Land deal, 1MDB debt payment — a stain on BNM

BNM has to be transparent to reinstate the institution’s integrity and independence


The central bank’s purchase of a piece of land — which the proceeds had been used to service 1Malaysia Development Bhd’s (1MDB) debt — has left a stain on the regulator’s image, said former Treasury deputy secretary general Tan Sri Dr Ramon V Navaratnam.

Ramon, who is the director of Asian Strategy and Leadership Institute, said following the latest revelation, it is important for Bank Negara Malaysia (BNM) to provide a full explanation and quickly work on restoring its image.

“Personally, the central bank should not be involved in this kind of matter. It was dubious from the beginning. Now that there is evidence of improper conduct, it appears even worse,” he told The Malaysian Reserve.

Ramon said BNM has to be transparent on the matter to reinstate the institution’s integrity and independence.

“Otherwise, this will have implications on investments and adversely impact the exchange rate. The sooner they address this, the better,” he said.

Finance Minister Lim Guan Eng last Thursday confirmed that the money raised from two state entities were used to service 1MDB’s debt obligations to Abu Dhabi’s International Petroleum Investment Co (IPIC) last year.

Lim said the previous administration had used the RM1.199 billion preferences shares redemption by Khazanah Nasional Bhd and the RM2.07 billion land sale to BNM to pay the RM5.05 billion settlement agreement made with IPIC.

The confirmation contradicted 1MDB’s claim last year that it raised the money from an “ongoing rationalisation programme” and the selling of assets like power plants and land.

Lim said Khazanah and BNM will be queried about their involvement in the 1MDB bailout.

BNM earlier last Thursday defended the 22.5ha land deal, claiming it was conducted as an arms-length transaction and transacted at fair value as determined by an independent private sector valuer.

“The transaction complied with all the governance requirements and relevant laws that govern the bank. The bank shall continue to be transparent on this matter,” said BNM.

BNM also said it had extended the information related to the transaction to the Malaysian Anti-Corruption Commission for a complete and independent review.

Speculation was rife early this year when news of the land purchase was announced due to the transaction dates of the land deal and IPIC settlement.

BNM governor Tan Sri Muhammad Ibrahim was reported as saying that the proceeds were used to make the final payment. He said: “That is the government’s business (on how it uses the proceeds).”

Meanwhile, Federation of Public Listed Companies Bhd president Tan Sri Megat Najmuddin Megat Khas said the current government needs to look at the land transaction sum and ascertain the fair value.

“To be fair, we have to investigate. I am not too comfortable with the way the finance minister addressed the issue. I think a solution is needed, not just fault finding,” he said.

Megat Najmuddin said the deal did not appear to have any flaws as it was arrived at a “willing buyer willing seller” basis.

“I think the price is neither too cheap nor too expensive. It is a fair value for a 2.4 million sq ft prime land in Kuala Lumpur (KL),” he added.

Megat Najmuddin said although it is important to be clear about the nature of the deal, the government should also be tactful in their approach.

“They have to be mindful with their words because what they say affects businesses, especially on Bursa Malaysia. The stock exchange acts as a monitor. If it is not normal, then it will be bad for us. You have to look at ways to cure the problem, not exaggerate it,” he said.

The general criticisms were not about the transaction value, but why an agency owned by the government paid such a high premium for a land owned by the administration. 1MDB bought the 28.3ha land, which now housed the Tun Razak Exchange development in the heart of KL’s commercial area, from the government for RM230 million in 2010.

Meanwhile, the local stock market stopped the four-day losing streak last Friday. The index fell to a five-month low last Thursday and below the 1,800 support level.

Critics pointed to the new administration’s blunt approach in disclosing the nation’s alarming debt rate and the ongoing probe on Datuk Seri Mohd Najib Razak as reasons behind the market slump.

Ramon said the market reaction is temporary and will eventually pick up once the country’s foundation has been strengthened.

“It is better that we come out once and for all, and have a clean state, or else the new government will have to bear the sins of the past and it will be very difficult for them to move forward,” he said.

“They should do it in a big way and clear up the mess completely.”