False Info on 1MDB Relayed to Tun (Part 1) #pakdin.my

1MDB Goldman Sachs

Tun’s “1MDB Story” post (which 1MDB partly rebutted yesterday) is riddled with so many mistakes and errors!

Whoever is advising Tun M on 1MDB should really be more careful and not feed Tun with the wrong facts to mislead and embarrass him.

Who has been feeding the Tun with false info?

Let me point just some of these basic errors out.

In point 7, Tun M said that the RM5billion sukuk in 2009 was never approved by Cabinet.

In point 8 and 9, Tun M said the RM5b loan was raised by Goldman Sachs and the terms were very unfavourable to 1MDB and the Government.

Specifically, he said  Goldman Sachs which was entrusted with raising the loan was given a Commission of 10% and the interest rate was fixed at 5.9% and in point 10, Tun said what this means is the RM5 billion borrowed 1MDB would get only RM4.5 billion. Goldman Sachs would get RM500 million as commission, an inordinately large sum.

In point 11, Tun also said “1MDB would pay 5.9% interest on the whole of RM5 billion. Since it gets only RM4.5 billion the rate of interest on this amount would be 6.6% plus. Goldman Sachs need not pay interest on the RM500,000,000/- it got as commission.”

and then in point 12. Tun said “Loans taken by Government or guaranteed by Government would normally carry 3% interest or less.”

WRONG, WRONG, WRONG, WRONG, WRONG and WRONG!

the 2009 RM5b sukuk WAS tabled and approved by cabinet;

  • Ambank was the arranger for the 2009 RM5b sukuk and NOT Goldman Sachs;
  • the coupon rate was 5.75% and NOT 5.9%;
  •  the discount rate of 12% was to the SUBSCRIBERS of the bond and not a commission to Ambank or Goldman Sachs – which also makes Tun’s point that Goldman Sachs need not pay interest on the RM500mil as moot and frankly, laughable;
  • a discount rate of 12% on the face value of a 5.75% coupon bond gives an effective yield of  6.15% – NOT 6.6% or 7% as claimed by Tun.

Lastly, the effective yield of the May 2009 30 year bond of 6.15% is not grossly overpriced by any measure.  The 12% discount was to increase the effective yield to 6.15% for 30 years while maintaining a coupon rate to 5.75%.

(bonds are discounted to reduce the coupon rate – its just a question of paying more interest upfront and then lower interest throughout the bond OR not discounting as much and paying higher interest payments yearly throughout the bond’s life.

CLICK HERE for an explanation why bonds are sometimes discounted.

In Aug 2009 (3 months after 1MDB’s 30 year bond) Petronas issued US$4.5bil of 10 year bonds that yielded 5.322% (coupon rate of 5.25% and discount of 0.53%).

It is commonly understood that Petronas’ credit rating is two notches better than the govt’s credit rating according to Moody’s.

This makes 1MDB’s effective yield of 6.15% for THIRTY years guaranteed by govt compared to Petronas’ TEN years 5.322% with a credit rating two notches BETTER than govt as not unreasonable.

The longer the bond is, the higher the interest rates payable.

Name of Bank wrong. Coupon rate wrong. Calculate effective yield wrong. Confusing bank commissions with discount to subscribers. Forgot to check comparable bond issues at that time. Comparing interest rates for shorter term tenures vs very long-term tenures. All basic basic mistakes that even a regular cybertrooper can spot.

How is it possible that one single Tun M blog post can make so many BASIC errors just for one simple part where the information has been in the public domain for 6 years already?

I would ask that whoever is advising Tun M to be extra careful and give him the correct info so he can argue effectively without his credibility being questioned.

Written by Lim Sian See

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