governor of Riyadh Province from 2013 to 2014 and as governor. (

Riyadh is the capital and largest city of Saudi Arabia. Since there is no democracy in Saudi Arabia, this means putting your son as Governor of Riyadh means he is very important and of royalty.

Why did he stop being governor on 29th Jan this year? Well, the old king died and there was a reshuffle.

Other than that, if you Google for PetroSaudi investments, you will find them doing deals all over the world including in Turkey, in Venezuela, in Africa and even bought a listed company in London’s AIM market.

Heck, they even signed up Tony Blair and it was also reported to be Saudi royal-family linked by Russian govt-owned media Russia Today ( and Daily Mail (

And PetroSaudi even paid billions to buy out the THREE listed companies in Malaysia — Loh & Loh, Putrajaya Perdana Bhd and UBG Group Bhd for billions.

Also, PetroSaudi also used their Saudi royal family connections and arranged for the airlifting of Malaysian students in Egypt during the Egypt revolution.

Hmmm… confirmed by foreign news that PetroSaudi is royal family-owned, the prince cited by Sarawak Report is the governor of Riyadh and also that PetroSaudi has bought billions in assets throughout the world, including Malaysia (and even hired ex-British PM Tony Blair) and YET Sarawak Report and Malaysian Insider says PetroSaudi is not a credible company and is shady?

Thirdly, 1MDB put in a total of US$1.5 billion (worth RM5.06b) into PetroSaudi between 2009 and 2010.

Since things didn’t work out between 1MDB and PetroSaudi, 1MDB asked for their money back and received a total of US$2.318 billion (including interest in Cayman).

This money is confirmed to be fully redeemed by 1MDB president Arul Kanda Kandasamy recently. If you want to know if the money is all there, please wait for the audit report to confirm for you.

This means that in US dollar terms, 1MDB got a return of 9% per annum in US dollar terms over the five years that they invested US$1.5 billion to get back US$2.318 billion.

In ringgit terms. 1MDB got a return of 11% per annum and grew their investment of RM5.06 billion to become RM8.23 billion.

The most important thing is that 1MDB got back ALL their money and got good returns for it.

On a seperate point, DAP lawmaker Tony Pua is getting more ridiculous in fooling his supporters.

He called the 1MDB-Petrosaudi deal a con job and instead of saying 1MDB made US$488 million in profit from that deal, he said 1MDB lost US$1.1 billion.

He based his logic on this:

1) PSI had created the shell company, 1MDB PetroSaudi, from scratch on Sept 18, 2009

2) Just 10 days later on Sept r 29, 1MDB bought 40% of new shares in 1MDB PetroSaudi and injected RM1 billion in cash. The next day, US$700 million was taken out of 1MDB PetroSaudi and given to PSI to repay shareholding advances.

3) Six months later, 1MDB then sold its 40% stake bought for US$1billion for US$1.2 billion and converted it to a loan instrument and following two more loan extensions of US$500 million and US$200 million respectively in 2010 and 2011 to Petrosaudi International, 1MDB’s total Murabaha notes stood at US$1.9 billion,

4) 1MDB then sold all its notes for US$2.32 billion (from an original investment of US$1.7 billion (1b + 500m + 200m) — netting a profit of US$620million.

5) Tony said that: “This is strange as 1MDB was not set up as a money-lending company, said Pua, even more so given that much of 1MDB’s funds were themselves raised through short-term loans.”

6) Earlier, Tony said that 1MDB lost the entire amount of US$2.318b in the Cayman Island funds — but the auditors, Deloittes, later clarified that the first tranche of US$1.22 billion was already redeemed and used to pay off debts and for working capital purposes.

7) And now, he says the remaining US$1.1billion is lost because auditors have not confirmed it yet and Arul had not shown him the account statements.

Tony is blabbering out the same thing all the time and not giving the full picture.

Firstly, the reason why the company was created in such a short time from scratch is because it was a special purpose vehicle — hence the name 1MDB-Petrosaudi!

The purpose of the company was that Petrosaudi injected their assets of US$2.7 billion (which included advances of US$700 million that needed to be repaid) into this special purpose vehicle and 1MDB injected US$1billion in cash.


Part of the deal is that 1MDB will only put in the money if it is satisfied that the US$2.7billion asset exists and is worth that much. Again, THIS WAS CLEARLY STATED IN THE JV AGREEMENT. (CLAUSE 5)

Somehow, Tony missed out that part and forgot to tell his people. He can only remember US$700 million that needs to be repaid but cannot remember there is US$2.7 billion of assets.

Secondly, Tony Pua said 1MDB investment into this are from short-term borrowings. WRONG AGAIN! TONY PUA, THIS IS FROM the initial 30 years Islamic bonds issued. I don’t know how you can consider 30 years as short term.

And now, Tony is implying the auditors of 1MDB are incompetent or crooked, or both. He is now saying that Deloitte’s, one of the big four international accounting firms, is no good.

Tony have been wrong with the facts and proven wrong numerous times on 1MDB, but yet he continues to want to spin this.

If the auditors, Deloitte’s can be believed (and they should as their professional reputation is at stake), then 1MDB should be praised on this PetroSaudi deal for exiting the deal at the right moment when the JV did not seem to be progressing well, protecting our money and turned US$1.7billion into US$2.32 billion — a profit of US$620 million (RM2.25 billion) in a span of four years and also benefiting from forex gains.


Kuala Lumpur

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