8 Nov 2015
Reproduced with permission
In 2012, 1MDB put $2.32 billion of what it said were proceeds from its PetroSaudi investment into a Cayman Islands-registered entity called Bridge Global Absolute Return Fund SPC. According to 1MDB, that money included its initial $1 billion investment, plus a later investment of about $800 million and profits it earned in the venture. The Bridge Global fund was set up only weeks before it received the 1MDB money, according to documents from the Cayman Islands corporate registry that don’t say who set it up.
In testimony in June to the parliamentary committee investigating 1MDB, a representative from current auditor Deloitte Touche Tohmatsu Ltd. said the money in Bridge Global at that time was managed by Avestra. Australia’s regulator says Avestra became an “investment adviser” to Bridge Global in March 2014. It is unclear whether Avestra had any prior connection to Bridge Global or if it still has a role at the Cayman Islands fund…..
Opposition politicians and even some members of Malaysia’s ruling party, however, have wondered why 1MDB would keep so much money in a little-known fund….. 1MDB’s auditor, KPMG LLP, was fired in December 2013 by Mr. Najib, who is chairman of 1MDB’s board of advisers, after it refused to sign off on the Malaysian fund’s financial accounts without more details on the investment in Bridge Global, according to the auditor general report.
To enable Deloitte to sign off on its books after KMPG was fired, 1MDB got [Aabar].. to guarantee the investments in Bridge Global, a Deloitte auditor told the Malaysian parliamentary committee…
Soon after, 1MDB used its investment in Bridge Global as collateral for a $975 million loan from a group of banks including Deutsche Bank. Questioning its collateral after already giving the loan, the banks pressed 1MDB to pay back the loan just nine months after it was issued, according to Malaysia’s finance ministry.
The Abu Dhabi firm IPIC [Aabar] stepped in again. It agreed to take over some of 1MDB’s debt, including the Deutsche Bank loan, in return for equity, under the terms of an agreement signed in May with the Malaysian fund.
Last year 1MDB said it had redeemed roughly $1.22 billion of its $2.32 billion investment in Bridge Global. Officials at 1MDB said the remaining investment of just over $1 billion will be handed over to Abu Dhabi’s IPIC as compensation for helping it repay the Deutsche Bank loan. [Wall Street Journal November 3rd]
At a news conference on Saturday [Oct 31st], 1MDB Chief Executive Arul Kanda .. called the deal in May with IPIC, which also includes the Abu Dhabi fund taking over other bonds issued by 1MDB, “the final piece of our rationalization.”
The transfer of the remaining Bridge Global investment to IPIC isn’t scheduled to occur until next year, according to the agreement. Any shortfall in the value of the Bridge Global investment may have to be covered by the Malaysian government, according to the terms of the May agreement with IPIC.
1 MDB is reported to have invested USD 2,2 billion in Bridge Global Absolute Return Fund SPC segregated portfolio units in August 2012.
However, the Cayman Islands Monetary Authority’s list of mutual funds shows that the only fund named ” Bridge Global Absolute Return Fund SPC” was issued its license on 15 November 2013, more than a year AFTER 1 MDB is reported to have made its investment.
Without that license, Bridge Global Absolute Return Fund SPC would not have been able to accept funds for investment as an entity subject to the laws of the Caymans and it is doubtful if it would have otherwise existed. Even if it was in existence before that date, 1 MDB could not have dealt with it given its lack of standing