1MDB’s RM5b services fees for RM42b loan justified as payment spread over five years, president says

1MDB president and group executive director Arul Kanda Kandasamy speaks during a briefing on 1MDB at the PWTC in Kuala Lumpur, November 14, 2015. — Picture by Yusof Mat Isa
1MDB president and group executive director Arul Kanda Kandasamy speaks during a briefing on 1MDB at the PWTC in Kuala Lumpur, November 14, 2015. — Picture by Yusof Mat Isa

KUALA LUMPUR, Nov 14 — The RM5 billion incurred in charges and services fees for the RM42 billion loan raked up by 1Malaysia Development Berhad’s (1MDB) bonds was nothing out of the ordinary, the state investor’s president Arul Kanda Kandasamy asserted today.

He said 1MDB did not rack up the RM5 billion in fees in one transaction but that the was an accumulation over five years.

“The RM5 billion is not for one year but for five years. We did not get the RM42 billion debt in just one year. As the debt piled up, the fees also piled up,” Arul Kanda told an audience at a public forum on 1MDB here that had asked for an explanation regarding the service fees for its loan.

Arul Kanda also said the total services fees was actually RM2.4 billion and not RM5 billion as its detractors have claimed.

“The fees was only RM2.4 billion and not RM5 billion. Adding it would be RM5 billion so the amount is still less than 10 per cent,” he said.

In a breakdown of the RM42 billion debt it provided to the public previously, 1MDB said up to RM5.8 billion was allocated for “cost of finance”, services charge and tax.

The revelation triggered suspicion of foul play as the interest rate charged for the loan to 1MDB and guaranteed by the federal government, was above the standard rate of 3 per cent.

One of the fund's fiercest critics, former prime minister Tun Dr Mahathir Mohamad, said the interest and services charge 1MDB was paying translates into nearly RM350 million a year or almost RM1 million a day.

There was also controversy over the high commission 1MDB paid to US-based investment bank Goldman Sachs for underwriting its bonds in 2013 ― US$539 million or close to RM2.5 billion.

Goldman Sachs has come under fire for the fees it charged for helping 1MDB raise funds through bond offerings.

Reuters reported last month that the New York based investment bank earned an estimated US$590 million (RM2.5 billion) in fees, commissions and expenses from underwriting the bonds, an amount critics described as exorbitant for being way above the standard rates.

Goldman Sachs claim its profit on the 1MDB bonds came from the private nature of the deals, and the risk the bank took in buying some of these bonds and then selling them to clients.

NOTE: An earlier version of this report mistakenly left out the range of charges and services covered under the RM5 billion incurred by 1MDB. Malay Mail Online apologises for the error, which have since been corrected.

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