SRC International Sdn Bhd still owes Retirement Fund Inc (KWAP) RM4.15 billion in principal debt plus interest for unpaid government-guaranteed loans issued in 2011 and 2012, the court heard today.

Afidah Azwa Abdul Aziz, a strategic investment deputy secretary with the Finance Ministry, told the Kuala Lumpur High Court that the debt will be settled by 2022, or 10 years after the second credit facility of RM2 billion was disbursed.

“Up till now, the government is still paying the loan debt from KWAP to SRC International, and this will continue until the principal debt plus interest are fully settled.”

Afidah, 44, who is the prosecution’s 41st witness, said SRC International owes the government RM650 million after the Finance Ministry bailed out the entity three times following its failure to settle its debt in time.

She said the government issued a loan agreement of RM92 million on November 6, 2015, standby credit of RM250 million – of which RM213 million was used – on September 27, 2016 and loan agreement of RM300 million on December 13, 2017.

She said the loan agreements were made out to prevent KWAP from declaring an “event of default”, which would require the government, as the guarantor, to settle the loans of RM4 billion within 30 working days.

The loans were disbursed by KWAP to SRC International on August 29, 2011 for the first RM2 billion, and on March 28, 2012 for the remaining RM2 billion.

A government guarantee is a contingent liability, whereby the government bears the costs of the principal debt and interest should the company fail to settle its loan repayment, said Afidah.

She said for a government guarantee to take place, the strategic investment division would call in representatives of a company to state the purpose and form of the loan, explain the background of the project, and provide the company’s cash-flow records.

“However, for the SRC International application, the company was not called by MoF (Finance Ministry) to explain further because the company itself came to MoF to explain the urgent need for the government guarantee.”

She said SRC International CEO Nik Faisal Ariff Kamil came to the ministry on August 15, 2011. He was accompanied by one Zahid Taib and two others.

Afidah testified that she was ordered to prepare a cabinet memorandum to be presented at a meeting on August 17, 2011, which was a Wednesday.

The memorandum was addressed from the Treasury chief secretary to Nor Mohamed Yakcop, who was minister in the Prime Minister’s Department (Economic Planning Unit) at the time, she said.

She said this was out of the norm, as memoranda of government guarantees are usually addressed to the second finance minister.

“However, the order from my division secretary was for the memorandum be sent directly to Nor Mohamed Yakcop.”

She said all the information in the memorandum was obtained from the SRC International representatives.

Afidah said this is “normal practice” as the ministry usually has to review the information provided by companies.

“But because we were chasing time… I had to rely on the information provided by the SRC International representatives.”

She said the letter of guarantee for the first RM2 billion loan was signed off by second finance minister Ahmad Husni Hanadzlah.

Afidah said she met Nik Faisal again on February 2, 2012 to discuss SRC International’s second RM2 billion loan.

A second memorandum was prepared and sent to Husni on the same day, she said, adding that it was later sent to former prime minister Najib Razak and agreed to on February 3, 2012.

She said the memorandum was approved by Najib in his capacity as finance minister.

“Normally, the MoF procedure for any memorandum would be for it to be approved by the second finance minister only.”

She said the second letter of guarantee relating to SRC International’s second loan was signed off by Najib on March 27, 2012, a day before the money was disbursed.

Problems with repayment of the loan arose in March 2015, when interest for the debt was not settled.

Afidah said KWAP wrote to the Finance Ministry on August 28, 2015, demanding that the interest be settled immediately, or else, an “event of default” would be declared.

KWAP wrote again on September 28, 2015, threatening to declare such an event. The amount in interest owed, said the letter, was RM100.8 million.

The ministry then agreed to provide a loan of RM92 million to SRC International to settle the interest.

Afidah said the Finance Ministry also agreed to provide “stand-by credit” of up to RM250 million on September 27, 2016, to pay off the interest of accumulated debt. Of the amount disbursed, RM213 million was used by SRC International.

In 2017, SRC International again requested the government for a loan of RM300 million to pay off the interest and principal debt it owed to KWAP, as the former had failed to meet its debt obligations up till March that year.

For the RM300 million loan agreement, an internal memorandum was prepared on June 7, 2017, from the Treasury deputy chief secretary (investment) to the finance minister.

The memorandum explained that the loan agreement must be approved to prevent an “event of default”, upon which, the government would have to settle the RM4 billion debt in 30 working days.

The loan agreement was signed by Dr Mohd Isa Hussain, representing the government, and Nik Faisal.

Afidah said of the RM300 million, RM290 million was used by SRC International.

“As far as I know, SRC International never paid MoF back for the RM300 million loan.”

Najib’s charges in this trial relate to the RM4 billion loans to SRC International, for which he is accused of receiving RM42 million in his personal bank accounts in 2014 and 2015.

He faces three counts of criminal breach of trust, three counts of money-laundering and one count of abuse of power. If convicted, he faces up to 20 years’ jail.

The 66-year-old is represented by a dozen lawyers led by Muhammad Shafee Abdullah.

Attorney-General Tommy Thomas leads the prosecution, while justice Mohd Nazlan Mohd Ghazali presides over the trial. – June 19, 2019.