Malaysia to Dissolve Najib’s 1MDB Advisory Board Amid Probes

Malaysia to Dissolve 1MDB Board Amid Probes
  • Malaysia to accept resignation of 1MDB's board of directors
  • Hong Kong accounts remain frozen as part of 1MDB probes

Malaysia will dissolve the advisory board of 1Malaysia Development Bhd. headed by Prime Minister Najib Razak, amid global probes into alleged money laundering and embezzlement at the state fund.

The announcement comes as Hong Kong bank accounts belonging to several unnamed individuals remain frozen as part of the investigations into 1MDB’s finances, according to people with knowledge of the matter. The troubled fund, which defaulted on a $1.75 billion bond last week, is asking investors to hold off any request for early repayment on its Islamic debt, a person familiar with the matter said.

Najib has faced calls from opposition politicians and former leader Mahathir Mohamad to resign as prime minister over alleged mismanagement at the fund, even as both he and 1MDB have consistently denied wrongdoing. The Minister of Finance Inc., the shareholder of 1MDB, said the board will resign May 31, according to an e-mailed statement on Wednesday, while Arul Kanda will remain company president.

The departure of the advisory board may put some space between 1MDB’s troubles and Najib, who has faced a separate political scandal over a $681 million donation that appeared in his bank accounts before the 2013 general election. The government said the money was a personal donation from the Saudi Arabian royal family and most of it was later returned.

‘Mere Resignation’

Still, “mere resignation does not confer absolution -- instead the findings of investigations are what will prove conclusive,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “As for PM Najib, the good news is that neither domestic investigations nor foreign inquiries have thus far implicated him explicitly.”

1MDB withheld a $50 million coupon payment last week amid a wider dispute with Abu Dhabi’s International Petroleum Investment Co. or IPIC, the co-guarantor of the bonds, and the missed payment triggered cross defaults on 7.4 billion ringgit ($1.9 billion) of 1MDB debt.

Kanda “will continue to focus on his specific mandate to implement the rationalization plan, which will include resolution of the recent contractual dispute with IPIC,” the Ministry of Finance said, and it will “will appoint new board members to reflect the limited business profile of 1MDB.”

Acceleration Process

1MDB has submitted a request to the trustee of the 7.4 billion ringgit of sukuk for a waiver on the "acceleration process" for the bonds, the person familiar with the matter said, asking not to be identified because the information isn’t public. The fund needs the support of at least 25 percent of bondholders for the waiver, the person said.

The fund is at the heart of investigations at home and abroad, including in Switzerland, the U.S. and Singapore, over allegations it was used to funnel money to politically-connected individuals. The frozen Hong Kong bank accounts are being probed by authorities in countries outside of Malaysia, such as Singapore, the people said, asking not to be identified because of the sensitivity of the matter.

Authorities in Singapore also said in February they had frozen “a large number” of accounts in connection with possible money-laundering related to the 1MDB probe. They have charged two men following investigations into their dealings with the fund and related entities. Prosecutors there describe the probe as its “most complex cross-border investigation.”

Hong Kong’s anti-corruption agency and the police said they don’t comment on individual cases. Officials from the trustee of the sukuk and 1MDB couldn’t be reached for a comment.

Authorities in other countries such as Switzerland are examining claims that 1MDB was used to funnel money to individuals. A Malaysian parliamentary committee had identified at least $4.2 billion of irregular transactions by the fund, and recommended the advisory board headed by Najib be disbanded.

Special Report: Malaysia 1MDB Controversy

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