This article first appeared in The Edge Malaysia Weekly on March 14, 2022 - March 20, 2022

SEEKING new projects to raise funds for 1Malaysia Development Bhd (1MDB), as the work had proven to be so lucrative, fugitive businessman Low Taek Jho and his cohorts at Goldman Sachs had considered buying Japanese assets with a loan guaranteed by Japan Bank for International Cooperation (JBIC). The plan failed to materialise, however, because the bank was unconvinced.

In 2012, Goldman Sachs — acting as company adviser — had eyed a yen-denominated loan of more than US$2 billion that was to be guaranteed by JBIC, former Goldman Sachs banker Tim Leissner testified last week. He said, however, that the deal did not go through because the Japanese were unhappy with explanations given by 1MDB and Goldman Sachs on the use of the proposed funds.

Leissner explained to the jury that JBIC is a large development bank in Japan owned by the Japanese government.

“It was certainly meant to assist Japanese companies with funding and financing, as they were trying to expand in the world. So, it was really a development bank owned by the Japanese government.”

Upon cross-examination by Leissner’s former Goldman Sachs colleague Roger Ng’s lawyer Mark Agnifilo last week, Leissner said there may have been several reasons that the Japanese had pulled out of the deal.

Agnifilo: And do you recall that the JBIC deal did not come to fruition?

Leissner: That’s correct, sir.

Agnifilo: And is that because, to your recollection, 1MDB was not able to identify the use of the funds to the satisfaction of JBIC?

Leissner: That was one issue, sir. I don’t know if that was the only one that stopped that particular project. There was a lot of discussion around trying to find justification for buying Japanese equipment at the time for 1MDB’s power business, which it had just acquired — or at least had acquired several assets, several power plants. So, there was an effort to try to identify Japanese equipment that could be purchased with any fundraising, but I don’t know if that was the only reason at the time it failed.

It is not known when the purported deal collapsed; in 2013, however, The Edge published an article about the facility, which was “worth about US$2.5 billion”, and that it was seeking mostly Japanese lenders to join in syndication.

According to the report, 1MDB had total bonds and loans outstanding of RM30.9 billion and it also had RM7.8 billion of debt at end-March 2012, according to its 2013 annual report.

JBIC another Magnolia or Maximus

Leissner explained that the JBIC deal was supposed to be exactly like 1MDB’s Project Maximus and Magnolia in that 1MDB would get JBIC to guarantee or fund 1MDB, which would enable 1MDB to use the Japanese credit rating effectively.

“The idea was very similar: that we would find some way of getting JBIC either to guarantee or fund 1MDB; and, thereby, us being able to use the Japanese credit rating effectively — because it’s government-owned — to raise money the way we had done it on Magnolia and Maximus,” he said.

“Project Magnolia” refers to the first bond, worth US$1.75 billion, that was issued to part-finance 1MDB’s acquisition of Tanjong Energy Holding Sdn Bhd. Goldman Sachs made US$192.5 million from the exercise.

“Project Maximus” refers to the second bond, also worth US$1.75 billion, that was issued to part-finance 1MDB’s acquisition of Genting Sanyen. Goldman Sachs earned US$200 million from that deal.

Ng is accused of conspiring with Low to divert hundreds of millions of dollars from both deals as well as a third known as “Project Catalyze”, with the three bond issuances totalling US$6.5 billion.

The deals generated US$600 million for Goldman, and Leissner is also said to have pocketed US$60 million in kickbacks for facilitating these sham deals, in which the monies were diverted and not used for their intended purposes.

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