By P. Gunasegaram
1Malaysia Development Bhd or 1MDB, the so-called government strategic investment company, has a new CEO. Will that make an iota of difference to how it will be run? Depends on who the CEO is, who he listens to and whether he will have the power to make changes. Read to find out why Tiger is pessimistic.
The third CEO in two years for 1MDB must mean that things are not all bright and rosy as its chairman Lodin Wok Kamaruddin asserted in a long statement not long ago – in fact just before Christmas.
But barely two weeks later, Lodin himself announced the new CEO with Malaysian investment banker Arul Kanda designated as president and group executive director succeeding Mohd Hazem Abd Rahman who was managing director and CEO.
Not just that, 1MDB said that it will be undertaking “a strategic review to explore a course of action that will allow the company to maximise returns for all shareholders.
“It is time for the company to silence its critics and deliver against its stated objectives, and we intend to examine a full range of strategic and financial alternatives to achieve the greatest value, the outcome of which will be announced in due course.”
Strange words those. Is that final admission that 1MDB has not been delivering against stated objectives and is not achieving greatest value for its shareholders? Is Kanda’s appointment set to change all that? Can it?
Arul Kanda
But first, let’s look at the man himself. According to 1MDB, Kanda “is a senior management leader and investment banker, with extensive experience in structured finance, corporate finance and restructuring across multiple markets including London, the Middle East and Malaysia.
“He joins from Abu Dhabi Commercial Bank (ADCB), where he was executive vice president and head of Investment Banking, having previously worked in leadership positions at Barclays Capital and Credit Agricole.
“Arul, who is Malaysian, is a Board Member of Global Investment House (Kuwait) and Board Member/Investment Committee Member of the ADCB Macquarie Infrastructure Fund. He also served on the Board of RHB Investment Bank Bhd previously. Arul is a UK qualified Barrister, with an LLB from the London School of Economics and an LLM from University College London.”
Yes, impressive credentials, but a person who has mostly been in banking. Now, ADCB, where have we heard that before? And yes, we know RHB Investment Bank where he served as director. Reports say he was also director at RHB Capital and represented the interests of ADCB on the board.
ADCB had bought a 25% stake in RHB Capital in 2008 from the Employees Provident Fund which had to pare down its stake to adhere to banking regulations. It sold its stake in RHB Capital to Aabar Investments PJS, another arm of the Abu Dhabi government.
Aabar is currently a potential spoiler of the proposed merger between CIMB Group and RHB Capital because it has a 21% stake in RHB Capital which it acquired (at that time it acquired a 25% stake) at RM10.80 a share in 2011, when CIMB and Malayan Banking were actually contemplating a takeover offer for RHB Capital.
That deal, basically a swap of the RHB Capital stake from one arm of the Abu Dhabi government to another, and bears no relation to the market price, put paid to any offer that Maybank or CIMB were contemplating in 2011 for RHB Capital, with both banks withdrawing from any bid.
Aabar, a “strategic” investment company, already has very strong links with 1MDB. It is involved in an RM18 billion “strategic” partnership with 1MDB for the development of the Tun Razak Exchange or TRX, a new financial centre in Kuala Lumpur, with much of the capital coming from Aabar.
On top of that Aabar’s parent, IPIC (International Petroleum Investment Company), guarantees US$3.5 billion of 1MDB’s loans taken for 1MDB’s energy acquisitions. And Aabar held an option to subscribe for an initial public offer of 1MDB’s energy assets, whenever that happens. However, it subsequently sold that option for over RM800 million.
That should be sufficient to show Aabar’s clout, and hence the clout of the Abu Dhabi government in Malaysia. Kanda has worked for Abu Dhabi for the last few years and hence his appointment immediately raises questions of whether Abu Dhabi will have too much influence over 1MDB.
It is important that the Malaysian government keep control over 1MDB because of the many deals with the Abu Dhabi state investment agencies that 1MDB has. To have a CEO who is intimate with Abu Dhabi, although a Malaysian, could be a fatal.
Jho low
Recall the young billionaire Malaysian whizz kid Jho Low who is also very intimate with Abu Dhabi, the one who came to fame when he brokered the entry of ADCB into RHB Capital. He was instrumental in the formation of 1MDB itself and therefore was quite intimate with 1MDB too.
One of 1MDB’s unanswered questions is why Abu Dhabi’s state corporations are so involved in 1MDB’s operations. Why, for example, is there any need to get a foreign partner into TRX which is being built on land owned by the government and cheaply allocated to 1MDB?
Surely 1MDB can undertake a property project entirely on its own without having to go to bed with Abu Dhabi partners, hiring whatever expertise is required. What’s the deal here? And does it help the national interest to appoint someone as CEO who is very close to this same Abu Dhabi interests?
Is Kanda the right person to helm 1MDB? Certainly not. He is close – too close – to Abu Dhabi and he cannot be reasonably relied upon to protect Malaysia’s own interests. He may be inclined to listen to Abu Dhabi more and those who pull the string behind the scenes. And the way 1MDB has been operating so far clearly indicates that the CEO does not call the shots. Which respectable CEO will do the things that 1MDB has?
Can Kanda do the job? Given his investment banking experience and evidence that he, like Jho Low, is one smart person, he may be able to restructure operations so that 1MDB is doing better than it has been.
That’s not very difficult. If you stop the previous shenanigans such as loan mispricing, overpaying for assets, paying too much for dubious services rendered by dubious investment firms who have a track record of dubious practices, devolving suspect investments and putting the money in places where they earn decent returns, buying decent assets, etc, it is easily possible to turn 1MDB around.
But will he do all of that? Unlikely. Because if the board and management of 1MDB had been clean, honest and upright, none of these things would have happened in the first place. If 1MDB wants to clean up and re-strategise, the starting point is to find out who did these things at 1MDB, who benefited, who violated the law and bring them all to book.
Surely no one expects Kanda to do that. If he does not do that, he is likely to focus efforts on showing that 1MDB is not losing money and may even make some in future, hoping to indeed silence critics who have been outraged by what is already publicly known.
Who knows what other skeletons lurk in the cupboard and how many more are stashed in the rapidly filling storage spaces before the truth is out about 1MDB.
If the government wants to do the best for 1MDB, and it must as it is the only shareholder in this renegade company, it should send in the auditors to do a thorough investigation, with a brief to bring all culprits to book and recover all money lost. This should be done even as efforts are made to maximise returns from its assets.
The sad thing is, that is unlikely to happen and we can expect Kanda to paper over the losses already incurred in 1MDB. Expect more of the same from 1MDB – unscrupulous people will continue to milk as much out of it as they can for as long as they can simply because they are being allowed to do so.
And they will take much greater pains to hide it.
GRRRRR!!!
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