THE RM4 billion loan from Retirement Fund Inc (KWAP) to SRC International was rushed through and approved despite violating rules that would normally result in the loan application being rejected, the Kuala Lumpur High Court heard today.

KWAP senior officer Amirul Imran Ahmat testified that he was under pressure to expedite the second loan application of RM2 billion by March 28, 2012.

SRC International had already received a RM2 billion loan on August 26, 2011 via four tranches of RM500 million each.

“There was a lot of pressure from management to expedite the application,” Amirul testified at Najib Razak’s SRC International trial today, adding that he was made to rush to multiple meetings in early 2012.

The former assistant vice-president of KWAP’s fixed income department said the loans were eventually approved despite a violation of paragraph 5 of KWAP’s investment policy and guidelines.

“This is because the loan to SRC exceeded the equity of the shareholder, that is SRC, which only had equity worth RM1 million, but the requests for loans amounting to RM4 billion were approved.”

Amirul testified that the first RM2 billion loan in 2011 also breached Paragraph 2 of KWAP’s investment policy and guidelines which states that the the total KWAP investment in the form of loans cannot exceed 10% of the allocation for domestic fixed income investments.

He added that loans to SRC International did not require KWAP’s investment panel to make exceptions as they were government guaranteed.

The witness also noted that the money borrowed from KWAP can only be used for the purposes stated in the loan agreements and doing otherwise would violate the agreement terms and could result in an “event of default”.

KWAP can then claim back the principal owed plus interest, Amirul said.  

“Based on both the loan agreement and the additional agreement for the second loan, the money borrowed from KWAP cannot be used for the purposes of ‘corporate social responsibility’ as social work, charity and political work are not stated in both agreements for loans amounting to RM4 billion.” 

Amirul said the agreement for the first loan of RM2 billion was for working capital and general investment only, and the second loan was for investment into natural resources.

During examination by deputy public prosecutor Ishak Mohd Yusoff, Amirul told the court he was informed that the ownership of SRC International was transferred from 1Malaysia Development Bhd (1MDB) to the Ministry of Finance Inc on March 13, 2012.

SRC International CEO Nik Faisal Ariff Kamil informed him in an email that the transfer was completed and the memorandum of transfer sent to KWAP, Amirul said.

The following day, he received an email from former executive director of finance Terence Geh, who referred to a letter from Nik Faisal regarding a request another RM2 billion loan.

Nik Faisal wanted approval to obtain a further RM2 billion term financing from KWAP secured by a 10-year government guarantee.

KWAP’s fixed income department director Ahmad Norhisham received a copy of a SRC International resolution at a meeting attended by Geh and SRC International liaison officer Zahid Taib on March 14, 2012, he said.

The following day, Amirul emailed Geh and Zahid a request for an investment plan (utilisation of the additional financing proceeds) status report as of February 29, 2012 and confirmation of the repayment terms and capitalisation of interest.

On the same day, Zahid replied, saying the additional RM2 billion was to invest in natural resources. Zahid also said he was requesting for reduced interest rate for the loan, considering SRC International was by now owned by MoF Inc.

Zahid proposed the same interest rate as Malaysian government securities (MGS) at the time plus 85 basis points (bps) for the first three years and MGS + 65 bps for the subsequent term of the facility.

Amirul said he was then directed by Ahmad to prepare an investment panel paper to decide whether to approve the loan.

He said he was informed on March 22, 2012 by then KWAP CEO Azian Mohd Noh that the latter had met Najib, Wan Abdul Aziz and then Treasury secretary-general Mohd Irwan Serigar Abdullah.

The group discussed one of the loan conditions, which is regarding its progress payment.

Amirul referred to an email sent by Nik Faisal to Azian, stating that Najib met with the SRC International CEO and that SRC International must have the same loan agreement as the previous RM2 billion received in 2011.

Following this, Amirul said he was directed by Ahmad to prepare a panel circular paper to approve the loan.

Amirul was the one who approved the transaction method of progress payment to one lump sum, as requested by Najib.

In an email dated March 22, 2012, Nik Faisal told Amirul that the funds were used to invest in ETT, which Nik Faisal described as having a potential initial public offering (IPO) in the short term.

ETT would have a potential investment of US$200 million in a convertible debt with one year maturity yielding a minimum expected return 16%. Nik Faisal noted that “this will be the world’s largest coaking coal listing”.

Aabar’s first mention

Nik Faisal elaborated, in a separate email to Amirul, that the money for ETCC is a separate investment transaction from the US$200 million earmarked for investment in Mongolia under the first facility.

Nik Faisal also mentioned another foreign investment firm that would be participating.  

“The expectation is that Aabar will commit US$200 million and SRC will commit a matching US$200 million on the convertible debt.” 

Another investment was the Electrum Group, which supposedly had a potential IPO in the medium term. Nik Faisal said the investment structure would likely be a convertible debt or equity that has a guaranteed minimum return and potential equity upside.

“The potential investment in Electrum could be up to US$500 million for the first tranche at the holding company and another US$1 billion at various subsidiary and associate company levels,” Nik Faisal said in the email to Amirul.

“This will be jointly done with Kuwaiti Investment Authority, Mubadala Development Company (owned by the Abu Dhabi government) and offers blue-chip investors.

“We are also studying various investments under our JV (joint venture) with Aabar on a global basis and with other parties but these investments are still in the due diligence stage, so we do not feel it is appropriate to discuss until we have completed our due diligence,” Nik Faisal said in the email.

“Again, we would appreciate if you could kindly handle the information on ETT and Electrum with care as it its extremely price sensitive and spans across governments and various stock exchanges. We are in the advanced discussions for terms of these investments,” he added.

Najib is represented by a dozen lawyers led by Muhammad Shafee Abdullah. Attorney-General Tommy Thomas leads the prosecution while justice Mohd Nazlan Mohd Ghazali is presiding. – May 6, 2019.