Former 1MDB CEO Datuk Shahrol Azral Ibrahim Halmi is pictured at the Kuala Lumpur High Court October 24, 2019. — Picture by Firdaus Latif

KUALA LUMPUR, Oct 24 — 1Malaysia Development Berhad (1MDB) was like a fool when it injected US$1 billion into a joint venture, while its Cayman Island-based joint venture partner only put in US$108 million worth of assets instead of the full US$1.5 billion assets into the joint venture, the High Court heard today

Testifying against Datuk Seri Najib Razak in his corruption trial, 1MDB’s former CEO Datuk Shahrol Azral Ibrahim Halmi was asked in court today about a 2009 joint venture deal between 1MDB and Saudi-linked PetroSaudi International Limited’s (PSI) purported subsidiary PetroSaudi Holdings (Cayman) Ltd.

Under the September 28, 2009 joint venture deal, 1MDB was to pay US$1 billion in cash to secure a 40 per cent stake in the joint venture company, while the other company would transfer US$1.5 billion of assets to get a 60 per cent stake.

Shahrol confirmed that PetroSaudi Holdings (Cayman) Ltd had agreed to put in assets in the form of oil fields in Turkmenistan valued at US$3.518 billion and in Argentina valued at slightly over US$108 million.

But Najib’s lead defence lawyer Tan Sri Muhammad Shafee Abdullah said that it was “proven conclusively” in November 2009 that the Cayman Islands-based company never owned the Turkmenistan asset which formed the bulk of their share of the investment.

Shafee: You agree on this figure alone, assuming US$3.5 billion asset, the Turkmenistan asset, disappears under your feet — because I’m going to prove that, leaving only US$108 million, you would have found that you paid US$1 billion for 40 per cent in that joint venture, and they paid US$108 million and they got 60 per cent.

Shahrol: Yes.

Shafee: Interesting position, because we look like fools, 1MDB looked like fools.

Shafee then continued pressing Shahrol to confirm this situation of 1MDB putting in US$1 billion while its joint venture partner in reality only had US$108 million of assets to put in.

Shafee: You agree with me that if the Turkmenistan assets is wiped out under your feet, if it is not PSI’s assets, PSI would only inject into the 1MDB joint venture a round figure of only US$108 million, which is the Argentina assets?

“Correct,” Shahrol replied.

Shafee: 1MDB put in US$1 billion and Arabs said ‘we give you 40 per cent’ because we are very kind, and we 1MDB like fool, Arabs very nice, we took 40 per cent. 1MDB said good, we take 40 per cent, and they put in only US$108 million and they took 60 per cent?

Shahrol: Correct.

Datuk Seri Najib Razak is pictured at the Kuala Lumpur High Court October 24, 2019. ― Picture by Firdaus Latif

Shafee then continued asserting that PSI never owned the Turkmenistan assets in the first place, citing business daily The Edge’s 2015 news report that PSI was only negotiating to buy the assets from its actual owner Buried Hill Energy (Cyprus) Co Limited.

Shafee noted the news report that PSI had signed a negotiation agreement with Buried Hill on July 4, 2009 and that this was terminated on November 23, 2009.

Shahrol however said he had not known in November 2009 that PSI did not own the Turkmenistan assets, adding that he had only found out through news reports and that 1MDB investigators did not tell him of this matter.

Shahrol also said he had yet to read the Billion Dollar Whale, a book on 1MDB that was first released in 2018.

When asked by Shafee if 1MDB “has been cheated” regarding PSI’s ownership of the purported assets, Shahrol said: “If this is correct, yes”.

The paper valuation and internet search

Earlier today, Shahrol confirmed that he had never seen the ownership documents of PSI’s purported assets, and that he also did not recall what were the documents used to transfer the alleged assets into the joint venture company.

Shafee today highlighted the September 20, 2009 letter of engagement for Edward L. Morse to be the valuer of the PSI assets, where it was stated that Morse would not check if PSI actually owned the assets but would only value the assets irrespective of its ownership.

When asked by Shafee if 1MDB did its own work to check if PSI or its subsidiaries truly owned the two assets, Shahrol said 1MDB’s executive director Casey Tang would have been responsible for doing so but said this would not have gone to the extent of doing title searches.

“To the extent of my knowledge, Casey’s team did an internet search and that was it,” Shahrol said, confirming that he was happy with the 2009 search results for both assets purportedly owned by PSI.

Shahrol said the search results showed the Turkmenistan asset’s location in a disputed area and did not show who was the owner, noting: “It was good enough for me because I trusted Casey and I trusted the PSI counter-party”.

When asked why no independent checks on the ownership were done, Shahrol said: “Coming to that, when we signed the deal, PSI was considered a trusted partner and PSI had represented those were their assets.”

Shafee also highlighted that Morse had said the valuation of assets would be a paper valuation based on the values given by PSI and would not be based on site visits, and that Morse was paid US$100,000 by the joint venture company for the valuation services and the eventual valuation report on September 29, 2009.

Shahrol today also confirmed that 1MDB had relied on PSI’s claims that PetroSaudi Holdings (Cayman) Limited was its wholly-owned subsidiary, and had also relied on PSI’s claim of being an investment unit of the Saudi royal family.

Shahrol confirmed that 1MDB did not make its own checks to see if PSI’s claims on these two matters were true or false.

After the joint venture deal was signed on September 28, 2009 and after Morse’s valuation report on September 29, 2009, 1MDB had then on September 30, 2009 paid out US$1 billion for the joint venture that eventually resulted in zero returns for the Malaysian company.

Shahrol had previously testified that the US$1 billion was paid out in the form of US$300 million to the joint venture company and US$700 million company to Good Star Limited.

The prosecutors have said that US$20 million of the US$700 million paid out to fugitive businessman Low Taek Jho’s Good Star was allegedly channelled to Najib.

Najib’s trial before High Court judge Collin Lawrence Sequerah resumes next Tuesday morning, as Monday would be a public holiday in conjunction with Deepavali which will be celebrated on Sunday.