This article first appeared in The Edge Malaysia Weekly on May 15, 2023 - May 21, 2023

FORMER BSI banker Kevin Swampillai and his colleagues found it puzzling that 1Malaysia Development Bhd’s top management appeared fixated on ensuring that the valuation of two assets owned by the state-owned company in a Hong Kong-based fiduciary fund amounted to US$2.318 billion, with no flexibility for the bankers to conclude otherwise.

This was in 2012 when, under instructions from Low Taek Jho, or Jho Low, the bank was asked to restructure and convert 1MDB’s interest in a joint venture (JV) called PetroSaudi Oil Services Ltd (PSOSL) into a fiduciary fund structure.

The value of 1MDB’s interest post-restructuring was to be marked as US$2.318 billion, which was based on the company’s valuation of two Venezuela drill ships that subsequently proved to be vastly overinflated and illiquid.

Last week, Kevin testified that BSI Singapore was tasked by Jho Low in 2012 to carry out the valuation of a US$2.318 billion investment made by Brazen Sky Ltd — a Cayman Islands subsidiary of 1MDB — in fiduciary funds set up by Hong Kong-based fund manager Bridge Partners International Investment Ltd (that were managed by BSI Singapore) .

Former 1MDB chief financial officer (CFO) Azmi Tahir and former deputy CFO Terence Geh Choh Heng were the two directors of Brazen Sky.

Kevin said because both men were so adamant and “very fixated” with the US$2.318 billion valuation, he and other BSI personnel wondered whether the US$2.318 billion was to “plug in” losses in 1MDB’s balance sheet.

Kevin, 58, was testifying as the 44th prosecution witness in the 1MDB-Tanore trial last week, in which former prime minister Datuk Seri Najib Razak stands as the only accused. He has been charged on four counts of abuse of power and 21 counts of money laundering.

Kevin said he concluded that the valuation demanded was a sham and intended to dupe the 1MDB board over the company’s acquisition of the two oil drilling assets. Moreover, the valuation was also needed for external auditors KPMG, which would be auditing the company’s 2013 accounts and needing proof of asset valuation.

Jho Low and his associates had to cover their tracks, as they had made off with 1MDB’s initial investment in a JV with Petro-Saudi International Ltd (“PetroSaudi”) in 2009. Under the JV agreement, 1MDB injected US$1 billion in return for a billion shares, or a 40% stake, in the JV vehicle, 1MDB PetroSaudi Ltd (“1MDB PetroSaudi”).

When the JV proved unsuccessful, 1MDB’s initial US$1 billion investment in 1MDB PetroSaudi was subsequently converted a year or two later into a 49% equity stake in PSOSL — yet another JV that also tanked.

By 2012, however, many quarters were questioning whether 1MDB was truly thriving or in fact mired in debt to the tune of billions of ringgit, as reported by the media.

1MDB’s investment in PSOSL was then “restructured” into an investment in the Bridge-run fiduciary funds.

The restructuring, which was ironically nicknamed “Project No Retail”, was undertaken by Bridge Partners issuing promissory notes to 1MDB for a sum of US$2.318 billion in exchange for the latter’s interest in PSOSL.

The promissory notes were then used by Brazen Sky to subscribe into six segregated portfolios under Bridge Fund, which Kevin described as a set of IOU notes that would not have been found to be good.

“There were numerous red flags because, in the Brazen Sky transaction, a set of IOUs does not stand up to scrutiny at the end of the day,” Kevin said.

He said Yak Yew Chee, a colleague who was BSI’s client relationship manager, had conveyed a threat from Jho Low to the bank to back off and “stop asking too many questions” when they had probed further into the drill ships.

He said the bank chose to be “wilfully blind” to the schemes of Jho Low, as he was the “single-largest client in terms of transaction volume and revenue”. Previously, Kevin had testified that 1MDB contributed a tenth of the bank’s annual revenue.

Kevin said he believed BSI made around US$250 million in fees. This was separate from what it made from Jho Low and his family, who also had accounts with the bank.

“At some point, the BSI board stopped asking questions after Jho Low threatened the bank. At that point, BSI clammed up and followed instructions.” 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.