KUALA LUMPUR, May 7 — Putrajaya’s guarantee of a second RM2 billion loan that SRC International Sdn Bhd wanted to borrow from Retirement Fund Incorporated (KWAP) was the single selling point behind the civil servants’ pension fund’s eventual decision to approve the 2012 loan, the High Court heard today.
During Datuk Seri Najib Razak’s trial over SRC International’s funds, prosecution witness Amirul Imran Ahmat agreed when asked if the government guarantee was the “only selling point” for the 2012 loan.
Amirul affirmed this when asked by Najib’s lawyer Harvinderjit Singh, also confirming that the government guarantee was already mentioned when SRC International applied for this loan in 2012.
Amirul Imran was the KWAP official that drafted the paper for the proposed RM2 billion loan as a proposed investment for KWAP’s investment panel to consider.
Citing the investment paper’s contents Harvinderjit had earlier asked: “You drew a lot of emphasis that there was a government guarantee to mitigate payment?”
“Yes,” Amirul Imran replied.
Amirul Imran is the 29th prosecution witness in Najib’s ongoing trial involving seven charges of abuse of position, criminal breach of trust and money-laundering involving RM42 million of SRC International’s funds.
Amirul Imran had previously testified of how SRC International had as a 1Malaysia Development Berhad (1MDB) subsidiary obtained a RM2 billion loan from KWAP in 2011, and that SRC International which then came under the Finance Ministry’s Minister of Finance (MoF) Incorporated ownership had in 2012 obtained a second RM2 billion loan from KWAP.
During his testimony, Amirul Imran appeared to hint at his belief of KWAP’s seemingly reluctance to give out the second RM2 billion loan in 2012 to SRC International.
Amirul Imran confirmed that Zahid Taib — whom he described as a “multi-purpose guy” to SRC International director Nik Faisal Ariff — had in March 2012 emailed to propose a reduced interest rate for the second RM2 billion loan from KWAP.
Citing SRC International’s new status as a company fully owned by MoF Inc and the latter’s advice, Zahid proposed that the 10-year RM2 billion loan be at a rate of Malaysian Government Securities+85 basis points for the first three years and MGS+65 basis points for the remaining years, which was lower than the first RM2 billion loan’s repayment rates.
Amirul Imran disagreed that Zahid’s proposed interest rate was “relatively lower” than the market rate, saying: “No, for a government-guaranteed loan, it is above market rate.”
Amirul Imran had however went on to prepare a proposed investment paper for the government-backed RM2 billion loan for the KWAP investment panel’s consideration, but with a higher interest rate than asked for by SRC International.
Harvinderjit: Why did you propose a higher interest rate?
Amirul Imran: We hope to price them out.
Harvinderjit: You hope if the rate is higher, they would say no?
Amirul Imran: Yes.
Harvinderjit: It’s not there in the recommendations.
Amirul Imran: Some things cannot be said.
Harvinderjit then noted that SRC International had in a resolution by its company directors said it was agreeable to “comparable or better interest rates” for the second RM2 billion loan, which Amirul Imran confirmed.
Harvinderjit had pointed out that the second RM2 billion loan’s proposed interest rates was the same as the first RM2 billion loan.
Amirul Imran later testified that SRC International’s Nik Faisal and 1MDB official Terrence Geh had provided “nothing of merit” when sharing presentations to him on SRC International’s proposed investments to justify the RM2 billion loan, adding that the duo had in a meeting with him avoided talking directly about any specific investments.
The letter of guarantee for the second RM2 billion loan was signed off by then finance minister and then prime minister Najib, Amirul had yesterday testified.
Amirul Imran, who was the assistant vice-president of KWAP’s Fixed Income Department, had also drafted three papers for the proposed first loan to SRC International before it was finally approved.
For the first loan, SRC International had initially applied in June 2011 for a RM3.95 billion loan from KWAP with 1MDB to be the loan’s guarantor.
But Amirul Imran had drafted the first paper with a proposal to limit KWAP’s loan to SRC International to only RM1 billion.
When asked by Harvinderjit if the RM1 billion loan cap was proposed since 1MDB would be the guarantor, Amirul Imran replied: “No, more like we have no choice, so RM1 billion at least.”
When asked to confirm that the KWAP investment panel did not approve the RM1 billion loan, Amirul Imran replied: “It was deferred. They would have just rejected if they had a choice.”
Amirul Imran confirmed however that he could not speak for KWAP investment panel as he was not part of the panel.
Harvinderjit also asked: “When you are saying they would have rejected if they have the choice, it’s your personal opinion?”, with Amirul then saying: “Yup.”
Apart from proposing a limit to KWAP’s risk at RM1 billion, Amirul Imran had also then suggested that any risk involved in SRC International’s repayment could be mitigated by seeking a government guarantee. He confirmed the government guarantee idea was not part of SRC International’s initial proposal.
After the investment panel deferred its decision and after SRC International furnished additional information, Amirul Imran testified to having prepared a second investment paper that this time proposed a RM2 billion loan amount.
Amirul Imran confirmed that he had noted in the investment paper that the weakness of the proposed loan was that payments were expected to be generated from SRC International’s profits in the latter’s planned investments, also agreeing that he had not found anything “concrete” from documents provided on the investments.
Amirul Imran testified that he had in the paper said KWAP’s “over-concentration” of risk could be mitigated as SRC International was expected to receive government support.
He confirmed he had proposed the RM2 billion loan with the two options of getting a government guarantee, or a corporate guarantee from 1MDB and a “letter of comfort” from the Finance Ministry.
Based on meeting minutes where the second paper was presented, Amirul Imran confirmed KWAP’s investment panel did not agree to the proposed loan terms and had even raised multiple issues.
Among issues raised by the KWAP investment panel was the relatively large sum of the RM2 billion loan in relation to SRC International’s RM2 capital, overconcentration of risks, queries regarding SRC International’s capability to engage in investment activities over natural resources which required a “high level of expertise”, as well as the opinion that the RM2 billion should not be released in one lump sum.
The investment panel finally agreed to the RM2 billion loan with the two options of giving the funds to 1MDB with a government guarantee to be sought, or for the funds to be given directly to the government.
Although an attempt was made under the second option but was abandoned as the funds would go into the government’s consolidated funds and there would be difficulty in channelling the funds to SRC International, Amirul Imran said.
After KWAP received an August 12, 2011 letter from SRC International that sought a direct RM2 billion loan as the latter said it was 1MDB’s wholly-owned subsidiary and had received a government guarantee, Amirul Imran finally prepared a third paper for RM2 billion that was presented to the investment panel.
“The entire strength of the investment paper is on the basis that the government had already agreed to securitise this,” Harvinderjit asked, to which Amirul Imran said “yes”.
This third investment paper was finally approved in 2011 for the RM2 billion to be borrowed by SRC International, with Amirul Imran previously also testifying that the government guarantee letter for this first loan was signed by then Finance Minister II Datuk Seri Ahmad Husni Hanadzlah.
Amirul Imran had yesterday testified that he was put under a lot of pressure to speed up the loan process for SRC International.
He had also previously testified that all RM4 billion from the two loans in 2011 and 2012 had already been transferred from KWAP to SRC International.
The trial before High Court judge Mohd Nazlan Mohd Ghazali resumes tomorrow, where Amirul Imran is expected to be further cross-examined.