KUALA LUMPUR, Oct 30 — Datuk Shahrol Azral Ibrahim Halmi said today he felt 1Malaysia Development Berhad (1MDB) had to proceed with a new deal with purported business partner PetroSaudi International despite having gained nothing from an earlier “investment” of US$1 billion in cash, owing to the idea that their business relations was tied to the relationship between Malaysia’s and Saudi Arabia’s governments.
1MDB former CEO Shahrol disagreed with Datuk Seri Najib Razak’s lawyer Tan Sri Muhammad Shafee Abdullah’s suggestion that the new deal was an “idiotic decision” or a “hare-brained scheme” that 1MDB fell prey to.
Shahrol had previously testified that 1MDB had received nothing back from the US$1 billion “investment” it placed in September 2009 into a joint venture deal with Saudi-linked PetroSaudi International Limited’s (PSI) purported subsidiary PetroSaudi Holdings (Cayman) Limited.
The US$1 billion was paid by 1MDB for a 40 per cent stake in the joint venture company 1MDB PetroSaudi Limited, but the joint venture firm was inactive from October 2009 to February 2010.
The US$1b conversion and US$1.5b offer
Today, Shahrol confirmed 1MDB board of directors’ signing off on a March 22, 2010 resolution, where the directors approved the idea of converting the US$1 billion worth of 1MDB shares in the joint venture company into a US$1.2 billion Islamic financing loan — through Murabahah notes — to the joint venture company.
Under this idea, 1MDB was to sell its shares worth US$1 billion to the joint venture company, with the latter to not pay in cash when buying over the shares but to take on the newly-created US$1.2 billion debt to 1MDB. (This would mean 1MDB would in the end get a profit of US$200 million on paper, but not receive actual money.)
The 1MDB directors had also in the same resolution approved the idea of making available yet another US$1.5 billion for the joint venture company to borrow if it wanted to.
When asked who came up with this scheme, Shahrol said Najib’s purported adviser Low Taek Jho had emailed him the details, and that this idea was from a discussion by Low, 1MDB chief investment officer Nik Faisal Ariff Kamil, PSI CEO Tarek Obaid and PSI official Patrick Mahony.
Quizzed by Shafee, Shahrol said he did not know that a company cannot purchase its own shares and confirmed he did not check if 1MDB PetroSaudi Limited could do so by buying shares in itself from 1MDB.
When asked if the idea to convert US$1 billion into the Islamic loan and to offer another US$1.5 billion “made sense” when no actual money went back to 1MDB, Shahrol said: “I didn’t question that. I left it to Jho and Nik at that time because I also believed at that time that they were in communication with Datuk Seri Najib and also the stakeholder on Saudi side to come out with a solution that would make sense.”
“I didn’t question it then because I saw it as something of a bigger G2G picture. Now, given everything that has happened, it doesn’t make sense,” Shahrol said when pressed further, referring to his impression that the deal between the two companies was linked to a government-to-government (G2G) relationship.
Shafee then suggested that the whole idea was a “nonsensical idea” and that one would not need economics or accounting background to see through this as a “hare-brained scheme”.
Shahrol, who is an engineering graduate, then replied: “Well, at that time it didn’t seem to me a hare-brained scheme.”
While acknowledging the points that Shafee highlighted of the new deal, Shahrol said it had to be distinguished between what was known then and what is known today based on evidence that has been revealed.
“The things we know today is much more than yesterday, I think it will be extremely prejudicial to mix these things up, ‘you knew this and you made this idiotic decision,” Shahrol said, having admitted numerous times during trial that he had not known of the lies and misrepresentation told to him when he was 1MDB CEO from 2009 to 2013.
Shafee: It’s between the devil and deep blue sea, either it was an idiotic decision or decision to cheat 1MDB and the company was made to look like an idiot, and you were at the centre of things, you are the CEO.
Shahrol: That is just a statement from you stating your opinion.
The Saudi-Malaysia ties
Shahrol also disagreed with Shafee’s suggestion of having intentionally “covering” his eyes to the idea that the joint venture was only backed by 1MDB’s US$1 billion cash and were not backed up with the US$1.5 billion worth of assets that PSI was supposed to put in.
“I disagree because you left out the very important factor that set the thinking of myself and other members of the board. This was represented as G2G deal and Datuk Seri Najib himself has personally intervened on the September 26 board meeting, given us the comfort that this was important,” Shahrol said. (Shahrol had previously said Najib made a phone call to the 1MDB chairman just before a September 26, 2009 meeting where 1MDB then decided to enter into the joint venture deal.)
Shahrol again stressed that he did not view the new deal to convert 1MDB’s US$1 billion into US$1.2 billion Murabahah notes as “suspicious”.
“I felt we had no choice but to execute this deal to change it in a way that was presented to us. Again the context was that this was something important to the country.
“We covered this before, on Haj quota, I felt at that time this was part of something bigger for the country, it is G2G, it is the relationship between 1MDB and PetroSaudi that plays an important role in the strategic relationship of the two countries. So that’s why a lot of these odd things I didn’t think to question at that time,” he said, adding that he only viewed the deal as having odd aspects now.
Shahrol had previously testified how the joint venture where 1MDB pumped in US$1 billion was built on the relationship between then prime minister Najib and the Saudi ruler King Abdullah, noting that Low had told him that the deal was viewed by the Saudi king as a “friend helping a friend”.
Shahrol had previously also said Low had claimed the positive benefits of the alleged G2G deal as being increased quotas for Malaysians to go on the Muslim pilgrimage to Saudi Arabia as well as in terms of enhanced security cooperation.
The trial before High Court judge Collin Lawrence Sequerah resumes tomorrow at 2.30pm.
Najib’s trial involves 25 criminal charges — four counts of abusing his position for his own financial benefit totalling almost RM2.3 billion allegedly originating from 1MDB and the resulting 21 counts of money-laundering.
