1Malaysia Development Berhad and Goldman Sachs 2018

Abstract

The world economy slowed down due to the financial crisis in 2008. Malaysia was one of the many countries that are affected by it. In order to stay relevant in the future, the government decided to re-invent the economic growth model. In 2009, the Prime Minister Najib Razak created new state investment firm to function as sovereign wealth fund called 1Malaysia Development Berhad (1MDB). The fund has the mandate to invest in areas of green energy, commercial real estate, tourism and agribusiness. Most of the investments were funded by the use of debt capital through bond issuance. Between 2012 – 2013, 1MDB issued $6.5 billion bonds through the help of Goldman Sachs banker Tim Leissner and the young special advisor, Jho Low to acquire power plants and develop a financial district. The bond transactions and structure were very controversial. The market observer believed 1MDB paid above the market price while the political observer felt that the money raised was to fund the next political campaign. Not to mention the extremely high fee charged by Tim Leissner to help raise the money for 1MDB. Despite the deal being controversial, no authority really pursues and investigate the transaction. In 2015, the financial world was in shocked when 1MDB had accumulated more than 40 billion ringgits in debt and the bonds was in danger of going default. This situation was not normal for a state investment fund. Following the trouble caused by 1MDB, the authority initiated an investigation. The Malaysian public and the authority questioned the conduct of everyone involved and blame the incapability of the boards to detect executive fraud.

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