Auditor general report on 1MDB

CONTENTS

Introduction executive summary Page 2

CHAPTER 1 INTRODUCTION Page 12

CHAPTER 2 ISLAMIC MEDIUM TERM NOTES, EQUITY Page 22INVESTMENT, MURABAHAH NOTES AND PORTFOLIO FUNDS

CHAPTER 3 INVESTMENT IN THE SRC GROUP Page 65

CHAPTER 4 1MDB GROUP PROPERTY Page 78INVESTMENT

CHAPTER 5 INVESTMENTS IN 1MDB GROUP Page 165ENERGY SECTOR

CHAPTER 6 1MDB GROUP FINANCIAL Page 273CONFERENCE

CHAPTER 7 CORPORATE GOVERNANCE AND Page 354INTERNAL CONTROL

CHAPTER 8 SUMMARY Page 382

Auditor general report executive summary14 July 2016

This is the translated Executive Summary.To see the full report in Malay click on this link.

1. Introduction1.1 BackgroundCabinet had decided on March 4, 2015 that the National Audit Department (JAN) were to verify the accounts of 1Malaysia Development Bhd (1MDB) and its relevant report ought to be handed to the Public Accounts Committee (PAC). Prior to this, on Feb 27, 2015 PAC had also made a request to the JAN to perform an audit on 1MDB.

With regard to this, JAN initiated an audit on March 10, 2015. The audit that took place between March 10 and June 15, 2015 was an interim audit and the relevant report was submitted to the PAC on July 9 and July 10, 2015. This interim report discussed the analysis of the financial statements and investments in a joint-venture with PetroSaudi; the issuance of Murabahah Notes and the Segregated Portfolio Company (SPC).

Following this, the audit was continued until Jan 31, 2016 and a final report was prepared, containing the analysis of the financial statements and financial position of the 1MDB Group based on financial statements ending March 31, 2014 and financial information received up until Oct 31, 2015.

Apart from this, an analysis was also performed on the performance of the equity investments, Murabahah notes, financial portfolio / Portfolio of Funds / Fund Portfolio, SRC Group, real estate sector and energy sector. This final report includes issues covered in the interim report and discussions at the PAC level.

1.2 Audit ObjectivesThis audit was performed based on the mandate from the Cabinet and PAC to verify the financial statements of the 1MDB Group, which have been audited, and to evaluate the financial performance and activities of the 1MDB Group in order to determine if the objectives of establishing the company had been achieved.

1.3 Scope and MethodologyJAN’s had performed checks on the 1MDB Group’s audited financial statements for the financial period ending March 31, 2010 until March 31, 2014. The financial statements for the year ending March 31, 2015 was not prepared by 1MDB for this audit. However, JAN was able to perform an audit based on documents obtained from 1MDB including discussions with (1MDB’s) management. JAN faced limitations while performing this audit in view of the fact that some original or important documents were either submitted late or were not provided by 1MDB for the purpose of verifying transactions or as evidence for the audit.

1.4 Limitations

The limitations resulted in a significant impact on the audit process in terms of verification of the actual financial position, operations and related transactions. Among important documents that were not submitted were the 1MDB Group’s Management Account for the year ending March 31, 2015 and bank statements from foreign lenders. [The audit team] was unable to access computers, notebooks and servers at 1MDB in order retrieve data and information for cross reference and analysis.

1.5 Formation of 1MDBFinance Ministry Incorporated (MKD) has taken over Terengganu Investment Authority Berhad (TIA) which was established by Menteri Besar Terengganu Incorporated (MBI Terengganu) on Feb 27, 2009. The original objective of establishing TIA was to create a sovereign wealth fund with a capital of RM11 billion. The funds were to be obtained from oil royalty owed (to Terengganu) amounting to RM6 billion and bond issuance from the local and foreign financial markets with a proposal for the Federal Government to provide a guarantee of RM5 billion based on Terengganu’s future oil revenue. The Federal Government decided to take over TIA and this process was completed on July 31, 2009 and the company was renamed 1MDB on Sept 25, 2009. After the takeover, 1MDB was no longer a sovereign wealth fund but a strategic development company wholly- owned by MKD with an approved capital of RM1 billion and paid-up capital of RM1,000,002. Subsequently, 1MDB was involved in the following investments:

1. JV with PetroSaudi Holdings (Caymans) Ltd;

2. Investment in Segregated Portfolio Company (SPC);

3. Investment in SRC Group;

4. Investment in real estate sector; and,

5. Investment in energy sector.

1.6 Management Structure and Organisation in 1MDB1.6.1. The management structure was divided into three levels – Advisory Board, Board of Directors and Senior Management. The Advisory Board was tasked with providing guidance and advice on investments and business.

1.6.2. In 2009 and 2010, 1MDB had only one subsidiary and was involved in equity and real estate investments. 1MDB Group’s structure expanded following its involvement in the energy sector through the acquisition of three independent power producers with local and foreign networks, following which the amount of companies in the 1MDB Group had increased to 96 in 2014.

2. 1MDB Group’s Investments

2.1. Islamic Medium Term Notes2.1.1. TIA had proposed to issue Islamic Medium Term Notes (IMTN) amounting to RM5 billion as initial funding. On April 1, 2009, the Federal Government agreed to act as guarantor for TIA to raise the RM5 billion from the domestic and foreign financial markets through IMTN for investment purposes in accordance to the Loans Guarantee (Bodies

Corporate) Act 1965. This guarantee encompasses the repayment of the principle and interest for a period of 30 years. This was followed by an approval from the TIA’s Board of Directors on April 15, 2009. The agreement was signed on May 15, 2009 between TIA (issuer) and AmInvestment Bank Bhd (AmBank) as the lead arranger, lead manager and facility agent. On the same day, the Federal Government provided a guarantee for the issuance of the IMTN.

2.1.2. However, the signing of the agreement and facilitation of the government guarantee was not in accordance to the terms and plans by MBI Terengganu and this had dissatisfied MBI Terengganu as the TIA shareholder. The TIA Board of Directors through a resolution dated May

22, 2009 ordered the suspension of the issuance of the IMTN until a corporate management structure and best practices were realised. The TIA chief executive officer was instructed to take immediate action to terminate and suspend all actions involving the issuance of the IMTN. However, he had already signed the Subscriber Agreement with AmBank on May 25, 2009 and the Aqad Agreement, Murabahah Purchase Agreement and Murabahah Sales Agreement on May 26, 2009. [Hal

2.1.3. The TIA CEO’s act of pursuing the issuance of the IMTN resulted in him being removed as a company director through a shareholders resolution dated May 27, 2009. On the same date, a TIA Board of Directors resolution signed by Datuk Ismee and Shahrol Azral [Halmi] to proceed with the issuance of the IMTN and reappoint Shahrol Azral as a TIA director. The issuance of the IMTN […] had resulted in MBI Terengganu issuing a written warning to AmBank on May 29, 2009. The bank was accused of malpractice and non-compliance by issuing the IMTN. Moreover, Cabinet was informed on June 3, 2009 that the DYMM Sultan of Terengganu had sought a report on the “Unauthorised Issuance of IMTN by TIA”.

2.1.4. On May 29, 2009, TIA received the net amount from the IMTN totalling RM4.385 billion from the full value of RM5 billion, which is at a price of RM87.92 for every RM100 in nominal value with a discount rate of 12.08% in view of AmBank as the lead arranger to ensure the issuance of the IMTN was fully subscribed. The coupon rate is 5.75% per annum with effective rate of returns to be 6.68% annually.

2.1.5. During the 1MDB Board meeting on Oct 10, 2009, the chief executive officer informed that the IMTN was issued based on the urgings of the TIA special advisor for the purpose of developing Pulau Bidong in cooperation with Mubadala (a company). Apart from this, in June 2015, the former 1MDB CEO said the issuance of the IMTN had proceeded because the agreement signed on May 15, 2009 was a “bought deal” in which AmBank as the lead arranger and primary subscriber had obtained secondary market subscribers for the issuance of the bond.

2.2 Equity Investments, Murabahah Note and Fund Portfolio

2.2.1. 1MDB Group’s joint-venture with foreign companies began in 2009 with the goal of pioneering investment opportunities abroad. The first JV

project was finalised between 1MDB, PetroSaudi Holdings (Cayman) Ltd. and 1MDB PetroSaudi Ltd. (joint-venture compay) on Sept 28, 2009. 1MDB held 40% equity with a contribution of USD1 billion while PetroSaudi Holdings (Cayman) Ltd. held 60% equity in form of assets worth approximately USD1.5 billion. The decision to invest in this JV company was made in a period of eight days, without a detailed evaluation process and before issues/conditions raised by the 1MDB Board of Directors were resolved. There were four different companies registered with the name PetroSaudi but the investment proposal paper tabled to the 1MDB Board of Directors did not state this fact.

2.2.2. The assets valuation report prepared by Edward L Morse was presented on Sept 29, 2009, which is the same date that he was confirmed in his appointment to perform the job by the 1MDB CEO, and the report was received one day after the JV was signed. The valuation report took into consideration the exploration rights and oil production in Turkmenistan and Argentina. The valuation was conducted on assets owned by PetroSaudi International Ltd although the JV agreement clearly states that the company which owned all rights and interests on the agreed assets for the JV project was PetroSaudi International Cayman.

2.2.3. In addition, the JV agreement includes clauses which insufficiently provides for the interest of the company [1MDB]. Among others, the loan received by 1MDB PetroSaudi Ltd. amounting to USD700 million from its parent company, PetroSaudi Holdings ( Cayman) Ltd. on Sept 25, 2009 must be paid back in full on or before Sept 30, 2009. On Sept 30, 2009, a total of USD1 billion (RM3.487 billion) was transferred by 1MDB to two separate accounts – USD300 million to the account of the JV company and USD700 million to the account of another company for the purpose of repaying the loan received by the JV company. The payment of USD700 million to the other company was performed without the approval of the 1MDB Board of Directors.

2.2.4. Six months after the JV was signed, 1MDB disposed all of its 40% equity stake amounting to USD1 billion in the JV company in return received USD1.20 billion through the subscription of Murabahah Notes. The Murabahah Notes provide returns of 8.67% annually and mature on March 31, 2021 and were supported by a corporate guarantee by PetroSaudi International Ltd. On Sept 14, 2010, an additional subscription of Murabahah Notes amounting to USD500 million (RM1.57 billion) was

made and a total of USD330 million (RM1.02 billion) was paid between May 20 and Oct 25, 2011. A portion of the funds to finance the additional subscription of Murabahah ntoes were made through loans from financial institutions.

2.2.5. After investing 27 months in the Murabahah Notes, on June 1, 2012, 1MDB redeemed the Murabahah Note, including profits yet to be received, amounting to USD2.22 billion (RM6.8 billion) through an asset swap arrangement in which 1MDB’s subsidiary, 1MDB International Holdings Ltd (1MDB-IHL), acquired a 49% equity stake in PetroSaudi Oil Services Ltd (PSOSL), a PetroSaudi International Ltd subsidiary. 1MDB-IHL also ratified a “call and put option” with PetroSaudi International Ltd to acquire the remaining 51% stake in PSOSL at an option price of USD10. The swapping of Murabahah Notes for equity in PSOSL was performed without detailed study to determine (PSOSL’s) liability, ability to generate funds and its past financial performance. Although knowledge of PSOSL’s operations in Venezuelan waters was subjected to restrictions/sanctions by the US and drilling contracts were expiring, the decision to invest in PSOSL was continued. Moreover, the approval by the Board of Directors and 1MDB shareholders to swap the Murabahah Notes for equity in PSOSL was signed on June 20, 2012, but the 1MDB CEO had signed five documents regarding the deal on June 1, 2012. This shows that the 1MDB CEO took action even before seeking the board’s approval.

2.2.6. 45 days after 1MDB swapped the Murabahah Note for an equity stake in PSOSL, the 1MDB CEO had sought to dispose of the equity stake in PSOSL because Venezuela was facing sanctions by the US. In relation to this, the 1MDB Board of Directors approved the disposal of 1MDB-IHL’s 49% equity stake in PSOSL to Bridge Partners International Investment Ltd (Bridge Partners) for a consideration of not less than USD2.22 billion which to be managed by a licensed fund manager. This decision was made through a resolution by the Board of Directors and 1MDB shareholders.

2.2.7. On Sept 12, 2012 the sale and purchase agreement to dispose of 1MDB-IHL’s entire stake (in PSOSL) was ratified between 1MDB and Bridge Partners. In return, Bridge Partners issued six promissory notes, without interest, valued at USD2.318 billion, which must be paid in one month. On the same date, 1MDB, through its fully-owned subsidiary Brazen Sky Ltd, ratified an “Investment Management Agreement” with

Bridge Global Absolute Return Fund SPC (Bridge Global SPC) and Bridge Partners Investment Management (Cayman) Ltd. to invest the USD2.318 billion. This investment was funded through promissory notes in lieu of cash and was later invested in various investment portfolios through a Segregated Portfolio Company (SPC) in the Cayman Islands. This Investment was made through Bridge Global Absolute Return Fund SPC (Bridge Global SPC), which was a month-old company, without a fund managing license and without experience in managing large sum of funds.

2.2.8. The Board of Directors on May 20, 2013 agreed that the investment be redeemed in stages in order to improve public perception on the credibility of 1MDB’s investments. The Board of Directors had issued nine instructions between May 2013 and August 2014 to the management to prepare a plan, schedule and redemption of portfolio funds from the SPC either through stages or as a whole. However, no immediate action was taken by the 1MDB management.

2.2.9. On Dec 20, 2014 the Board of Directors was informed that the latest funds to have been redeemed from the SPC portfolio stood at USD1.392 billion and the balance of USD939.87 million would be redeemed at the end of December 2014. From this amount, USD993 million was paid to Aabar to terminate options. In reality, all of those remaining funds from the SPC portfolio were used as collateral for Beutsche Bank for a loan amounting to USD975 million, for which an approval from the Board of Directors was not obtained. Apart from this, the USD1.392 billion which had been transferred to the account of Brazen Sky Ltd was forwarded to 1MDB Global Investment Limited (1MDB GIL). This act contravened the instructions of the Board of Directors who demanded that the SPC portfolio funds be brought back to Malaysia.

2.2.10. An Asset Sale Agreement was signed on Jan 2, 2015 between Brazen Sky Ltd and Aabar Investments PJS Limited (Aabar Ltd) to ensure the balance of the SPC portfolio funds amounting to USD939.87 could be redeemed before March 31, 2015, as sought by the Board of Directors. However, the agreement was signed without the knowledge of the Board of Directors and 1MDB shareholders. In relations to this, the Board of Directors agreed on March 25, 2015 to terminate the Asset Sale Agreement and replaced it with a Share Sale Agreement in which the all equity in Brazen Sky Ltd was to be sold to Aabar Ltd at a consideration

price of USD1.20 billion. However, the Share Sale Agreement was never finalised.

2.2.11. On May 28, 2015, a Term Sheet for Settlement Arrangements (Binding Term Sheet) was signed between 1MDB Group, Finance Ministry Incorporated (MKD), International Petroleum Investment Company (IPIC) and Aabar Investments PJS Groups (Aabar). Among the important terms in the Binding Term Sheet is that IPIC will pay 1MDB USD1 billion before or on June 4, 2015 and takeover the payment obligations for the interest and principle for two USD Notes which respectively amounts to USD1.75 billion. As for 1MDB, during a meeting on June 14, 2015, the Board of Directors was informed that among assets which would be transferred to IPIC/Aabar was the balance from the SPC portfolio amounting to USD939.87.

2.2.12. In conclusion, for the period of four years since 1MDB was established, the initial investment by 1MDB through funds from the issuance of IMTN amounted to RM5 billion and this investment instrument was changed four times. This started with the investment of USD1 billion (RM3.49 billion) in 2009 in a JV with a subsidiary of PetroSaudi International Ltd, followed by the investment of Murabahah Note amounting to USD830 million (RM2.59 billion) in 2011 and 2012 until it was transformed into investment in the SPC Portfolio amounting to USD2.318 billion (RM7.18 billion) in Cayman Islands in September 2012. The repatriation of a portion of the investment in the SPC Portfolio in 2014 was used to fund various company commitments and investments. In the end,

the investment was left with a balance of USD939.87 in the form of investment units in the SPC Portfolio on March 31, 2015.

3. Investments in SRC Group3.1. An early proposal for the establishment of a Strategic Resource Company was presented by 1MDB to the prime minister on Aug 24, 2010. The Economic Planning Unit (EPU) had studied the proposal and approved the establishment of the company after several conditions were fulfilled. Based on the Memorandum and Articles of Association (M&A), SRC’s objective was to identify and invest in projects involving drilling, extraction, processing and trade in conventional energy, renewable natural resources and minerals, including the acquisition of company shares, stocks and securities. According to SRC’s business plan for 2011 to 2015,

SRC will supply coal for the long term needs of the country by the fourth year of operation (2014).

3.2. As a subsidiary of 1MDB, SRC received funds from a government development grant amounting to RM15 million from the RM20 million approved by the EPU and a loan of RM2 billion from Retirement Fund Incorporated (KWAP). The RM2 billion was received on Aug 29, 2011 which was meant to be repaid over 10 years. The loan was guaranteed by the Government which includes principle and interest, amounting to RM2.902 billion.

3.3. A JV project between SRC’s subsidiary SRC International (Malaysia) Ltd (SRCI) and Aabar Investments PJS (Aabar) on Nov 3, 2011 resulted in the establishment of Aabar-SRC Strategic Resources Limited (ASRC). ASRC’s initial capital amounts to USD120 million, with each side providing USD60 million. The SRCI board had approved USD45.50 million for investment in the coal industry in Mongolia without providing a feasibility study on the matter which will be undertaken by ASRC through Gobi Coal & Energy Limited (GCE). SRC also invested in PT ABM Investama TBK, Indonesia amounting to USD120 million (RM366.68 million) through published share prices listed on the Indonesian Stock Exchange. During a meeting on Feb 14, 2012, the SRC CEO had reported that the estimated gains on the investment was USD4 million.

3.4. On Feb 15, 2012 1MDB’s ownership of SRC was relinquished to Finance MInistry Incorporated (MKD) by means of share transfer through dividend-in-specie interim payments. The transfer of SRC shares also reduced 1MDB Group’s operational loss from RM25 million to RM16.2 million, reduced the 1MDB’s gearing ratio from 12 times to 9.5 times and reduced the government’s guarantee by RM2.902 million to 1MDB Group.

4. Real Estate Investments

5. Energy Sector Investments

6. Financial Position of 1MDB Group

6.1 Based on the financial statements for the year ending March 31, 2014, 1MDB Group’s outstanding debt, both foreign and domestic, stood at RM33.71 billion. This does not include inherited loans. Eight of the loans involve domestic lenders and three from foreign lenders. Apart from this,

1MDB had 11 inherited loans, from two independent power producers in 2012 and 2014, involving RM8.15 billion which must be serviced. Thus 1MDB’s position in loan balance up until financial year ending March 31, 2014 stands at RM41.86 billion.

6.2 In terms of asset positions, a 363% rise (in value), from RM9.53 billion in 2012 to RM44.14 billion in 2013, was recorded. This increase resulted from the acquisition of two independent power producers, revaluation of real estate investments, an increase in cash on hand, deposits to Aabar Ltd, concession agreements and leases which have not been received. According to the 2014 financial statements, the value of assets increased by another 16% to RM51.41 billion following the acquisition of another IPP and investment in a portfolio fund manager.

6.3 An analysis of the cash flow on the financial statements from year 2010 to 2014 have shown that 1MDB’s paid-up capital was only RM1 million. This small amount showed that the company was not (financially) stable because it required to borrow for its activities. Throughout financial year 2010 until 2014, 1MDB obtained 17 loans (not inclusive of inherited loans) at a nominal value of RM42.88 billion but received cash amounting to RM39.17 billion. However, (the company’s) activities which were funded by loans did not generate the necessary cash flow to repay the loans.

6.4. Up until Oct 31, 2015, the total amount repayable by 1MDB Group stood at RM55 billion while its assets were valued at RM58.60 billion. Government guaranteed or assisted loans stood at RM20.31 billion.

6.5. Based on the assumption that the rationalisation plan is implemented and no new loans are taken after Oct 2015, it is estimated that RM42.26 billion is required to repay the loans which will mature between November 2015 and May 2039. 1MDB needs to prepare large sums to fulfil its obligations – RM4.88 billion in 2016, RM14.74 in 2023 and RM5.14 billion in 2039. 1MDB also requires to have at least RM1.52 billion annually from Nov 2015 to May 2024 to repay its loans.

6.6 For the period of 2016 until 2023, the borrowing cost which must be borne by 1MDB Group amounts to RM9.08 billion. The IMTN issued in 2009 will mature in 2039 with coupon payments amounting to RM287.50 per annum. 1MDB Group’s commitment for the IMTN from November 2015

until 2039 amounts to RM11.90 billion – RM5 billion principle and RM6.90 billion in interest.

7. Corporate management and Internal Controls

[…] Overall, the management and internal controls in 1MDB Group was “less than satisfactory”. Some management decisions and decisions by the Board of Directors were made without due process. Among others:

1.Between 2009 and 2015, several important investment decisions involving large sums were made through written resolutions by the Board of Directors without any discussion and proper detailed valuation. Several investments were decided on short notice and were high risk. However, the Board of Directors have told the PAC on Jan 19, 2016 that discussions were held before approvals were given through written resolutions.

2.In several situations, the 1MDB management had presented incomplete or inaccurate information to the Board of Directors before an important decision was to be made. In fact, the management sometimes took action without approval from the Board.

3.There were also situations in which the 1MDB management had presented information that was inaccurate or did not correlate with other interested parties.

4.The 1MDB management took actions which were against, or did not fully comply with, Board/shareholder decisions.

1MDB’s record keeping and filing methods were not systematic and less than satisfactory.

CHAPTER 1

INTRODUCTION 14 July 2016

 

 

1. AUDITING TO 1MALAYSIA DEVELOPMENT BERHAD1.1. The Cabinet meeting on 4 March 2015 has decided that the National Audit Department (JAN) verify the 1MDB company's account and the relevant report should be submitted to the National Accounts Committee (PAC). Accordingly, the audit of the 1Malaysia Development Berhad (1MDB) company was conducted by JAN from March 10, 2015.

1.2. Prior to this, on 27 February 2015, the PAC had requested JAN to conduct auditing of 1MDB by focusing on five aspects as follows:

Source of funds amounting to RM2 billion obtained by 1MDB in settling its loan to several local banks; The injection of new financial funds from the Ministry of Finance amounted to RM3 billion; 1MDB investment agreement in PetroSaudi company;

The 1MDB investment money in the Cayman Islands has either been brought back to Malaysia; and International auditing firm to approve 1MDB accounts.

1.3. Interim ReportThe Interim Report was tabled to the National Accounts Committee (PAC) on 9 and 10 July 2015 for reporting audits conducted between 10 March and 15 June 2015. The Interim Report is limited to deliberating on the analysis of financial statements and investments in joint venture companies PetroSaudi, a murabahah note and Segregated Portfolio Company (SPC). PA has requested JAN to review some additional aspects to take into account in preparing the Final Report.

1.4. Final Report

This Final Report contains an analysis of the financial statements and financial position of the Group 1MDB until the financial year ending 31 March 2014 and its investment performance in equity, murabahah notes, portfolio funds, SRC groups, property and energy sectors. This Final Report takes into account the issues that have been reported in the Interim Reports and have been updated according to documents received until October 31, 2015.

2. OBJECTIVES OBJECTIVESThe audit is conducted on the mandate of the Cabinet and the PAC to verify the audited financial statements of the 1MDB Group and to evaluate the financial performance and activities of the 1MDB Group whether or not they meet the objectives of the establishment.

3. SCOPE AND AUDITING METHODOLOGY3.1. The revised JAN is conducted on the audited financial statements of the 1MDB Group for the financial period ended 31 March 2010 until the financial year ended 31 March 2014. The financial statements for the year ended 31 March 2015 have not been submitted to JAN as it has not been prepared by 1MDB for auditing. However, JAN has conducted audits based on the relevant documents and records.

3.2. An audit was carried out using the following methods: Review of the Memorandum and Articles of Association of the Company, minutes of Board meetings and related documents of incorporation of the company; Revisions to documents relating to policies and procedures, business models used and the laws and regulations established by Terengganu Investment Authority Berhad (TIA) and 1MDB; Review of agreements, contracts and related financial documents; Interviews with the Board of Directors and the management of the company and the previous and current auditors at the company and its subsidiaries level; Financial analysis is based on the audited financial statements of the Company and its subsidiaries from 2010 to 2014;

Reviewing and analyzing auditing papers of private audit firms; Review of the evidence of PAC proceedings related to 1MDB; Site visit to several 1MDB real estate investment projects and projects; Financial analysis based on the financial statements for the period ended 31 March 2012 Group SRC

International Sdn. Bhd. (SRC), which is from the date of its establishment on 7 January 2011 until the date of transfer to the Minister of Finance Incorporated (MKD) on 15 February 2012. Validation of investments made prior to the transfer was taken into account until the date of the response on 3 December 2015; and Collaboration with Bank Negara Malaysia (BNM) for financial and investment transactions involving domestic and foreign financial institutions.

4. LIMITATION OF EXPERIENCE4.1. JAN faces limitations when conducting audits where part of the original and important document is passed on or not submitted by 1MDB for the purposes of transaction validation and as audit evidence. This limitation has a significant impact on the audits carried out in terms of verifying the financial position and operations of the company as well as related transactions. Some important documents that are not submitted are as in the following table:

TABLE 1.1 DOCUMENTS NOT UNDERSTANDING BY 1MDB

INFORMATION

i. 1MDB Group's financial position for financial year 2015:

a. Management Account (Management Account); and

b. Group Financial Statement 1MDB

II. Statement / Confirmation of bank from external financial institution:

a. Singapore

BSI Bank-Brazen Sky

Deutsche Bank -1MDB Energy Holding Ltd.

b. Hong Kong

Falcon Private Bank Ltd.

1MDB Energy Ltd.

1MDB Energy (Langat) Ltd.

c. Switzerland

BSI Bank, Lugano

o 1MDB Global Investments Ltd.

d. United Kingdom

Bank of New York Melon

o 1MDB Energy Ltd.

o 1MDB Energy (Langat) Ltd.

o MDB Global Investments Ltd.

4.2. No access can be made to computers, notebooks and servers at 1MDB to obtain data and information for cross referrals and analysis during auditing.

4.3. JAN also did not receive a 1MDB Management / Operations Meeting Minutes from 2009 to October 31, 2015 and Minutes of Board of Directors of the joint venture / subsidiary company as follows:

1MDB PetroSaudi Ltd.

1MDB International Holdings Ltd.

1MDB Global Investments Ltd.

Brazen Sky Ltd.

SRC-Aabar Resources Ltd.

1MDB Energy Holdings Ltd.

1MDB Energy Ltd.

1MDB Energy (Langat) Ltd.

5. ESTABLISHMENT OF 1MALAYSIA DEVELOPMENT BERHAD5.1. The Finance Minister Incorporated (MKD) has taken over Terengganu Investment Authority Berhad (TIA) set up by Terengganu Incorporated Menteri Besar (MBI Terengganu) on 27 February 2009. The original purpose of the TIA establishment was to create a sovereign wealth fund with an initial fund of RM11 billion. The fund will be derived from a total of RM6 billion worth of oil royalty revenues and funds from bond issues on local and overseas financial markets with the Federal Government's proposal to provide a guarantee of RM5 billion based on Terengganu's future oil revenues.

5.2. The Cabinet meeting on April 1, 2009 approved the TIA application so the Federal Government guaranteed TIA to borrow up to RM5 billion from local and overseas financial markets through Islamic Medium Term Notes (IMTN) for investment. Guarantee issued is in accordance with the Loan

Guarantee (Corporations Incorporation) Act 1965 covering principal and interest repayments for a period of 30 years.

5.3. On May 15, 2009, a program agreement was signed between TIA and AmInvestment Bank Berhad for the issue of IMTN issues amounting to RM5 billion. However, the TIA plan was rejected by MBI Terengganu. Subsequently, the Federal government decided to take over the TIA. The acquisition was completed on 31 July 20009 and the name TIA was changed to 1Malaysia Development Berhad (1MDB) on 25 September 2009.

5.4. Once taken over by the Federal Government, 1MDB is no longer a sovereign wealth fund but as a strategic development company that becomes a wholly-owned company of MKD with authorized capital of RM1 billion and paid-up capital of RM1,000,002. In line with the 1MDB vision to become a strategic catalyst to help bring new ideas and sources of growth and enhance the country's competitiveness in the economy especially in the global environment, 1MDB is given the key mandates among them:

Invest in projects that can help drive strategic initiatives for long-term sustainable development and encourage inflows of foreign direct investment into the country.

Use the existing sovereign wealth fund network in the Middle East and China to bring in foreign direct investment that corresponds to national projects.

5.5. Since its inception, 1MDB has been involved in the investment as follows: Joint venture with PetroSaudi Holdings (Cayman) Ltd .; Investments in Segregated Portfolio Company (SPC); Investment in SRC Group; Investment in real estate sector; and Investment in the energy sector. The description of the investment made by 1MDB is described in the next chapters.

6. GOVERNMENT STRUCTURE AND GROUP ORGANIZATION STRUCTURE 1MDB6.1 Based on 1MDB Company Memorandum and Articles of Incorporation (M & A), the 1MDB governance structure is divided into three levels namely the Advisory Board, the Board and the Top Management. The Advisory Board is

responsible for providing guidance and investment advice as well as business. Article 117 of M & A has outlined some of the decisions needing written permission from the Honorable Prime Minister that includes the following: Any change in M & A of the company, whether in whole or in part;

Any appointment and termination of any director (including the Managing Director and Alternate Director) and the Company's Supreme Management; and any financial commitments (including investments), restructuring or security matters issued by the Federal Government of Malaysia for the interests of the company, national interest, national security or any Federal Government policy of Malaysia. For this purpose, the determination of the meaning of 'national interest', 'national security' and 'policy of the Federal Government of Malaysia' shall be finalized by the Federal Government of Malaysia.

6.2. Membership rating of Advisory Board, Board of Directors and Top Management 1MDB on 31 October 2015 and list of Board Members from 2009 to 2014 are as follows:

TABLE 1.2 LIST OF 1MDB ADVISORY LIST ON OCTOBER 2015

NAME POSITION

YAB Dato 'Sri Mohd Najib Tun Abdul Razak Prime Minister and Minister of Finance of Malaysia (Chairman)

Sheikh Hamad bin Jassim Bin Jabr Al-Thani Former Prime Minister and Qatar's Foreign Minister (Special Adviser)

Tan Sri Mohd Sidek Hassan Petronas chairman

Tan Sri Dato 'Nor Mohamed Yakcop Deputy Chairman Khazanah Nasional Berhad

Tan Sri Dr. Ali Hamsa chief Secretary

Tan Sri Dr. Mohd Irwan Serigar Abdullah Treasury Secretary General

Khaldoon Khalifa Al Mubarak Chairman of the Abu Dhabi Executive Affair Board; and Chief Executive Officer & Managing Director, Mubadala Development Company

Chang Zhenming Chairman and President, CITIC Group China

Source: 1MDB Website

TABLE 1.3 1MDB DIRECTOR LIST ON OCTOBER 2015

NAME POSITION APPOINTMENT OF DATE

Tan Sri Dato 'Seri Che Lodin Wok Kamaruddin

Chairman October 20, 2009

Non - Executive Director 11 August 2009

Tan Sri Dato 'Paduka Ismee Ismail Non - Executive Director March 23, 2009 *

Datuk Shahrol Azral Ibrahim Halmi Non - Executive Director March 23, 2009 *

Tan Sri Dato 'Ong Gim Huat Non - Executive Director 12 January 2010

Ashvin Jethanand Valiram Non - Executive Director February 2, 2010

Arul Kanda Kandasamy President and Executive Director January 5, 2015

Source: Website 1MDB Note: (*) Appointment On TIA Name (TIA Changed Name To 1MDB On September 25, 2009)

TABLE 1.4 1MDB HIGHEST MANAGEMENT LIST ON OCTOBER 2015

NAME POSITION

Arul Kanda Kandasamy President and Group Executive Director

Azmi Tahir Chief Financial Officer

Ivan Chen General Counsel

Vincent Koh Beng Huat Chief Investment Officer

Badrul Hisham Abdul Karim Executive Director of Business Development

Terence Geh Choh Heng Executive Director of Finance

Source: 1MDB Website

TABLE 1.5 POSITION OF 1MDB BOARD OF DIRECTORS FROM 2009 TO 2014

NAME

FINANCIAL YEAR

31.3.2010 31.3.2011 31.3.2012 31.3.2013 31.3.2014

Tan Sri Mohd Bakke Bin Salleh *

(appointed on 27.02.2009 and 11.08.2009 and resigned on 07.04.2009 and 19.10.2009) **

    ✓     X     X     X     X

Tan Sri Azlan Mohd Zainol *(appointed on 11.08.2009 and resigned on 11.01.2010)

    ✓     X     X     X     X

Christophor Lee Sian Teik *(appointed on 27.02.2009 and resigned on 23.03.2009)

    ✓     X     X     X     X

Datuk Shahrol Azral Bin Ibrahim Halmi * (appointed on 23.03.2009)     ✓     ✓     ✓     ✓     ✓

Tan Sri Dato 'Paduka Ismee Bin Haji Ismail * (appointed on 23.03.2009)     ✓     ✓     ✓     ✓     ✓

Tan Sri Dato 'Seri Che Lodin Bin Wok Kamaruddin *(appointed on 11.08.2009)

    ✓     ✓     ✓     ✓     ✓

Tan Sri Dato 'Ong Gim Huat(appointed on 12.01.2010)     ✓     ✓     ✓     ✓     ✓

Ashvin Jethanand Valiram(appointed on 02.02.2010)     ✓     ✓     ✓     ✓     ✓

Mohd. Hazem Bin Abd. Rahman(appointed on 15.03.2013 and resigned on 01.01.2015)

    X     X     X     ✓     ✓

Source: 1MDB Document

Note: (*) Appointment of TIA (TIA changed name to 1MDB on 25 September 2009) (**) Appointed Position and Reappointed

6.3. In 2009 and 2010, 1MDB only had one subsidiary, namely 1MDB Real Estates Sdn. Bhd. formerly known as City Streams Sdn Bhd. and a sub-subsidiary, Raintree Summit Sdn. Bhd. as in Appendix A. Beginning in 2011, 1MDB's activities have grown into three sectors, namely investment holding, real estate and energy related. In line with this, the number of companies in the 1MDB Group has increased to 10 companies as in Appendix B. In 2012, the 1MDB Group restructured its organizational structure to increase its number to 18 companies as in Appendix C.

6.4. Subsequently in 2013, the 1MDB Group has grown rapidly as companies began to invest in the energy sector by taking over the independent power producers. The largest acquisition was made by the acquisition of Powertek Energy Sdn. Bhd. which has 57 existing companies. The development of the 1MDB Group structure is shown in detail in Appendix D.

6.5. In 2014, the Group's 1MDB structure continued to grow with the acquisition of Jimah O & M Sdn. Bhd. Dan Jimah Teknik Sdn. Bhd. which operates in the energy sector, makes the entire 1MDB Group company to 96 companies. The development of the 1MDB Group's organizational structure is detailed in Appendix E.

CHAPTER 2

ISLAMIC MEDIUM TERM NOTES, EQUITY INVESTMENT, MURABAHAH NOTES AND PORTFOLIO FUNDS

16 July 2016

 

 

1. ISLAMIC MEDIUM TERM NOTES ISSUE (IMTN)1.1. TIA was incorporated on 27 February 2009 under the auspices of His Majesty the Sultan of Terengganu who supported the idea of establishing it as a state sovereign wealth fund with an initial fund of RM11 billion. The fund will be sourced from bond issues on local and overseas financial markets with the Federal Government's proposal to provide a guarantee of RM5 billion on Terengganu's future oil revenues. The fund is expected to be derived from a total of RM6 billion worth of oil royalty revenue and the issuance of Islamic Medium Term Notes (IMTN) of RM5 billion.

1.2. On 25 March 2009, the TIA Board of Directors has authorized Mr Shahrol Azral (TIA's Chief Executive Officer) to confirm the appointment of AmInvestment Bank Berhad (AmBank) as lead arranger and / or lead manager and primary subscriber for the proposed RM5 billion IMTN issue and to hold consultation on the terms of the appointment of AmBank, to be recommended to the TIA Board of Directors.

1.3. The Cabinet meeting on April 1, 2009 approved the TIA application so that the Federal Government assured the TIA to borrow up to RM5 billion from local and overseas financial markets through IMTN for investment in accordance with the Loan Guarantee Act (Bodybuilding) Act 1965. These guarantees include refunds principal and interest for a period of 30 years.

1.4.     The first meeting of the TIA Board on April 15, 2009 has agreed with the proposal to issue a RM5 billion IMTN syariah-compliant bond with a 3-year term to secure funds for general investment and working capital. The TIA Board also agrees that there is no need to create the Due Diligence Working Group and provide the Due Diligence Planning Memorandum as the information on IMTN does not need to be submitted to the Securities

Commission before being offered to prospective investors. This is because the bonds are guaranteed by Government.

1.5.  Terengganu Menteri Besar through a letter dated 13 May 2009 to the YAB Minister of Finance state the State Government's support for the issuance of IMTN amounting to RM5 billion by the TIA with certain terms.

1.6. On May 15, 2009, the program agreement was signed between TIA (issuer) and AmBank as lead arranger, lead manager and facility agent . On the same date, the Federal Government has issued Government guarantees for the issuance of IMTN amounting to RM5 billion.

1.7. However, the signing of a government guarantee and program agreement without the terms and plans of Terengganu Menteri Besar Incorporated (MBI Terengganu) as a TIA shareholder has caused dissatisfaction and objection from MBI Terengganu. Accordingly, pursuant to Article 94 of the Articles of Association of the Company, the Board of TIA approved three resolutions dated 22 May 2009, directing the suspension of the IMTN issues until the structure of corporate governance and best practice was established including the establishment of the Company's Advisory Board and Investment Panel and appointing the Board of Directors representing all the special shareholders. The TIA Board of Directors at that time was YAM Tengku Rahimah Puteri Ibni Almarhum Sultan Mahmud, Datuk Ismee Ismail and Mr Shahrol Azral.

1.8. The TIA Board of Directors through a resolution dated 22 May 2009 has also decided that Mr Shahrol Azral take immediate action on an urgent basis to inform the IMTN issue advisor to terminate and suspend all affairs relating to the issuance of IMTN and to ensure that no IMTN issues are made. The TIA Board of Directors also decides to suspend the powers conferred on Encik Shahrol Azral or any other director in connection with the issuance of IMTN.

1.9. However, the Chief Executive Officer and Company Secretary of TIA have signed a Subscription Agreement with AmBank on 25 May 2009, three days after the resolution of the TIA Board which directs the postponement of the IMTN issue and any affairs related to the IMTN program. The TIA Chief Executive Officer's actions are against the directives of the TIA Board.

1.10.  On May 26, 2009, aqad agreement for the sale of assets by AmIslamic Bank Berhad to TIA was signed by TIA Chief Executive Officer. On the same date, a Murabahah Purchase Agreement amounting to RM4.396 billion and a

Murabahah Sales Agreement amounting to RM13.625 billion has also been signed by the TIA Chief Executive Officer.

1.11. Mr Shahrol Azral's acting as TIA Chief Executive Officer continued his affairs related to IMTN had caused him to be dropped as a director of the company as decided on a TIA shareholders resolution dated 27 May 2009 pursuant to Section 152A of the Companies Act 1965. This action is also in accordance with Article 73 of the Memorandum and The Articles of Association of the Company which permit the abatement of any company directors by a written resolution. The action was supported by the letter of Terengganu MBI dated 29 May 2009 to the Honorable Minister of Finance. MBI Terengganu has raised serious weaknesses and stating the stance that disagrees with the method of derivative of IMTN which does not follow the terms and plans of Terengganu MBI. Terengganu MBI's representative on the TIA Board of Directors,

1.12.  On May 29, 2009, TIA received net IMTN proceeds of RM4.385 billion from the full value of RM5 billion. This is because IMTN is issued at RM87.92 for every RM100 nominal value, at a discount of 12.08%. The TIA Board of Directors at the meeting on 20 August 20009 was informed that the bonds were issued at such discount rates based on AmBank's recommendation as lead arrangerto ensure that IMTN issues get full subscription. In addition, the interest rate charged is 5.75% per annum with an effective return rate of 6.68% per annum. The JAN revised the total cost of the IMTN issues up to the maturity of RM13.625 billion comprising RM5 billion for principal payments (lump sum payable in 2039) and RM8.625 billion for profit payments to IMTN bond holders over a period of 30 years. Transaction costs amounting to RM11.25 million have been paid to AmBank as arranger fee . In addition, a trustee fee and agency fee of RM7.14 million are also payable, at a rate of RM238,000 per annum for 30 years.

1.13. MBI Terengganu has also written a warning letter dated 29 May 2009 to AmBank allegedly involved in misconduct and incompatibility during the issuance of IMTN.

1.14. The Cabinet has been notified on 3 June 2009 that DYMM Sultan Terengganu has requested a report prepared on the Unauthorized Issuance of IMTN by TIA and Report of Managing Oil Royalty of the state of Terengganu as a Sovereign Wealth Fund with the Best Corporate Governance Practice and Transparency.

1.15.   During the meeting on June 30, 2009 chaired by the Treasury Secretary General, Shahrol Azral explained that a letter from the State Government of Terengganu (letter dated 27 May 20009 directs the issuance of IMTN deferred), only received after the marketing process which started one week earlier, and the subscription was closed on May 29, 2009. IMTN issuance is continued due to a brief period of instruction and to maintain TIA's credibility if the issue is deferred. While during the JAN interview with Datuk Shahrol Azral in June 2015, the former TIA Chief Executive Officer admitted that the IMTN bond issue had to be continued as the program agreement signed on May 15, 2009 was a buy deal where AmBank waslead arranger and primary subscriber have received secondary market subscriptions for the issuance of the bond.

1.16.   JAN's review found at the Board of Directors' Meeting on 10 October 2009, Mr Shahrol Azral informed the IMTN issue to be expedited upon the request of TIA's special adviser with the intention of developing Bidong Island in collaboration with Mubadala's company in 2009. The AmBank (who was also present at the meeting) confirming that TIA's special advisers have called on the issuance of bonds secured. However, through a press statement on May 23, 2009, Mubadala denied its involvement in Malaysia other than the project in the Iskandar Development Region. JAN's review found that TIA special advisor appointed on April 8, 2009 was Dato 'Abdul Aziz bin Mohd Akhir and Mr Low Taek Jho.

2. TIA RECEIVING OF FEDERAL GOVERNMENT AND CHANGE OF NAME TO 1MDB2.1. Following TIA's action continued the issue of RM5 billion IMTN and ignored the Terengganu MBI order to delay the program, the Terengganu Government sought to separate its entitlement from TIA, by submitting the TIA and IMTN program to be taken over by the Federal Government. The TIA meeting chaired by the Treasury Secretary General on 16 June 2009 and 30 June 2009 has discussed and agreed that the Minister of Finance Incorporated (MKD) takes over control and equity in TIA which will be released by MBI Terengganu.

2.2. On July 20, 2009, the Minister of Finance informed the Cabinet on the decision of the Federal Government through the MKD taking over the TIA from Terengganu MBI. Among the considerations to consider are as follows:

a. MKD bought all the ordinary shares owned by MBI Terengganu and paid back the paid-up capital involving a total payment of RM1,000,002.

b. The Federal Government will continue to be the guarantor for IMTN bonds of RM5 billion.

c. IMTN issuance is estimated at RM5 billion to be used for investments in strategic development areas.

d. The financial implications of the Federal Government for the TIA takeover process are estimated at RM1,550,002.

e. TIA loan receipts are retained in fixed deposits at AmBank and RHB Bank with interest payments of 2.0% only. This means that the TIA experienced an interest loss of 3.75% during the period of May 29, 2009 until the TIA fund could be fully invested.

f. Total interest loss in the period from 29 May 20009 to 15 September 2009 amounted to RM56 million. Profit payment to bondholders is once every six months and the first payment of RM143.75 million on 30 November 2009. The principal repayment amounted to RM5 billion at the same time in 2039.

2.3. On July 31, 2009, TIA was taken over by the Federal Government. On 11 August 2009, three new Board of Directors were appointed to make the Board a total of five, namely. Shahrol Azral bin Ibrahim Halmi. On August 20, 2009, Mr. Shahrol Azral bin Ibrahim Halmi (former Chief Executive Officer of TIA Berhad) was appointed as the Managing Director of the company with immediate effect.

2.4. On 4 September 2009, the TIA Board of Directors approved the change of TIA name to 1MDB. This name was officially approved by the Companies Commission of Malaysia (SSM) only on 25 September 20009. The JAN found that the new name was used earlier in some cases where the name 1MDB was used for the appointment letter of the Board of Directors and the Chief Executive Officer dated 17 September 2009. The JAN found that the letter of appointment took effect backdated from 11 August 2009. According to the Attorney-General, this act is permissible in terms of communication and no legal issues .

2.5. While letters from PetroSaudi International Ltd. (Saudi Arabia) and Prince Turkey dated 28 August 2009 have proposed a long-term partnership with 1MDB. This shows that 1MDB's management has unofficially

communicated with PetroSaudi International Ltd. and used the name 1MDB before the Board approved the adoption of the 1MDB name on 4 September 2009.

3. BUSINESS PROJECTS SAME WITH PETROSAUDI INTERNATIONAL LIMITED

3.1. Proposed Establishment of Joint Venture Project3.1.1. This joint venture project began with the letter of Prince Turki dated 28 August 2009 to the Honorable Prime Minister of Malaysia (YAB PM) accompanying letter from Encik Tarek Obaid (Chief Executive Officer of PetroSaudi International Ltd.) who also dated 28 August 2009 to introduce PetroSaudi International Ltd . to YAB PM. The letter was later extended to 1MDB management for further action.

3.1.2. Mr Tarek Obaid's Letter contains a proposed USD1 billion 1MDB shareholding of 1MDB in a joint venture between 1MDB and PetroSaudi International Ltd. While PetroSaudi International Ltd will contribute assets in the USD2 billion energy sector into the joint venture. The letter also states PetroSaudi International Ltd. agreeing to provide a goodwill valuation discount making its asset contribution valued at USD1.50 billion.

3.1.3. The proposed set of shareholding ratios, cash flow of USD1 billion, asset value and goodwilldiscountassets not rated as stated in Mr. Tarek Obaid's letter indicate that the project has been planned earlier. However, the JAN review found no information about the letter of PetroSaudi International Ltd. and Prince Turkey in connection with this joint venture proposal are tabled to the 1MDB Board during a special meeting discussing the investment. The Chairman of 1MDB Board stated that the ratio of cash assets to joint venture companies has not been finalized at 1MDB Board meeting on September 18, 2009. If the joint venture proposal has been finalized and identified from the early stage, the 1MDB Board should be briefly described by the management regarding the decision on this joint venture proposal,

3.2.     Special Meeting of the 1MDB Board on 18 September 20093.2.1. The proposed project proposal paper under an initiative between the Government of Malaysia and the Government of Saudi Arabia (provided by

the Investment Division officer, reviewed by Executive Director of Business Development and supported and approved by 1MDB Chief Executive Officer) has been submitted for consideration by the Board of 1MDB during a meeting at 18 September 2009. The three main objectives of the joint venture project are to invest in and outside Malaysia; to support long-term economic development in Malaysia; as well as to enhance relations and cooperation between Malaysia and Saudi Arabia.

3.2.2. At the special meeting, Mr Casey Tang (Executive Director of Business Development 1MDB) during a briefing on this joint venture project to the Board requested the cooperation of all parties to ensure that the joint venture agreement was concluded on the planned date of 28 September 2009. The date which is too short should not happen because the investment decision involves a large amount but no specific project that requires immediate investment.

3.2.3. The 1MDB Board of Directors has been informed that this project is an affair between the Government of Malaysia and the Kingdom of Saudi Arabia (G2G). Mr. Casey Tang also informed that PetroSaudi International Ltd. is owned by King Abdullah and the Kingdom of Saudi Arabia and has been in existence since 2000. The acknowledgment by Mr Casey Tang is also acknowledged by several Board members and former Board of Directors of 1MDB during a JAN interview with them in June 2015. The JAN can not verifying the actual status of this company's registration whether PetroSaudi International Ltd. owned by King Abdullah or Kingdom of Saudi Arabia. Review of PetroSaudi International Ltd.'s website found that the company was only established in 2005, privately owned and has no ownership link with the Kingdom of Saudi Arabia. JAN's review also found Mr Tarek Obaid is the sole director of PetroSaudi International Ltd. based on documentsWritten Resolution of the Sole Director of the Company . Therefore, the statement made by Mr. Casey Tang was found to be inaccurate.

3.2.4. On September 18, 2009, a foreign company, PetroSaudi Holdings (Cayman) Limited, has registered a company under the name of 1MDB PetroSaudi Limited in British Virgin Island (BVI). The company is then used as a joint venture between 1MDB and PetroSaudi Holdings (Cayman) Ltd. Joint venture with PetroSaudi International Ltd. was only informed to the 1MDB Board for the first time in the meeting on September 18, 2009. Registration of 1MDB PetroSaudi Ltd. (BVI) shows that 1MDB's management has decided ahead of time to work with PetroSaudi International Ltd. and the

1MDB Board of Directors are only informed later. No record showing the 1MDB Board has been notified of the special purpose vehicle, namely 1MDB PetroSaudi Ltd. (BVI) has been registered or established.

3.2.5. The JAN's review of several documents related to this project found that there are four different companies registered under the name of PetroSaudi, as in the following table:

TABLE 2.1

LIST OF COMPANIES LISTED HISTORY OF PETROSAUDICOMPANY NAME

PLACE OF REGISTRATION

DATE OF REGISTRATION

PetroSaudi International Ltd.

Saudi Arabia Year 2005

PetroSaudi International

Cayman Islands 24 February 2009

PetroSaudi Holdings (Cayman) Ltd.

Cayman Islands 18 September 2009

PetroSaudi International Ltd.

Seychelles No information

Source: Company Document of Establishment

3.2.6. Under a joint venture agreement between 1MDB and PetroSaudi Holdings (Cayman) Ltd. dated 28 September 2009, PetroSaudi Holdings (Cayman) Ltd. has been referred to in the abbreviation 'PSI' whilst based on the Written Resolution of the Sole Director of the Companywhich was signed by Mr. Tarek Obaid, PetroSaudi Holdings (Cayman) Ltd. has been referred to as 'PHS'. A media statement dated September 30, 2009 also announced the signing of a joint venture between 1MDB and PetroSaudi International

Ltd. (PSI), while the actual joint venture agreement was signed with PetroSaudi Holdings (Cayman) Ltd. In most cases, abbreviations for PSI are always used for PetroSaudi International Ltd. (Saudi Arabia). This shows that the PSI brief name used in this joint venture agreement seems to imply that PetroSaudi Holdings (Cayman) Ltd. is the same entity as PetroSaudi International Ltd. (Saudi Arabia). The Board also does not realize that PSI refers to PetroSaudi Holdings (Cayman) Ltd. Therefore,

3.2.7. The 1MDB Board of Directors during the meeting on 18 September 2009 has decided that three directors are appointed and two of them have professional qualifications as 1MDB's representatives in the joint venture. However, no evidence indicates that the proposal was implemented.

3.2.8. The 1MDB Board directs management to ensure PetroSaudi International Ltd. contributed its share of the joint venture through 50% in cash or at least USD1 billion and another 50% in the form of assets to a joint venture company. However, the management of 1MDB did not execute the directive of the Board but had implemented Mr Tarek Obaid's proposal in a letter dated 28 August 2009.

3.2.9.  The Board also does not have detailed information on PetroSaudi International Ltd. and one of the Board members has been directed to obtain further information and profile of PetroSaudi International Ltd. This profile is not submitted and has been informed by management that information is being obtained. However, based on JAN's interview with 1MDB Board member, the profile was never presented to the Board until the joint venture agreement was signed. This is unusual for a joint venture deal involving a large cash investment at an instant.

3.2.10. On 18 September 2009, the 1MDB Board has asked the management to further consult with PetroSaudi International Ltd. and finalize some important things before concluding the agreement as follows:

a. Make a deal with PetroSaudi International Ltd. to resolve issues raised by the 1MDB Board to get better terms of negotiation. This should be re-reported to the Board.

b. Appoint Dato 'Mohd Bakke and Encik Shahrol Azral as corporate representatives in each joint venture company meeting once the 1MDB company is registered as a shareholder of the joint venture. The JAN review further found that the appointment of Dato 'Mohd Bakke was replaced by Mr. Casey Tang.

c. The company's seal must be sealed on any document pertaining to joint venture with PetroSaudi International Ltd.

3.2.11. This clearly shows that the 1MDB Board has provided conditional approval to the management to establish a joint venture with PetroSaudi International Ltd. because they are unaware of the existence of other subsidiaries of nearly identical names, namely PetroSaudi International and PetroSaudi Holdings (Cayman) Ltd. This was confirmed by several Board and former Board of Directors of 1MDB during the JAN interview in June 2015.

3.3 Special Meeting of 1MDB Board on 26 September 20093.3.1. The Special Meeting of the 1MDB Board was held on 26 September 2009, two days before the joint venture project was signed. During this meeting, the Board is still discussing whether to continue investing in this joint venture.

3.2.2. However, the 1MDB Board has approved the participation in a joint venture project with PetroSaudi International Ltd. with a subscription of one billion ordinary shares in 1MDB PetroSaudi Ltd. subject to the following conditions:

a. Appointing independent professional valuers to assess the assets of a joint venture;

b. Appoint three members representing 1MDB in the Board of Directors of joint venture companies including those who are experienced in the appropriate sector; and

c. As a wind up option , one party will offer shares to other shareholders at fair market value or at a value agreed upon by both governments who have an interest in the agreement.

3.3.3. Letter from Edward L. Morse's rating dated 20 September 2009 informed 1MDB management that he would be appointed by 1MDB and 1MDB PetroSaudi Ltd. to implement independent assessments of PetroSaudi International Ltd.'s hydrocarbon assets and its subsidiaries. However, until the meeting on 26 September 2009, the 1MDB Board of Directors was not informed.

3.3.4. The joint venture agreement states that 1MDB is eligible to appoint two directors in the composition of the Board of Directors of this joint venture. This shows the terms set by the Board of 1MDB to appoint three members representing 1MDB on the Board of Directors of the joint venture company are not complied with.

3.3.5.  In view of this, the 1MDB Board has approved the use of common seal on all joint-venture documents with PetroSaudi International Ltd. This shows that the Board approves participation in a joint venture project only with PetroSaudi International Ltd. and not with other companies.

3.4   Joint Venture Agreement dated 28 September 20093.4.1.  On September 28, 2009, a joint venture agreement was signed between 1MDB, PetroSaudi Holdings (Cayman) Ltd. and 1MDB PetroSaudi Ltd. in Kuala Lumpur. PetroSaudi Holdings (Cayman) Ltd. and 1MDB PetroSaudi Ltd. represented by Mr. Tarek Obaid, while 1MDB was represented by Mr. Shahrol Azral. The ceremony was also witnessed by YAB Prime Minister of Malaysia and Prince Turki. The objectives of the joint venture company as stated in the joint venture agreement are:

a. "To seek, explore, enter into and participate in business and economic opportunities within and outside of Malaysia; and

b. To enhance, strengthen and promote the future prosperity and economic development of Malaysia, to the extent that achievement of above-mentioned objectives would maximize the profits of the Company. "

3.4.2. Under this joint venture agreement, 1MDB will invest USD1 billion in cash (40% equity stake) while PetroSaudi Holdings (Cayman) Ltd. contributing in the form of assets valued at not less than USD1.50 billion (60% equity stake) in this joint venture company.

3.4.3. JAN's review of the joint venture agreement found some questions and contradictions in the information in the agreement. This joint venture company, 1MDB PetroSaudi Limited, was registered on September 18, 2009 in the British Virgin Island by PetroSaudi Holdings (Cayman) Limited. Based on the Cayman Islands Registry of Companies search reports, PetroSaudi Holdings (Cayman) Limited was established on September 18, 2009. This shows that the two companies were set up on the same date.

3.4.4.   In a joint venture agreement clause states 1MDB PetroSaudi Ltd. (established on September 18, 2009) has received a USD700 million advance loan on September 25, 2009 from its parent company, PetroSaudi Holdings (Cayman) Ltd. The advance loan is repayable in full on or before 30 September 2009. The existence of a USD700 million advance loan for this five-day period raises the question. JAN's review found no minutes or documents indicating that the 1MDB Board was informed of the USD700 million advance loan before the joint venture agreement was signed. In addition, JAN interviews with the 1MDB Board (former and current) in June 2015 found that the advance loan was never disclosed or discussed by 1MDB management before the joint venture project was finalized. A copy of USD700 million loan agreement between 1MDB PetroSaudi Limited and PetroSaudi Holdings (Cayman) Limited signed by Mr. Tarek Obaid representing both companies has been submitted by 1MDB management but the JAN can not confirm it with original documents.

3.4.5. Although the draft agreement was discussed during the meeting on 18 September 2009 but the draft agreement was also not allowed by 1MDB to JAN. JAN's review of documents submitted by Datuk Shahrol Azral to JAN on 5 June 2015 found Mr Brian Chia (Messrs Wong & Partners) via email dated September 30, 2009 questioned the letter requesting a repayment of USD700 million advance loan using PetroSaudi International Ltd. letterhead which gives the advance loan is PetroSaudi Holdings (Cayman) Ltd. The e-mail dated September 30, 2009 while the transfer of money for the repayment of the loan was also made on the same date.

3.4.6. This agreement dated 28 September 2009 also stipulates that the subscription of one billion shares by 1MDB in the joint venture amounted to USD1 billion is payable fully on or before September 30, 2009. This shows that 1MDB is only given a very short period (two days) to make payment USD1 billion to 1MDB PetroSaudi Ltd. The 1MDB Board of Directors at a meeting dated 26 September 2009 approved a transfer of USD1 billion to the bank account of the joint venture company for the purpose of subscription of shares in 1MDB PetroSaudi Ltd.

3.4.7. As at 30 September 2009, Bank Negara Malaysia (BNM) granted approval for funds transfer into joint venture accounts at JP Morgan SA and RBS Coutts Bank Ltd. (Geneva). As of September 30, 2009, a total of USD300 million has been transferred to the 7619400 account at JP Morgan (Suisse) SA, namely 1MDB PetroSaudi Ltd. However, the remaining USD700 million has been transferred to the 11116073 account at RBS Coutts Bank

Ltd., owned by another company that is not involved with this joint venture project. Based on the document submitted by Datuk Shahrol Azral on June 5, 2015 and his statement at the National Accounts Committee meeting on November 25, 2015, the account belongs to Good Star Limited, a subsidiary of the PetroSaudi Group since 1 September 2009.

3.5   Rating Report by Edward L. Morse dated 29 September 20093.5.1. Edward L. Morse's valuation through its letter dated 20 September 2009 informed his company to be appointed by 1MDB and 1MDB PetroSaudi Ltd. to implement independent assessments of PetroSaudi International Ltd.'s hydrocarbon assets and its subsidiaries. The appointment letter was signed by Mr Shahrol Azral on September 29, 2009 which was on the same day that Edward L. Morse's assessment report dated 29 September 2009, a day after the joint venture agreement was signed on 28 September 2009. Given the complexities of assets to be evaluated, Edward L. Morse can issue the assessment report within eight days.

3.5.2. Assessment by Edward L. Morse Energy Advisory Services has been implemented on PetroSaudi International Ltd.'s assets (oil exploration and production rights). While the joint venture agreement clearly states that the company owning all rights and interests of the agreed assets for this joint venture project is PetroSaudi International Cayman, a company other than PetroSaudi International Ltd. The joint venture agreement also states that on the date of the agreement, PetroSaudi Holdings (Cayman) Ltd. has transferred all issued shares of PetroSaudi International Cayman  (which owns all rights and interests in assets with a value of USD2.70 billion) to 1MDB PetroSaudi Ltd. The report also can not verify the assets owned by PetroSaudi Turkmenistan 1 Limited (Jersey company) and Petro Saudi Ltd. Inc. (Panama company). The actual ownership of the assets involved in this joint venture project can not be confirmed as no documents were submitted to 1MDB or JAN auditors to prove the exact date that PetroSaudi International Cayman assets have been transferred to 1MDB PetroSaudi Ltd.

3.5.3. This report is relevant to the exploration and production rights of various locations in Argentina and Turkmenistan. In accordance with item 1.1 of the Overview of Assets in the appraisal report states, valuers only review project economics without assessing geological resources, property rights, including contractual rights to the field . This indicates that oil production rights for Block 3 areas in Turkmenistan and Argentina have not

yet been confirmed. This is because the area has long been a dispute between various parties. This limited information is a constraint on the appraisal report.

3.5.4. In this report it was also explained that the block was originally owned by Buried Hill Energy, a company registered in Panama through a sale and purchase agreement with the Turkmen Government. However, current ownership of the rights to the block is not disclosed. Therefore, the consent to accepting an asset as equity in a joint venture investment may be considered unrealistic and at high risk.

3.5.5. The report also noted many constraints, including PetroSaudi International Ltd. unable to provide cash flow capital that can be used for comparison with assets in Turkmenistan because it does not have the ability to evaluate the evolution of royalty and fiscal regimes as well as check the value comparison procedures. This shows PetroSaudi International Ltd. have no expertise to deal with complex assets. While paragraph 4 of the appraisal report states that assets in Argentina are non-tradable and non-transactional assets. However, assets have been valued based on high and low estimates ( high & low estimates) which shows a high risk of assets in Argentina. This shows that 1MDB failed to evaluate the assumptions used by valuers relating to production, petroleum prices, discount rates and capital and operating expenses. This valuation report only assesses the rights to assets only rather than the value of the company owning these assets. Therefore, the net value of this company is also not disclosed. All such constraints are the risks to the accuracy of the assessment report.

3.5.6. At a meeting on October 3, 2009, the 1MDB Board expressed their concern about the reliability of the appraisal report as it had been prepared for a short period as previously it was informed that the evaluation report would take several months and could only be made available in March 2010. Clause in agreement a joint venture that stipulated 1MDB should appoint an independent valuer to assess the assets of PetroSaudi Holdings (Cayman) Ltd. and the report must be submitted on or before September 30, 2009 is an unreasonable determination. The 1MDB Board of Directors at the meeting also asked the management to obtain an evaluation report and arrange an explanation by Edward L. Morse at the next meeting.

3.6.   1MDB Board of Directors' Meeting on 3 October 2009

3.6.1. At this meeting, the 1MDB Board of Directors expressed dissatisfaction when their orders were omitted and the use of funds was channeled to others without their knowledge. The views of the Board are as follows:

a.   The Board of Directors is not informed of the change of plans to transfer a total of USD700 million from 1MDB into an account that is not a joint venture company.

b.   The Board of Directors is also not advised on the conversion of a bank account of a joint venture company from BSI-SA (Geneva) to JP Morgan (Suisse) Geneva. This raises the question as the revision of JAN obtains approval for the transfer of this bank account is made by a resolution dated September 30, 2009 (ie on the same date the transfer was made), but the JAN interview with some former Board members found they were unaware of the existence of this resolution despite their signature at the resolution.

c.   The Board is also less clear about the status of ownership of assets held by joint venture companies and the quality of assets transferred to joint venture companies including inherent / potential risks inrelation to the assets.

d.   The Board also notes that this amount of investment requires a thorough and detailed consideration and needs to undergo due diligence .

e.   The Board is of the opinion that all actions have taken place in a very short period of time and have compromised with key controls and checks and balances that are essential to safeguarding the interests of 1MDB. The Board is also puzzled by the speed of appraisal reports provided by Edward L. Morse.

f.         The Board has given firm orders to 1MDB's Chief Executive Officer and management not to deviate from the instructions given and to adhere to the agreed procedures.

g.   The Board is of the view that the management has ignored the company's core thrust to focus on attracting foreign investment into Malaysia.

3.6.2.   In this regard, the 1MDB Board directs the management to take corrective action as follows:

a.   Determine whether a total of USD700 million from PetroSaudi Holdings (Cayman) Ltd. can be reinstated so that the funds can be channeled according to the original resolution;

b.   Obtain written confirmation from JP Morgan on the approval of the use of funds kept in the joint account;

c.   Obtain written confirmation that the assets injected by PetroSaudi Holdings (Cayman) Ltd. was owned by a joint venture company and obtained a copy of the appraisal report by Edward L. Morse as well as legal views for Board considerations;

d.   Arrange meetings with Edward L. Morse appraisers and legal counsel to brief the Board at the next Board meeting.

e.   Obtain written confirmation of the quality of the assets (including the quality and lifetime of oil wells, political risks and other potential risks relating to assets placed in a joint venture); and

f.         The Board is still dissatisfied and directs the management to appoint an independent valuer to re-evaluate the assets in a joint venture.

3.6.3.   Based on documentary evidence and interviews with the former 1MDB Board, the JAN review found that the directives of the Board were not complied with by 1MDB's management. It is observed that the approval given by the Board is for cooperation with PetroSaudi International Ltd. and not with its subsidiary, PetroSaudi Holdings (Cayman) Ltd.

3.6.4. It is arguable that 1MDB's management has repeatedly disobeyed the specific instructions given by the Board. Among them are as follows:

a. Signing a joint venture agreement on 28 September 2009 before taking action on the matters required by the Board. This led to the 1MDB Chief Executive Officer and management being reprimanded and warned at 1MDB Board meeting dated 3 October 2009.

b.       Not performing a second assessment of the assets of a joint venture as directed by the Board on 3 October 2009.

3.6.5.   Although 1MDB's CEO was found to be inconsistent with directives, guidelines and corporate governance, the 1MDB Board of Directors still did not take any action against him.

3.7.   1MDB Board of Directors' Meeting on 10 October 2009

3.7.1.   During this meeting, the Board of Directors of 1MDB raised the asset valuation requirements in which the management was asked to obtain 10 reputable valuer names for shortlist and obtain the approval of the Chairman of the Advisory Board. As such, management can discuss with PetroSaudi Holdings (Cayman) Ltd. for the appointment of the second valuer.

3.7.2.   Furthermore, the 1MDB Board has instructed 1MDB's Chief Executive Officer to provide a comprehensive summary paper to the Chairman of the Advisory Board which contains the chronological events of the joint venture agreement, funding status and Board of Directors 1MDB's discrepancies on PetroSaudi Holdings (Cayman) Ltd. assets valuation report However, during the 1MDB Board of Directors' meeting on November 7, 2009, Mr Shahrol Azral made no second assessment on the assets of the joint venture as the Chairman of the Advisory Board disagreed with the proposal, but directed the 1MDB Board to appoint a consulting company to assess the ownership of the company  joint venture. However, JAN's review found no document that could prove the appointment of the consultation had been made.

3.7.3.   JAN's review finds that the joint venture agreement has a clause stipulating that all financial reports, accounts and operations need to be submitted to shareholders on a quarterly basis. However, the documents can not be submitted by 1MDB for the revision of JAN. During the joint venture project period, the 1MDB Board was not informed where the fund was invested by joint venture companies although Mr. Shahrol Azral and Mr. Tang Keng Chee were appointed as 1MDB's representatives in the joint venture. The JAN also did not submit any documents to prove the investment made by this joint venture company.

3.7.4.   Nonetheless, although the 1MDB Board is dissatisfied with some of the 1MDB's management actions, JAN finds no evidence that this matter has been referred to the Chairman of the 1MDB Advisory Board in writing. Meanwhile, 1MDB Board Chairman during the PAC meeting on 19 January 2015 informed that the Board of Directors of 1MDB was completely dissatisfied with the way the management handled the affairs related to the joint venture project but agreed to further clarification and confirmation given by 1MDB's management.

3.7.5.   JAN's analysis summarizes the decision to make equity investments in the joint venture, namely 1MDB PetroSaudi Limited is an action without strategic planning for being made within eight days, without detailed assessment and prior to resolving the issues raised by the Board

earlier. Joint venture agreements also contain clauses that do not care for the interests of the company

4. CHANGE OF EQUITY INTEREST IN THE COMPANY ASSESSED TO THE MURABAHAH NOTES4.1.   After only six months, the joint venture project has been proposed to be terminated and converted into another form of investment. At a 1MDB Board meeting dated 1 March 2010, the disposal of equity in a joint venture was found to have been discontinued. However, the 1MDB Board of Directors through a resolution dated 22 March 2010 has agreed to dispose of all the 40% equity stake worth USD1 billion in a joint venture company, namely 1MDB PetroSaudi Ltd. with a consideration of USD1.20 billion through the issuance of the Murabahah Note under the Murabahah Financing Agreement. On the same date, the disposal of equity and issuance of Murabahah Notes is approved in writing through the Special Rights Redeemable Preference Shareholdersand the Minister of Finance Incorporated (MKD). While in the initial stage of investment in the joint venture is expected to generate an investment return rate (IRR) of 15% but until the joint venture project is terminated, no profit is received for the six-month period. On the other hand, only unrealized gains are recorded as a result of the joint venture valuation of the joint venture project amounting to USD200 million in which the value has been set earlier. JAN interviews with several 1MDB Board and Messrs KPMG found that the results of this equity investment conversion to the Murabahah Notes investment was made to ensure a steady stream of income to 1MDB through interest income annually to meet its cash needs to finance financial and project obligations as compared to return on investment equity that takes a long time to be reimbursed. This shows that the investment decision in a joint venture project is not an accurate decision.

4.2.   As of March 31, 2010, this joint venture agreement was canceled and 1MDB entered into a Share Sale Agreement(SSA) to sell all its equity holdings in the joint venture company at a price of USD1.20 billion by way of subscribing to the Murabahah Note at a profit rate of 8.67% per annum. The principal amount of USD1.20 billion will be received on a lump sum at the maturity date of 31 March 2021. Murabahah Note issued by 1MDB PetroSaudi Ltd. this is supported by corporate guarantee from PetroSaudi International Ltd. through the Corporate Guarantee Agreement dated March

31, 2010. 1MDB should make a detailed assessment of the company's credit capabilities before accepting the corporate guarantee. There is no evidence to certify that the credit capacity rating of PetroSaudi International Ltd. was conducted and discussed at 1MDB Board of Directors meeting.

4.3.   However, documents relate to the actual date of termination of the joint venture project and the Murabahah Note subscription agreement issued by 1MDB PetroSaudi Ltd. found to be conflicting and confusing. The copy of the agreement received by JAN and the copy of the agreement in the KPMG Messrs paper show the date of the agreement dated March 31, 2010. The effective date of the agreement defined in paragraph 3.3 states "This letter shall cease to be conditional upon the date (The" Effective Date " ) on which all the conditions precedent referred in clause 3.1 have been fulfilled ". Among the conditions set out in paragraph 3 and clause 3.1 (a) is that the shareholders of the company must unanimously approve in writing the purchase of shares from 1MDB. However, further review has found that shareholders resolution 1MDB PetroSaudi Ltd. which approves the repurchase of shares held by 1MDB is dated 14 June 2010. Therefore, this sales transaction is illegal in terms of legislation until it obtains shareholders' approval 1MDB PetroSaudi Ltd.

4.4.   The review of some of the other documents submitted also shows the date of the Letter of Share Purchase Agreement actually effective June 14, 2010, instead of March 31, 2010 as follows:

a.   1MDB Board Resolution No. 17/2011 was attached with a Murabahah Financing Agreement draw dated 14 June 2010 showing the effective date of June 14, 2010 and the due date as a 14 June 2011.

b.   Board Resolution 1MDB No. 25A / 2012 also states the date of the Murabahah Financing Agreement as June 14, 2010.

c.   Notice of Drawing dated 12 May 2011 issued by 1MDB PetroSaudi Ltd. to 1MDB signed by Mr Tarek Obaid showing the date of the Murabahah Financing Agreement dated June 14, 2010.

4.5.   The Murabahah Financing Agreement states the definition of availability period of additional financing applications is "The period commencing on effective date and ending on first anniversary of the effective date". If the effective date is March 31, 2010, the due date is due March 31, 2011. However, additional financing applications were made through a notice of withdrawal on 12 May 2011, and the approval of the 1MDB Board was

obtained through two resolutions dated May 16, 2011 and 24 October 2011. Subsequently, funds were sent in May and October 2011. This shows the even date of the year not in March 2011 but after the date of the first supplementary financing application.

4.6.   Messrs. Ernst & Young (EY) who were also present at the 1MDB Board of Directors Meeting on April 5, 2010 indicated that one of their main scope of audits was investment in a joint venture company, particularly the valuation of assets injected into a joint venture company. Messrs EY explains that the conversion of 40% equity holdings to debt instruments requires fair asset valuation at the date of acquisition and disposal of equity. However, 1MDB only has one of the two asset valuation reports that should be provided. The valuation dated 29 September 2009 provided by Edward L. Morse was found to be insufficient to justify a profit of USD200 million as it was based on an initial assessment report prepared at the time of acquisition of equity, rather than during its disposal.

4.7.   1MDB's failure to submit a document to verify the ownership and valuation of the asset as at 31 March 2010 has been the basis of dissenting opinion between 1MDB's management and auditors. The appointment of Messrs. EY as auditors was terminated by a resolution of the Board of Directors of 1MDB, Special Rights Redeemable Preference Shareholders and Minister of Finance Incorporated (MKD), all dated September 15, 2010. According to Datuk Shahrol Azral during the PAC meeting on 11 February 2016, with the exchange of 1MDB shareholders from holdings by Terengganu MBI (under the name of TIA) to MKD (under the name of 1MDB).

4.8.   JAN's review found that 1MDB had recorded a profit of RM651.80 million (USD200 million) in the financial statements for the financial period ended 31 March 2010 as a result of the sale of this equity and the conversion to the Murabahah Note. Messrs KPMG appointed on 15 September 2010 to replace Messrs EY has confirmed the transaction during his audit on Management Representative Letter issued by 1MDB dated 4 October 2010. The letter signed by 1MDB's Chief Executive Officer states that the Share Sale Agreementwas signed on 31 March 2010 and not June 14, 2010. The copy of the Murabahah Financing Agreement granted to Messrs KPMG shows it dated 31 March 2010. This shows that 1MDB's management effort at the time presented documents that convinced Messrs KPMG that the equity conversion to the loan had been occurred on March 31, 2010, the last day of the company's financial year 2010. The amendment of the agreement

dated 1MDB resulted in an overstatement of profit of RM651.80 million (USD200 million) in the financial statements for the financial period ended 31 March 2010 , in which case the profit should have been recorded in the financial statements for the financial year ended 31 March 2011.

5.     ADDITIONAL INVESTMENT IN MURABAHAH NOTES5.1.   JAN's review found that the Murabahah Financing Agreement contained a certain clause that allowed 1MDB PetroSaudi Ltd. apply for additional investment from 1MDB within one year from the effective date of the Murabahah Financing Agreement (availability period). The exact justification of this clause in the Murabahah Financing Agreement is unknown, especially when the funds raised by 1MDB to finance its investments and operations are through debt and partly guaranteed by the Federal Government.

5.2.  During a 1MDB Board meeting on 5 July 2010, the management recommended to invest in another joint venture project with PetroSaudi International Ltd. through the purchase of 4.23% equity holdings in GDF Suez SA in France at USD2.50 billion, which is 20% off current market value. The 1MDB Board has asked the management to seek advice from the Chairman of the Advisory Board whether 1MDB can engage in this investment. Additionally, the 1MDB Board requires management to assess in detail whether to make an investment through direct equity holding or additional financing of the Murabahah Note. The 1MDB Board has recommended that management appoint an independent party to conduct a background check of GDF Suez SA. However,

5.3.   In a meeting between 1MDB Chief Executive Officer and Chairman of the Advisory Board on 21 July 2010, Chairman of the Advisory Board has been informed that the 1MDB Board has approved and agreed with the management's recommendations on the investment. In this regard, the Chairman of the Advisory Board has agreed with the approval of the 1MDB Board provided that the management must conduct an analysis of the investment-related risks including legal and financial due diligence.

5.4.   Subsequently, at a Board meeting of 1MDB on 24 July 2010, Mr Shahrol Azral informed that the Chairman of the Advisory Board has agreed to support the Board's decision to invest in the GDF Suez SA Project. In this regard, the Board of Directors of 1MDB through a resolution dated 9

September 2010 agreed to an additional subscription of Murabahah Notes amounting to USD500 million issued by 1MDB PetroSaudi Ltd., as a mechanism of acquisition of equity investments in a public listed company abroad. However, it was found that the 1MDB Board was not informed of the conditions provided by the Chairman of the Advisory Board to carry out risk analysis and due diligence.

5.5.   On September 6, 2010, BNM has granted 1MDB to lend a foreign currency loan amounting to USD500 million to 1MDB PetroSaudi Ltd. in the form of subscription Murabahah Notes taking note of the purpose stated by 1MDB, which is to finance part of the acquisition cost of 4% equity holdings in a public listed company in France. Subsequently, on September 14, 2010, a total of USD500 million was paid into the 1MDB PetroSaudi Ltd. account. numbered 7619400 at JP Morgan (Suisse) SA (Geneva). However, 1MDB is unable to provide the JAN document to prove or confirm that equity holdings at GDF Suez SA through PetroSaudi International Ltd. have made.

5.6.  On May 12, 2011, 1MDB PetroSaudi Ltd. apply for additional investment from 1MDB amounting to USD330 million. It has been approved by the Board of Directors and 1MDB shareholders through 1MDB Board resolution and 1MDB's shareholders resolution dated May 16, 2011. On 20 May 2011, the authorization granted by BNM to 1MDB provides additional foreign currency loans amounting to USD330 million to 1MDB PetroSaudi Ltd. for the purpose of subscribing Murabahah Notes issued by 1MDB PetroSaudi Ltd. with corporate guarantee from PetroSaudi International Ltd. BNM is also informed that the funds will be used to finance projects in the oil and gas sector. Next, the transfer of money to 1MDB PetroSaudi Ltd. amounting to USD330 million has been made in four fundraising stages, all of which have been credited to the 11116073 account. 2000 owned by PetroSaudi International Ltd. (Saudi), three shippers in May 2011 and one shipment on October 25, 2011. However, 1MDB can not provide a document to JAN to prove 1MDB PetroSaudi Ltd. has used the funds to finance projects in the oil and gas sector.

5.7. The Exchange Control Act 1953 requires every application made to BNM to be submitted with accurate and complete information regarding investment proposals to be made abroad. JAN's review found that the consent granted by BNM to 1MDB on 6 September 2010 was to finance part of the acquisition cost of equity in a public listed company in France. While the truth on May 20, 2011 was given to 1MDB to lend foreign currency loans to PetroSaudi BVI using the funds to finance projects in the oil and gas sector. A media

statement by BNM on October 9, 2015 on the investigation of 1MDB stated that the information provided by 1MDB during application was inaccurate or incomplete. Therefore, BNM has revoked the three permissions granted to 1MDB under the Exchange Control Act 1953 for overseas investments amounting to USD1.83 billion. BNM has also issued a directive under the Financial Services Act 2013 to 1MDB to bring back to Malaysia a total of USD1.83 billion and submit plans for this matter.

5.8.   JAN's review found that 1MDB had recorded returns from the Murabahah Notes investment for the period April 2010 to 31 March 2012 amounting to RM835.38 million in the financial statements for the financial year 2010 to 2012. Details are as follows:

TABLE 2.2.INVESTMENTS OF MURABAHAH NOTES AND RETURNS ENFORCED IN THE FINANCIAL YEAR ENDED 31 MARCH 2010 TO 31 MARCH 2012

FINANCIAL YEAR INVESTMENTS INTEREST

RATES (%)

DURING RETURN (RM MILLION)

(USD Million)

(RM million)

CASH PLEASE NOTE

2010 1,200.00 4,139.12 8.67 March 2021

- -

2011 500.00 1,571.00 8.25 March 2015

245.84 78.96

2012 330.00 1,018.80 8.25 March 2021

- 510.58

TOTAL 2,030.00 6,728.92 245.84 589.54

Source: 1MDB Financial Statement

5.9.   This shows that 1MDB only received a cash return of RM245.84 million from RM6.728 billion (USD2.03 billion) of investments in Murabahah Notes. While the receivable balance of RM589.54 million has been accounted for in the next 1MDB Group investment.

6. CONVERSION OF MURABAHAH NOTES TO THE PETROSAUDI OIL SERVICES LIMITED EQUITY (PSOSL)6.1.   1MDB recorded a Murabahah Note of RM6.80 billion (USD2.22 billion) on March 31, 2012, after taking into account capitalized profits of RM589.54 million and foreign exchange loss of RM516.11 million. After 27 months of investing in the Murabahah Note, on 1 June 2012, 1MDB redeemed the Murabahah Note (including profit receivable) amounting to USD2.22 billion (RM6.80 billion) through an asset swap arrangement whereby 1MDB's subsidiary, 1MDB International Holdings Ltd . (1MDB-IHL) acquired 49% equity interest in PetroSaudi Oil Services Ltd. (PSOSL). PSOSL is a wholly owned subsidiary of PetroSaudi International Ltd. 1MDB-IHL also signs call and put optionwith PetroSaudi International Ltd. to acquire the remaining 51% equity interest in PSOSL at an option price of USD10. The maturity date of the option is December 31, 2015.

6.2.   The events chronology of the conversion process of the Murabahah Note to PSOSL's equity is set out below:

a.       The 1MDB management informed at 1MDB Board Meeting on 8 February 2012 regarding Baker & Mckenzie's appointment as legal advisor, Lloyds Register as technical adviser and Lazard as financial advisor to evaluate and implement PSOSL's due diligence assets which have been approved by the Board.

b.       During 1MDB Board of Directors' meeting on March 2, 2012, Encik Shahrol Azral proposed the redemption of Murabahah Notes and equity holdings in PSOSL. He also said that the detailed proposal will be tabled at 1MDB Board Meetings on 19 March 2012.

c.       Resolution 1MDB Board of Directors dated March 2, 2012 has decided a company under the name of 1MDB International Holdings Limited (1MDB-IHL) established in the British Virgin Islands for proposed equity acquisition of PSOSL.

d.       At 1MDB Board Meeting on March 19, 2012, Mr. Shahrol Azral explains that the PSOSL drilling contract will expire in June 2012 and is expected to be extended during the week. The management is required to ensure that the PSOSL contract is extended before the proposed proposal is presented.

e.       At the 1MDB Board Meeting on June 18, 2012, Datuk Shahrol Azral informed that the terms and structure of the proposal relating to the redemption of the Murabahah Notes and the acquisition of PSOSL equity are being finalized which will be presented in the near future.

f.         However, two resolutions of the Board of Directors of 1MDB dated June 20, 2012, respectively, resolved the termination of the Murabahah Financing Agreement and the acquisition of 49% equity interest in PSOSL with commercial arrangement for a 100% economic benefit.

6.3.   The conversion of Murabahah Notes to PSOSL's equity shares is not in line with the good practices of corporate governance and the responsibility of the Board in safeguarding the interests of the company. JAN's review of PSOSL's equity procurement process found several weaknesses as follows:

a.   No due diligence is implemented to identify the company's liability, the company's ability to generate funds and the company's past financial performance as well as other information required before any decision is made in the equity investment of a company.

b.   No document is submitted to confirm any due diligence and assessment has been made and presented to the Board for review and discussion.

c.   The PSOSL valuation corresponding to the Murabahah Notes value at the date of redemption is remarkable.

d.   Based on the Cayman Islands General Registry, PSOSL was established on the Cayman Islands   on December 11, 200. This shows that the company only operates less than 3 years and   no financial record is assessed for its performance before 1MDB makes a decision to invest in this company.

e.   On March 2, 2012, Encik Shahrol Azral proposed a detailed discussion of the PSOSL presented at the next Board Meeting of 1MDB that no reports were submitted by any designated consultant.

f.         At the Board Meetings dated 18 June 2012, the Chief Executive Officer once again informed on the terms and conditions of the proposal to be tabled later. However, the termination of the Murabahah Note was made by acquiring 49% equity interest in PSOSL on 1 June 2012.

g.   Approval of the shareholders on 20 June 2012 is found to be the same as the date of the consultant's assessment report. Therefore, it can not be confirmed whether the consultant's report has been presented for shareholders' consideration.

h.   However, there were five documents signed by 1MDB Chief Executive Officer on 1 June 2012. This suggests that the decision to dispose of the Murabahah Note and acquire 49% equity interest in PSOSL has been implemented by 1MDB's Chief Executive Officer and Board of Directors only informed on 20 Jun 2012.

i.         Two 1MDB Board resolutions each dated 20 June 2012 approved to redeem the Murabahah Note and acquire 49% equity interest in PSOSL while the financial statements for the financial year ended 31 March 2012 stated that the Murabahah Note was redeemed through a swap arrangement asset via equity stake in PSOSL at 1 June 2012. This shows that the 1MDB Board Resolution was approved at the later date and the deal was disposed off by 1MDB's management prior to the approval of the Board. The act dismissed the role of the Board.

j.         The conversion of the Murabahah Notes to the PSOSL equity interest was on June 1, 2012, while the Murabahah Notes gains were only taken into account until March 31, 2012. This shows that the Murabahah Note has yet to be redeemed and under the auspices of PetroSaudi Holdings Ltd. (formerly known as 1MDB PetroSaudi Ltd.) without pay back for two months. Messrs Deloitte who audited the financial statements for the financial year ended March 31, 2013 did not state this in his report.

k.   Murabahah notes were valued on March 31, 2012 while PSOSL's equity holdings were valued on June 1, 2012. Murabahah notes should be valued at the date the investment was actually carried out on June 1, 2012.

l.         The Murabahah Notes Profit amounting to RM589.54 million was not received in cash but instead capitalized before the change to equity holdings in PSOSL. However, there is no document to support agreed values and valuation methods.

m. The results of the acquisition of equity holdings in PSOSL are made through a resolution of the Board of Directors of 1MDB, the approval of the Major Shareholders and the Minister of Finance Incorporated by a written resolution respectively dated 20 June 20012. The Registrar of Members document shows the transfer of equity holdings from PetroSaudi Holdings BVI to 1MDB-IHL dated 4 September 2012. However, the date of transfer was obtained eight days earlier than the date of disposal of PSOSL on 12 September 2012 as noted in the financial statements for the financial year ended 31 March 2013.

n.   Part of the exchange, 1MDB-IHL also entered into a call and put option with PetroSaudi International Ltd. to acquire the remaining 51% equity interest in PSOSL at an option price of USD10. This option can be discharged at any time until the maturity date of the option on 31 December 2015. The number of PSOSL paid shares is 100 units with a nominal value of USD1 per unit. Bayaram amounting to USD2.22 billion for 49% of the share units shows as if the intrinsic value of PSOSL shares is worth USD45.35 million per unit. This raises the question of why 1MDB did not acquire 100% equity stake for an additional fee of only USD10, compared to acquiring 49% equity holdings at USD2.22 billion.

7. PSOSL DISPOSAL AND PORTFOLIO INVESTMENT PROPERTY IN SEGREGATED PORTFOLIO COMPANY (SPC)7.1.   The Special Meeting of the Board of 1MDB on 8 February 2012 held an initial discussion on the acquisition of PSOSL. 1MDB's Chief Executive Officer informed PSOSL to operate in Venezuelan waters and the country was subject to sanctions by the United States. 1MDB should avoid involvement in any business contracts with companies in Venezuela to avoid the negative perception of the United States. While this is serious, the 1MDB management and Board continue to invest in PSOSL.

7.2.   However, after 45 days 1MDB changed the Murabahah Note to equity investments in PSOSL, during a meeting dated July 16, 2012, Datuk Shahrol Azral has recommended to the 1MDB Board to dispose of equity holdings in PSOSL operating in Venezuela. This is because PSOSL has a drilling contract in the country that is facing restrictions from the United States. This shows that the previous decision to convert the Murabahah Note to equity holdings in PSOSL is not prudent. At the same meeting, Datuk Shahrol Azral

also proposed to invest revenue from the disposal of PSOSL with fund managers.

7.3.   1MDB's Board of Directors through resolution dated 2 August 2012 approved the disposal of the entire equity holding in 1MDB-HL which holds 49% equity in PSOSL. In the same resolution, 100% equity holdings of 1MDB-IHL are approved for disposal to Bridge Partners International Investment Ltd. (Bridge Partners) for a consideration of not less than USD2.22 billion. The proceeds will be reinvested in some of the funds managed by licensed fund management companies to be decided upon by the Chief Executive Officer. These key decisions were made only through a resolution of the Board and approved by 1MDB shareholders.

7.4.   On September 12, 2012, the sale and purchase agreement to dispose of the entire equity in 1MDB-IHL is sealed between 1MDB and Bridge Partners. In return, Bridge Partners issued six non-interest bearing promissory notes worth USD2.318 billion in one month. 1MDB recorded an unrealized gain of RM316.22 million (USD95.37 million) on disposal of this equity in the financial statements for the year ended 31 March 2013.

7.5.   On September 12, 2012 also, 1MDB through its wholly-owned subsidiary, Brazen Sky Ltd. has entered into an Investment Management Agreement with Bridge Global Absolute Return Fund SPC (Bridge Global SPC) and Bridge Partners Investments Management (Cayman) Ltd. to invest USD2.318 billion. This investment is funded by promissory notes in exchange for cash receipts and invested in various portfolio investments in the Cayman Islands registered Segregated Portfolio Company (SPC). The ability of the Global Bridge SPC to receive promissory notes to make investments against cash, is an off-the- shelfdecision.

7.6.   The review of Messrs Deloitte's paper finds that investment proposals through Bridge Global SPC are received from Bank BSI (Singapore), a bank custodian of Brazen Sky Ltd. 1MDB's (former and current) CEO during interview with JAN also acknowledged that the proposed investment was received from BSI Bank. Bridge Global SPC was registered on the Cayman Islands on August 8, 2012, a month before 1MDB invested in SPC through its subsidiary, Brazen Sky Ltd. This shows that 1MDB takes a high risk by using a new one-month company and has no experience managing SPC funds amounting to USD2.318 billion.

7.7.   Based on information from the Monetary Authority of Cayman Islands and a review of Messrs Deloitte's paper find Bridge Global SPC only obtained a license for mutual funds transactions on November 15, 2013. This article shows that before that date, 1MDB appointed an unlicensed fund manager. This action is a prudent act and exposes 1MDB at risk that is unreasonable.

7.8.   During the 1MDB Board Meeting on 4 December 2012, Messrs. KPMG has raised issues regarding the absence of sufficient evidence to show that the sale of 49% equity in PSOSL is a real sale because the equity is sold to Bridge Partners International Investment Ltd., and the proceeds of the sale are reinvested within the Global Absolute Returns Bridge. Based on the matching company names, the two entities seem to be interconnected. However, 1MDB's management believes that investing in hedge fundsis immediately a prudent measure before deciding on other long-term investment forms that are more appropriate to taking into account the large amount of involvement. JAN's analysis of subsequent chronological events found that the statement was incorrect as the investment in hedge funds was found to be very difficult to dilute, redeem, or be brought back to Malaysia to finance further 1MDB investments in the property and energy sectors.

7.9.   During 1MDB Board Meetings on 4 December 2012, the management stated Bridge Global SPC in the process of listing hedge funds in Bloomberg. On December 9, 2013, Mr Hazem confirmed six investment portfolios by Brazen Sky Ltd. has been listed in Bloomberg. According to Deloitte's paperwork, fund managers have confirmed six investment portfolios have been listed in Bloomberg. However, the JAN could not confirm whether the six portfolios were listed in Bloomberg in 2013. The JAN review on the Bloomberg website on June 15, 2015 and December 6, 2015 shows that the investment portfolio fund is still in Pending Listing status. This suggests that there is a difference between information being channeled to the Board with information on the latest Bloomberg website.

8. PORTFOLIO INVESTMENT RISE IN SEGREGATED PORTFOLIO COMPANY (SPC)8.1. Investments in SPC are made through the Investment Management Agreement signed on 12 September 2012. For the period September 2012 to September 2013, the investment of RM6.80 billion (USD2.318 billion) earned

a return of RM662 million, a dividend of RM445.93 million and capital distribution amounting to RM216.07 million as shown in the financial statements for the year ended 31 March 2014.

8.2. In response to the criticisms raised in Parliament and the media on portfolio investment in SPC managed by fund managers in the Cayman Islands, the 1MDB Board of Directors on 20 May 2013 agreed that the investment was gradually redeemed to increase public perceptions of 1MDB's investment credibility. In this regard, the Board of Directors of 1MDB has issued nine directives between May 2013 and August 2014 to management to prepare the plans, schedules and redemption of the SPC portfolio funds either in stages or in whole as in the following table:

TABLE 2.3

DIRECTORS 'INSTRUCTIONS INVESTMENT IN TRANSFERRED INVESTMENT SPCNUMBER OF BOARD MEETINGS

DATE OF THE BOARD OF DIRECTORS

DIRECTORS 'INSTRUCTIONS

3/2013 20.05.2013 Prepare a plan and a redemption schedule in stages.

5/2013 19.08.2013 Prepare a plan and a redemption schedule in stages.

6/2013 11.11.2013 Liquidate investment in installments and bring back funds to Malaysia.

1/2014 27.01.2014 The right time to redeem the investment given the high USD rate.

Special 27.02.2014 The management took

immediate action to redeem and bring back funds to Malaysia.

3/2014 22.04.2014 Funds are redeemed as soon as possible but there is no financial need to arrive in the near future. It can be invested with local institutions.

4/2014 10.06.2014 Redemption of at least 1/3 portfolio investment on 30 September 2014 and the entire investment on 31 March 20015.

5/2014 21.07.2014 Redeem 1/3 portfolio investment on 30 September 2014 and the entire investment on March 31, 2015. Management is directed to redeem the investment on those dates.

6/2014 18.08.2014 Redeem entire investment before or on 31 December 2014.

Source: Minutes of 1MDB Board Meetings

8.3.     However, no action is taken by 1MDB management despite a special clause in the Subscription Agreement which allows customers to liquidate the funds at any time by giving 30 days notice. The willingness of fund managers to liquidate portfolio funds within one month was also confirmed by Mr Hazem (1MDB Chief Executive Officer) at 1MDB Board meeting on June 10, 2014.

8.4.     Following on from the repeated instructions from the 1MDB Board, at least part of the SPC portfolio fund amounting to USD870 million was redeemed in mid-October 2014 while a total of USD300 million would be

redeemed after a few days later. This matter has been notified to the Board of 1MDB on 20 October 2014.

8.5.     On 4 November 2014, Mr Hazem informed the Board of 1MDB during a meeting that a sum of USD1.20 billion of the SPC portfolio fund was redeemed. It has been used to pay the debt and termination benefits of Aabar Investments PJS to acquire 49% equity in Powertek Investment Holdings Sdn. Bhd. and 1MDB Energy (Langat) Sdn. Bhd. At the same meeting, the Chairman of the 1MD Board has informed Messrs Deloitte (who was present at the meeting) that the remainder of the SPC's portfolio investment will be redeemed before the end of November 2014 and will guarantee to monitor the redemption.

8.6.     During the meeting on December 20, 2014, Encik Azmi (1MDB Chief Financial Officer) informed the 1MDB Board that the latest sum of the redeemed SPC portfolio funds amounted to USD1.392 billion and the balance of USD939.87 million will be redeemed at the end of December 2014. The meeting was also informed of the entire SPC portfolio fund which has been pledged to Deutsche Bank as a guarantee for a loan of USD975 million. The 1MDB Board of Directors is of the opinion that it is unfair to pledge the entire SPC portfolio fund amounting to USD2.318 billion to Deutsche Bank when the loan amounted to only USD975 million.

8.7.    The information was found to be inconsistent with the statement by Mr Arul Kanda (1MDB President and Chief Executive Officer from 1 January 2015) during a National Accounts Committee (PAC) meeting on 1 December 2015, where he informed a total of USD1.22 billion investment investment SPC portfolio is not secured because it has been redeemed. Only the remaining investment of SPC's portfolio of USD1.11 billion with dividends amounting to USD120 million has been pledged to Deutsche Bank to secure the USD975 million loan. However, JAN's review found that the statement was inaccurate as between 14 and 24 November 2014, an additional redemption amounting to USD173.50 million was made to make the entire redemption of SPC's portfolio investment amounting to US1.392 billion.

8.8.     The next JAN revision to the Facility Agreement found that the terms of the loan did not contain clauses that could support Encik Azmi's statement on December 20, 2014 or Mr Arul Kanda's statement on December 1, 2015. Some of the conditions imposed on the loan are as follows:

TABLE 2.4

TERMS OF LOAN USD975 MILLION DEUTSCHE BANK AG, SINGAPORE IN CONNECTION WITH PORTFOLIO SPC FUND SHAREKLAUSA REQUIREMENT

20.2 (b) Brazen Sky shall ensure that the Brazen Sky Net Worth will not at any time be less than USD1,500,000,000.

22.2 (b) With effect from the date which is six months from the utilization date, the borrower and Brazen Sky shall ensure that, at all times thereafter, the amount standing to the credit of Brazen Sky Account is at least equal to the Brazen Sky Required Balance. Note:

Brazen Sky Account - Bank account in Hong Kong.

Brazen Sky Required Balance - a cash amount of US600 million up to maximum of USD1,170 million; USD500 million plus aggregate of each Accordion Increase Amount x 1.2.

Source: Facility Agreement USD975 million

8.9.     The 1MDB Board of Directors at the meeting on 20 December 2014 is also informed that Deutsche Bank AG, Singapore has agreed to allow a total of USD993 million to be used for the Aabar option termination payment from the redemption of SPC funds amounting to USD1.392 billion. While the balance amounting to USD399 million has been used to pay USD Note loan interest.

8.10.   However, details in detail on the payment of USD993 million to Aabar for termination of the option and USD199 million loan interest payment amount can not be confirmed by JAN. The 1MDB Board has also applied for complete details on the payment on 20 December 2014 but JAN's review found it was not restored at the next 1MDB Board Meeting. During the meeting on 23 February 2015, the Board of Directors of 1MDB raised questions regarding the termination of Aabar's option which was only

informed to the Board of 1MDB upon payment. This shows that the Aabar option was canceled without the approval of the 1MDB Board.

8.11.   During a meeting between 1MDB and JAN's management on September 9, 2015, 1MDB informed that physical payment to Aabar was made through the bank account of 1MDB's subsidiary, Brazen Sky Limited (Brazen Sky) at BSI Bank for terminating companybecause 1MDB has no bank account abroad. However, the JAN review found that the redemption of the SPC portfolio of USD1.392 billion included in the Brazen Sky bank account between September 11, 2014 and November 24, 2014 was transferred to 1MDB Global Investments Limited (1MDB GIL) between September 12, 2014 and December 8, 2014 amounting to USD1.417 billion. An analysis of the Brazen Sky bank transactions for the months of September to December 2014 found no payment of Aabar's option payments made through the Brazen Sky account. The Brazen Sky bank account transaction details are as follows:

TABLE 2.5

BRAZEN LIMITED BANK TRANSACTIONS FOR SEPTEMBER PERIOD UNTIL DECEMBER 2014DATE TRANSACTIONS SIGN (USD) EXIT (USD)

11.09.2014 Portfolio C2 111,000,000.02 -

12.09.2014 1MDB GIL - 94,420,000.00

07.10.2014 Portfolio C2 146,518,719.52 -

Portfolio C1 228,481,280.48 -

1MDB GIL - 375,000,000.00

14.10.2014 Portfolio B1 280,045,600.00 -

Portfolio C1 109,954,400.00 -

1MDB GIL - 340,000,000.00

23.10.2014 Portfolio A2 27,099,840.00 -

Portfolio B1 198,247,200.00 -

Portfolio B2 30,152,960.00 -

1MDB GIL - 255,500,000.00

30.10.2014 Portfolio A1 93,292,800.00 -

31.10.2014 Dividend 131,707,200.00 * -

04.11.2014 1MDB GIL - 222,000,000.00

14.11.2014 Portfolio A2 125,000,000.00 -

1MDB GIL - 125,000,000.00

24.11.2014 Portfolio A2 48,500,000.00 -

26.11.2014 1MDB - 43,168,213.17 *

08.12.2014 1MDB GIL - 5,500,000.00

TOTAL 1,392,292,800.02 1,417,420,000

Source: Brazen Sky Limited Bank Statement Acquired From Foreign Authorities  Notes (*): Not Calculated In The Calculations The Number of Outgoing Transactions

8.12.  The transfer of money from SPC's portfolio redemption from Bazen Sky to 1MDB GIL was found to be inconsistent with the 1MDB Board's directive requesting the redemption of SPC portfolio returns to Malaysia. The transfer of money is also not set aside for the approval of the 1MDB Board. The management's actions transferring money to 1MDB GIL can not be justified as 1MDB GIL has its own investment assets with fund managers amounting to USD1.56 billion as of March 31, 2014. 1MDB GIL has also obtained a USD3 billion USD Notes loan.

8.13.   After the redemption of the SPC portfolio amounted to USD1.392 billion, the 1MDB Board of Directors on November 13, 2014, urged the redemption of the remaining balance of the SPC portfolio of USD939.87 million made before the end of November 2014. The redemption redemption order was made again on November 25, 2014.

8.14.   On January 12, 2015, the 1MDB Board of Directors has expressed disappointment over the 1MDB management which has previously pointed out that the proceeds of the SPC redemption will be brought back but until the date of the meeting, this is not the case. The situation is getting complicated as 1MDB is facing a serious cash flow problem to repay Maybank's RM2 billion loan and the obligation to finance equity in Project 3B at that time.

8.15.   At the same meeting, Mr Arul Kanda informed the 1MDB Board that the remaining balance of SPC portfolio investment amounting to USD939.87 million was redeemed and held in cash since 31 December 2014. This is in line with Mr Azmi's statement during 1MDB Board meeting on 20 December 2014 that the remainder of SPC's portfolio investment will be redeemed at the end of December 2014.

8.16.   However, JAN's review found some statements that raised concerns whether the redemption of the remaining SPC portfolio investment amounting to USD939.87 million was in the form of cash or units. An analysis of chronological statements made between January 12, 2015 and March 3, 2015 revealed that the redemption of the balance of the SPC portfolio in cash amounted to USD939.87 million has occurred. However, JAN's review found no cash balance of USD939.87 million in Brazen Sky's bank account during

that period. The chronology of the statement regarding the redemption of the remaining balance of the SPC portfolio investment is as follows:

TABLE 2.6

CHRONOLOGY STATEMENT RELATING TO INVESTMENT INVESTMENT BALANCE OF SPECIAL PORTFOLIO SPECIAL USD939.87 MILLIONDATE STATEMENT REFERENCE

SOURCE

12.01.2015 Mr. Arul updated the Board that the balance of USD939,874,085 had been redeemed and had been held as cash since 31 st December 2014.

Special Meeting of the Board of 1MDB

07.02.2015 Mr. Arul: "The cash is in our accounts and in US dollars. I can assure you (about that) .......... I have seen the statements. "

The Business Times, Singapore dated February 7, 2015

23.02.2015 Mr. Arul informed the Board that, per the terms of the Deutsche Bank loan taken out I September 2014, there is a need for the USD975 million loan to be cash collateralised at USD1.20 for every USD1.00 of the loan, by 2 ndMarch 2015. He therefore recommended, and that Board agreed, that the loan be repaid from the remaining USD939 million cash proceeds from the redemption

Board Meetings No.1/2015

of the investment portfolios held by Brazen Sky Limited, and the balance from the proposed Government of Malaysia loan.

03.02.2015 Mr. Arul updated the Board that further to the Board decision on 23 February 2015, he had instructed the CFO to utilize the proceeds of Brazen Sky Limited redemption to repay in full the US975 million Deutsche Bank loan on 2 March 2015. However, the CFO informed him today that BSI apparently declined to apply the proceeds in that manner until they received a suitably worded indemnity from Deutsche Bank to release BSI from any liability in relation to application of the funds in that manner.

Special Meeting of the 1MDB Board

Source: Minutes of 1MB Board Of Directors And Press Clippings

8.17.  A statement by Mr Arul Kanda during a 1MDB Board meeting on March 3, 2015 poses the question of why BSI had previously no objection to the transfer of funds from the redemption of SPC's portfolio investment amounting to USD1.417 billion on September 12, 2014 to December 8, 2014. It seems to show that 1MDB management does not provide accurate and complete information regarding SPC investment to Mr Arul Kanda. He also relates the information described in the 1MDB Board meetings based on information provided by Encik Azmi (1MDB Chief Financial Officer) and Encik Terence (1MDB Finance Executive Director). During the PAC meeting on December 1, 2015, Mr Arul Kanda also informed his knowledge about the redemption of SPC portfolio investment being understood in stages.

8.18.   At 1MDB Board Meeting on March 24, 2015, Mr Arul Kanda explained based on the information given by Mr Ami, Aabar agreed to purchase the

remaining SPC portfolio investment amounting to USD939.87 million from Brazen Sky with the same value. The JAN revision further found that the intended agreement was the Asset Sale Agreementwhich was signed on January 2, 2015 between Brazen Sky and Aabar Investments PJS Limited (Aabar Ltd.). The agreement was made by the management of 1MDB to obtain the certainty of redemption of the remaining balance of the SPC portfolio investment receivable before 31 March 2015 as required by the 1MDB Board. The redemption was made through this agreement method as Brazen Sky thought the SPC fund manager could not redeem the SPC fund in the normal redemption process due to the weak market sentiment at that point. However, the agreement was concluded without the knowledge of the Board and 1MDB shareholders.

8.19.   JAN's review also found that the sale of SPC's remaining investment portfolio to Aabar Ltd. contrary to clause 21.4 (a) of the Facility Agreement of USD975.0 million by Deutsche Bank, "No obligor shall enter into single transaction or a series of transactions to sell, lease, transfer or otherwise dispose of any asset."This shows that the management has acted out the direction of the 1MDB Board which requires the redemption of the remaining balance of the SPC portfolio investment made before the end of December 2014 and the result is brought back to Malaysia. The 1MDB management justified not implementing the 1MDB Board's directive to redeem the entire investment of the SPC portfolio, particularly in January 2014, is disputed as the USD currency rate at that point is high. The 1MDB management should also be unnecessary in the event of a loss during redemption as SPC's portfolio investment is secured by Aabar Investments PJS at its principal value.

8.20.   Mr Arul Kanda also informed during 1MDB Board Meeting on 24 March 2015 that Encik Azmi has explained that the full redemption of SPC's portfolio investment took place in early January 2015. However, a total of USD939.87 million which should have been received from Aabar remains in the portfolio fund structure SPC. Since 1MDB's management takes into account the credit standing of Aabar and Aabar's good relationship with 1MDB, Aabar's agreement to take over SPC's portfolio investment is regarded as as good as cash. However, without the cash payment, 1MDB could not settle the Deutsche Bank loan amounting to USD975 million or to provide a cash advance of USD1.17 billion for the loan.

8.21.   Subsequently, the Board of Directors of 1MDB through a resolution dated March 25, 2015 agreed with the proposals provided by Encik Azmi and

Encik Terence for the Brazen Sky to terminate the Asset Sale Agreement signed with Aabar Ltd. on January 2, 2015 and replaced by the Share Sale Agreement. According to the proposal, the entire Brazen Sky equity will be sold to Aabar Ltd. with a consideration of USD1.20 billion and a first payment amounting to USD300 million should be made before April 30, 2015. The objective of Brazen Sky's equity sale is to meet Deutsche Bank's loan terms regarding the USD1.17 billion cash collateral to be made by Brazen Sky on behalf of the borrower , namely 1MDB Energy Holdings Ltd. Shareholders' approval was also obtained through a resolution dated 25 March 2015. However, the documents were not submitted to JAN as the 1MDB's management informed that this was not executed. All information disclosed to the Board of Directors 1MDB on 24 March 20015, beginning with the Asset Sale Agreement and recommendationsThe Share Sale Agreement provides an overview of the varied information according to the situation where the remaining SPC portfolio investment was originally said to have been redeemed in cash, but is now reportedly still held as a unit. 

8.22.   However, Aabar Ltd.'s commitment. to fulfill its promise can be questioned as Encik Azmi informed the Board of 1MDB during the meeting on 23 April 2015 that the remaining amount of USD939.87 million should be received from Aabar Ltd. remains in the SPC portfolio investment structure as Aabar Ltd. has not yet confirmed when the payment can be made. Meanwhile, Mr Arul Kanda informed the Board of 1MDB during a meeting on May 11, 2015, a fee for the acquisition of Brazen Sky by Aabar Ltd. is still not accepted.

8.23.   However, on May 25, 2015, the 1MDB Board of Directors was informed that negotiations with Aabar were underway for IPIC / Aabar to take over part of the 1MDB Group's assets with two note notes of USD amounting to USD3.50 billion. The 1MDB Board of Directors is also pleased to announce that the agreement and advance payment of USD1 billion will be finalized at the end of May 2015. This is the third time redemption of the remaining balance of SPC's portfolio investment and negotiations involving Aabar / Aabar Ltd. switched shape.

8.24.   On May 28, 2015, the 1MDB Board passed a resolution to hold a Term Sheet For Settlement Agreements between the 1MDB Group, the Minister of Finance Incorporated, the International Petroleum Investment Company (IPIC) and the Aabar Investments PJS Groups (Aabar). The Binding Term Sheet has been signed between the four parties as well as on May 28, 2015. Among the key terms in the Binding Term Sheet are IPIC will

pay 1MDB of USD1 billion before or on June 4, 2015 and take over the interest and obligation payment obligations of two USD notes amounting to USD1.75 billion, respectively. According to Mr Arul Kanda's explanation to the 1MDB Board of Directors at a meeting on June 14, 2015,The Binding Term Sheet does not specify in detail the assets to be redeemed with IPIC / Aabar as it is still in the negotiation stage. Among the identifiable assets to be transferred to homes amounted to USD4.892 billion consisted of USD1.40 billion deposits for IPIC guarantees on USD note, 1MDB GIL investment amounting to USD1.56 billion, SPC portfolio investment amounting to USD939.87 million and option termination Aabar amounted to USD993 million. However, three important points have been set on the following dates:

a. The definitve agreement will be implemented by July 31, 2015;

b. Transfer assets of at least USD1 billion to IPIC / Aabar by December 31, 2015; and

c. Transfer the remaining assets identified by June 30, 2016.

8.25.   On 5 June 2015, 1MDB has received an advance of USD1 billion from IPIC under the Binding Term Sheet agreement through its subsidiary account, Brazen Sky. Based on 1MDB's shareholders resolution dated May 28, 2015 and 1MDB Board resolution dated June 2, 2015, an advance of USD1 billion IPIC / Aabar was approved to pay the outstanding fee of Brazen Sky's account at BSI Bank, USD50 million to Yurus Private Equity I and the balance for loan Deutsche Bank amounted to USD975 million.

8.26.   The issue of redemption of SPC portfolio investment for the period of 2013 to 2015 is as follows:

a. Payment for termination of the Aabar option is not notified to the 1MDB Board for prior approval.

b. SPC's redemption proceeds amounting to USD1.392 billion were not brought back to Malaysia despite being directed by the 1MDB Board.

c. The proceeds of redemption of the SPC portfolio amounting to USD1.417 billion have been transferred to 1MDB GIL but are informed to the 1MDB Board that it has been paid for the termination of the Aabar option amounting to USD993 million.

d. The difficulty of obtaining key documents such as the Brazen Sky and 1MDB GIL bank statements resulted in JAN unable to confirm the transfer of money, Aabar's termination payment and loan interest payments.

e. Asset Sale Agreement signed on January 2, 2015 between Brazen Sky and Aabar Ltd. for the disposal of the remaining SPC portfolio investment amounted to USD939.87 million to Aabar Ltd. without the knowledge of the Board and 1MDB shareholders.

f. The first redemption value (USD1.392 billion) and the balance to be repaid (USD939.87 million) totaling USD2.33 billion is almost equal to the initial investment value of USD2.318 billion on September 12, 2012. This also shows investment portfolio of SPC does not give a significant advantage over the initial investment.

g. The change in the statement that the remaining balance of the SPC's portfolio was redeemed and kept in cash on 31 December 2014, which was subsequently declared to have been taken over by Aabar Ltd. on January 2, 2015 but still regarded as good as cash even though no money is received.

8.27. Overall, 1MDB's initial investment with PetroSaudi involving large investments in 2009 did not bring in foreign investment into the country, which is not in line with the company's objectives. For a four-year period from the 1MDB establishment in 2009 to 2012, 1MDB's initial investment using IMTN bond issuance funds amounting to RM5 billion, 1MDB's investment instrument has been changed four times. Starting from USD1 billion equity investment (RM3.49 billion) in 2009 in a joint venture company with a subsidiary of PetroSaudi International Limited, followed by Murabahah Notes investment amounting to USD830 million (RM2.59 billion) in 2011 and 2012 until converted to portfolio investment The SPC amounted to USD2.318 billion (RM7.18 billion) in the Cayman Islands in September 2012. The partial redemption of SPC's portfolio investment in 2014 has been used to fund the company's various commitments and investments. The investment is finally worth USD939.87 million in the form of SPC's portfolio investment unit on March 31, 2015.

8.28. The decision to convert investment from an investment instrument to another instrument over a short period of time involving a substantial amount of funds indicates that the investment decision process is not done in a good governance structure and has no detailed planning over the long-term strategic investment.

8.29. The findings illustrate that the company has taken many non-prudential, high-risk business decisions and is inconsistent with the status of 1MDB as a national development company, and should invest in projects that can drive national development, and should be managed according to good governance practices corporate and corporate interests.

CHAPTER 3 INVESTMENT IN THE SRC GROUP

18 July 2016

 

 

1. BACKGROUND1.1. The initial proposal to set up a strategic resource company was submitted by 1MDB's Managing Director and Chief Executive Officer, Shahrol Azral Ibrahim Halmi to YAB. Prime Minister for his advice and support on 24 August 210. The objective of the proposal is to establish a strategic resource companyis to acquire and maintain strategic importance in extraction, processing, logistics and trading services involving natural resources such as coal, uranium, gas, oil, iron and aluminum. The justification of establishing a company by 1MDB is to ensure Malaysia receives sufficient supply of natural resources and produces skilled manpower to develop the natural resources industry in the future. 1MDB also said that the absence of long-term strategic planning, the lack of natural resources and the high cost of natural resources would have an impact on the country's rapid economic growth and global competition. In this regard, the establishment of this company is to focus on global efforts since the establishment of Malaysian Mining Corporation, Malaysia has no strategic position in the industry and is reported to no longer have access to international natural resources as well as the lack of strategic natural resources for local supply. Additionally, this venture can provide long-term supply to Tenaga Fuel Services Sdn. Bhd., A subsidiary of Tenaga National Berhad (TNB), a coal-fired power supplier in Malaysia. Based on the SRC Business Plan for the period of 2011 to 2015, the SRC will supply coal resources for the country's long-term strategic resource needs in the fourth year of its operating company (year 20014). this effort can provide long-term supply to Tenaga Fuel Services Sdn. Bhd., A subsidiary of Tenaga National Berhad (TNB), a coal-fired power supplier in Malaysia. Based on the SRC Business Plan for the period of 2011 to 2015, the SRC will supply coal resources for the country's long-term strategic resource needs in the fourth year of its operating company (year 20014). this effort can provide long term supply to Tenaga Fuel Services Sdn. Bhd., A

subsidiary of Tenaga National Berhad (TNB), a coal-fired power supplier in Malaysia. Based on the SRC Business Plan for the period of 2011 to 2015, the SRC will supply coal resources for the country's long-term strategic resource needs in the fourth year operating company (year 20014).

1.2. August 27, 2010, YAB Prime Minister has asked YB Tan Sri Nor Mohamed Yakcop, Minister in the Prime Minister's Department (JPM) to request the Economic Planning Unit (EPU) to review and comment on the proposal to set up a strategic resource company . On October 12, 2010, the current Director General of EPU, had informed YAB Prime Minister of the EPU's views as follows:

a. 1MDB's proposal to establish a company involving strategic sources such as coal and uranium is supported by the implementation of its operations based on market principles;

b. For the purpose of extraction and importation of oil and gas, the role is to be continued by Petronas as a leader in the country's oil and gas industry which has also played a role as a strategic resource company in the sector. For the iron and aluminum industry, it is proposed to continue to be managed by the private sector; and

c. Application for funding through grants from the Government amounting to RM3 billion is not supported. However, to assist the establishment of the SRC, a total allocation of RM20 million is proposed as a development grant.

Subsequently on 19 October 2010, YAB Prime Minister acknowledged and agreed with the proposal of the Director General of EPU.

1.3. On 10 November 2010, the Director General of EPU has informed the 1MDB Executive Director General on the following conditions of approval:

a. The purpose of the establishment is to achieve and maintain strategic importance in extraction, processing, logistics and trading services for two major strategic sources namely coal and uranium with the implementation of its operations in line with market principles;

b. For the purpose of extraction and importation of oil and gas, the Government is of the view that the role should be pursued by PETRONAS as a leader in the national oil and gas industry which has also played a role as a strategic resource company in the sector;

c. For iron and aluminum resources, it is better suited to the private sector; and

d. Agree to provide a RM20 million development allocation as a development grant under the Tenth Malaysia Plan.

1.4. In this regard, SRC International Sdn. Bhd. (SRC) was established on 7 January 2011 with an authorized capital of RM100,000 and paid-up capital of RM2.00 wholly owned by 1MDB. The two Board of Directors appointed during the establishment of SRC were Encik Nik Faisal Ariff Kamil and Mr Vincent Beng Huat Koh who were the Chief Investment Officers and Vice President, 1MDB Investment at that time. Based on Memorandum and Articles o Association (M & A) SRC, the objectives of the establishment of SRC are as follows:

a. "To identify and invest in projects associated with exploration, extraction, processing, logistics and trading of conventional and renewable energy resources, natural resources and minerals, including activities spanning the full value chain of energy and resources and all other activities related thereto directly of indirectly related to energy and resources and / or activities that require the prudent management of assets in the interim that will lead to the eventual deployment of funds to fulfill the above.

b. To evaluate and participate in business opportunities by entering into partnerships, joint ventures or any arrangements for sharig profit, union of interest or co-operation with any company, firm or person carrying on or proposing to carry on any business within the objects of the company or calculated to advance its interests, including acquiring and holding shares, stocks or securities of any such company, activities to secure strategic resource investments and investments / projects in areas / sectors of interest to the Government of Malaysia on billateral basis. "

2. STRUCTURAL GOVERNANCE AND GROUP ORGANIZATION STRUCTURE2.1. Under the Memorandum and Articles of Association (M & A) SRC, the governance structure is divided into three levels, namely the Adviser, the Board and the Top Management. The appointment and termination of the Board, including the Alternate Director and Management of the SRC, should obtain written approval from the Honorable Prime Minister. The Board of Directors shall not be appointed from amongst those who hold office in

political parties, Government officers (Federal or state), lawmakers or members of the legislative body (Federal or state) in accordance with Article 67 of the relevant M & A.

2.2. The list of members of the Board of Directors of SRC from 2011 to the date of transfer to the MKD on 15 February 2012 is as follows:

TABLE 3.1

BOARD OF DIRECTORS SRC INTERNATIONAL SF, BHD.                 FROM THE PERIOD January 7, 2011 TO 15 FEBRUARY 2012

NAME POSITION APPOINTMENT OF DATE

Tan Sri Ismee bin Ismail

Chairman

(Non - Executive Director)

01.08.2011

Datuk Suboh bin Md Yassin

Non - Executive Director

22.08.2011

Dato 'Che Abdullah @ Rashidi bin Che Omar

Non - Executive Director

22.08.2011

Shahrol Azral bin Ibrahim Halmi

Non - Executive Director

01.08.2011

Nik Faisal Ariff Kamil Executive director-

Chief executive officer/

director

07.01.2011

Vincent Beng Huat Koh

Non - Executive Director

07.01.2011

Source: List of Board of Directors of SRC

3. GROUP ORGANIZATION STRUCTURE STRUCTURE

3.1. At its inception, SRC is a subsidiary of 1MDB Energy Sdn. Bhd. (1MDB subsidiary). On August 16, 2011, SRC's shareholding has been transferred to 1MDB and the authorized and paid-up capital has increased to RM1 million. SRC has a subsidiary, SRC International (Malaysia) Limited (SRCI). SRCI was formerly known as Corporate Point (BVI) Ltd., registered in the British Virgin Island (BVI) on 4 June 2010. SRC acquired SRCI shares on 2 September 2011 from 1MDB Real Estate Sdn. Bhd. at USD2.00 price.   SRC's investment activities related to energy and other investments abroad are carried out by the SRCI company.

3.2. SRCI has two subsidiaries, namely Pristine Link (BVI) Ltd. and PT SRC Indonesia. The SRC Group Structure is like the following chart:

CHART 3.1STRUKTUR ORGANISASI GROUP SRC ON 15 FEBRUARY 2012

3.3. The principal activities of PT SRC Indonesia are as business management consultants while Pristine Link (BVI) Ltd. is a dormant company since its takeover in 2010.

3.4. The list of members of the Board of Directors of SRCI from 2011 to the date of transfer to the MKD on 15 February 2012 is as follows:

TABLE 3.2BOARD OF DIRECTORS SRC INTERNATIONAL (MALAYSIA) LIMITED     FROM THE PERIOD 7 JANUARY 2011 TO 15 FEBRUARY 2012

NAME POSITION APPOINTMENT OF DATE

Datuk Suboh bin Md Yassin

Chairman / Non - Executive Director

21.10.2011

Nik Faisal Ariff Kamil

Chief Executive Officer of Executive

Director

08.09.2011

Tan Sri Ismee bin Ismail

Non - Executive Director

08.09.2011

Shahrol Azral bin Ibrahim Halmi

Non - Executive Director

04.06.2011

Radhi bin Mohamad

Non - Executive Director

04.06.2011

4. FINANCING AND GOVERNMENT GRANT4.1. As a subsidiary of 1MDB, SRC obtains financial resources from Government grants in the form of development grants totaling RM15 million from the approved RM20 million and RM2 billion financing from the Retirement Fund (Incorporated) (KWAP). Details are as follows:

4.1.1. Development Grant From Economic Planning UnitThe RM20 million development grant as a starting grant under the Tenth Malaysia Plan (10MP) was approved by the Economic Planning Unit (UPE) on 10 November 2010. The grant is to finance the establishment of SRC, services to Maybank Investment Bank and due diligence to identify potential assets and mining companies for investment.

4.1.2. RM2 Billion Financing From KWAP4.1.2.1. On 3 June 2011, the SRC submitted an application letter to the Chairman of the 1MDB Advisory Board for approval of financing of RM3.95

billion from KWAP. This letter, among others, stated that the purpose of the loan application was as unlimited general working capital and investment in the natural resources sector with 1MDB's corporate guarantee within a 10-year period of financing. On 5 June 2011, he has agreed with this application.

4.1.2.2. On   July 19 , 2011, the Investment Panel of KWAP has approved financing of up to RM2 billion from RM3.95 billion applied. Approval of financing amount of up to RM2 billion is made after the meeting is informed by KWAP's Chief Executive Officer that the Chairman of the 1MDB Advisory Board agrees with this amount. The approval of the financing is subject to two options as follows:

1. KWAP channeled financing to 1MDB with Government guarantees or; and

1. KWAP channeled funds to the Government where the Government then channeled financing to 1MDB.

4.1.2.3. Following this approval, on 12 August 2011, the SRC has made a formal application of RM2 billion financing from KWAP for the purpose of operating the company and investment activities. The letter of application was signed by the current acting CEO of SRC.

4.1.2.4. The Cabinet on August 17, 2011 has agreed to provide a guarantee to SRC as a wholly-owned subsidiary of 1MDB to obtain a loan of up to RM2 billion from domestic market or domestic financial institutions. The purpose of the loan guarantee approval is to invest in the natural resources sector. Subsequently, the Ministry of Finance has agreed to provide a guarantee to the SRC based on the approval of the Cabinet.

4.1.2.5. On 23 August 2011, KWAP has submitted a RM2 billion term financing offer letter to SRC for a period of 10 years stating the purpose of the financing is for SRC's general investment activity and revolving capital. Profit payment will be made every six months commencing from the 30th day after the date of issuance. Unpaid profits will be capitalized and added to the principal amount of the loan. There are four special conditions set by KWAP namely:

a. Any change to ownership of SRC shares is not permissible whereby 1MDB shall maintain 100% ownership of SRC;

b. The SRC shall notify KWAP before receiving any loan / financing facilities from another party;

c. The SRC shall submit an audited Annual Financial Statement within 180 days from the date of the financial year end; and

d. The SRC shall submit a quarterly progress report on the current position and performance of SRC's investment and business activities.

4.1.2.6. On 26 August 2011, the SRC has agreed to accept the facility of financing through the Facility Agreement signed between KWAP and SRC. Subsequently, KWAP has channeled financing of RM2 billion on 29 August 2011.

4.1.2.7. Through the funding fund received from KWAP, the Board of Directors of SRC through a resolution dated 14 November 2011 approved the transfer of funds to SRCI for placement in time deposit and / or investment or operating expenses requirements by depositing a total of USD170 million and USD5 million in two banks at Hong Kong, the Bank of Julius Baer and Falcon Private Bank and USD335 million in BSI Bank, Lugano.

4.1.3. Additional RM2 billion Financing4.1.3.1. On January 9, 2012, the SRC has applied to the Chairman of the 1MDB Advisory Board for additional RM1.95 billion financing comprising RM650 million in the form of Government grants and RM1.35 billion loans secured by the Government. However, on February 2, 2012, the Finance Ministry decided that grant allocations were not provided, but all the requirements were given in the form of a loan guarantee of RM2 billion. Additional financing is required as existing financing of RM2 billion is insufficient to cover SRC's working capital requirements.

4.1.3.2. On February 8, 2012, the Cabinet agreed to provide the Government with a RM2 billion additional financing to the SRC with the same terms as the first financing. After the decision of the Cabinet approved the grant of Government guarantees, the SRC was transferred from 1MDB to the MKD.

5. BUSINESS INVESTMENTS BETWEEN SRC INTERNATIONAL (MALAYSIA) LIMITED WITH AREA INVESTMENTS PJS5.1. The joint venture project between SRC International (Malaysia) Limited (SRCI) and Aabar Investmets PJS (Aabar), a subsidiary of International Petroleum Investment Company (IPIC), a company owned by the

Government of Abu Dhabi was held on 3 November 2011. This joint venture is an initiative between the Government Malaysia and the Government of Abu Dhabi (G2G) to enable SRC to gain experience and impact maximum in the natural resource sector. In addition, this collaboration will provide the SRC with the opportunity to work closely with Glencore Plc. to explore other investment opportunities. The selection of Aabar as an investment partner was made as the company was the largest shareholder in Glencore Plc, the world's largest natural resources trading company with a stock market value of RM236 billion.

5.2. At SRC Board meeting on 23 August 2011, SRC's Chief Executive Officer presented proposals for joint venture between SRCI and Aabar. Among the objectives of the joint venture is to enable both countries to capitalize on investment opportunities in the increasingly competitive commodity and strategic industries. To ensure that the goals and purposes of the joint venture are clear and the use of funding funds is in line with the set goals of the joint venture, SRC Board of Directors, Datuk Suboh Md Yassin has stated the need to implement due diligence .

5.3. At the SRC Board Special Meeting on 21 October 2011, the Board of Directors of SRC has agreed upon the terms of the Shareholder Agreement provided and the SRC Chief Executive Officer informs that it is in line with the wishes and objectives set by the shareholders. Subsequently, by resolution on the same date, the Board of Directors of SRCI approved the SRCI joint venture with Aabar. The joint venture company to be established is Aabar-SRC Strategic Resources Limited (ASRC) with a paid-up capital of USD1 billion. Each collaborator will contribute USD500 million in cash equivalent to 50% equity stake. The resolution has agreed to appoint Mr Nik Faisal Ariff Kamil from SRCI of the Board of Directors of ASRC.

5.4. It was announced at the meeting that the joint venture company was established with an initial paid-up capital of USD120 million in which each party would contribute a share of USD60 million from USD500 million respectively. The remaining investment capital will be increased according to the investment requirements from time to time which will be determined by the Board. The joint venture agreement signed on 3 November 2011 states that initial paid-up capital of USD120 million will be used for the following purposes:

a. USD91 million will be used for the purchase of 14,000,000 units of shares of USD6.50 per unit in Gobi Coal & Energy Ltd. (GCE), Mongolia, a coal-fired company in Mongolia; da

b. USD29 million will be used for other purposes that will be determined by the shareholders.

5.5. The Board of Directors of SRCI through resolution dated 21 October 2011 agreed that joint venture companies to invest in GCE amounted to USD45.50. At the stage of investment approval, GCE has yet to commence operations and is still in the process of completing the initial work of infrastructure construction at coal mines which is expected to commence operations in 2013. The decision of the Board of Directors of SRCI to invest in GCE at the initial stage is made after considering the investment which is implemented is in the best interests of SRCI.

5.6. On 3 November 2011, BNM approved a funds transfer amounting to USD586.32 million (RM1.80 billion) to SRCI accounts. BNM requires the funds to be deposited in a foreign currency account at a licensed local bank until the investment of SRCI in four companies submitted to BNM is finalized, namely PT ABM Investama Tbk, (Indonesia), Bumi Resources Tbk PT, (Indonesia), Gobi Coal & Energy Ltd., (Mongolia) and Erdenes-Travan Tolgoi, (Mongolia). However, it was found that SRC funds were credited to SRCI accounts between 16 November 2011 and 13 December 2011 before investments in two companies were finalized, namely Bumi Resources Tbk PT, Indonesia and Erdenes-Travan Tolgoi, Mongolia. As of February 15, 2012, no investment was made by the SRC in both companies. On January 17, 2012, BNM has sought clarification from the SRC further from partial delivery of funds amounting to USD360 million to SRCI accounts before unplanned investments. According to the SRC's response on 17 February 2012, the transfer of funds is required because of SRCI's commitment in joint ventures for investments in Mongolia, Indonesia and other places.

5.7. In order to perform joint venture investment with Aabar, the SRC Board resolution dated 14 November 2011 has agreed that a total of USD60 million (RM184 million) is transferred from SRC's account to Aabar -SRC Strategic Resources Limited's joint venture company account for the purpose of payment of share acquisition.

5.8. JAN's review found that the Board of Directors of SRCI has approved investments in Mongolia without conducting feasibility studies on projects to

be undertaken by joint venture companies in GCE. It is possible that the investment approval made in this resolution does not contain complete and detailed information on the background information on investment selection and the expected return on investment.

Based on feedback from SRC management, investment information on GCE is based on feasibility studies conducted by Aabar.

6. INVESTMENT IN INDONESIA6.1. During the Special Board Meeting of SRC on 21 October 2011, SRC Chief Executive Officer, has presented on the proposal of Initial Public Offering(IPO) amounting to USD150 million in PT ABM Investama TBK. The company is involved in the production and coal mining industry and energy supply. Upon approval of the investment, PT ABM Investama is in the final process of listing and is expected to be listed on the Indonesia Stock Exchange in December 2011. It is informed that investment in PT ABM is one of the strategic efforts to control the supply of coal for continuous supply in Malaysia. The Board of Directors of SRC has principally approved this investment to invest up to USD150 million for that purpose relying on full approval of the terms and conditions of the contract to be entered by the related party.

6.2. During the Board meeting of SRC on 14 February 2012, the Chief Executive Officer informed that SRC had invested USD120 million in PT ABM Investama TBK, Indonesia through quoted shares listed on the Indonesia Stock Exchange. The meeting also informed that the estimated profit on the investment was USD4 million.

7. TRANSACTION OF SHARES TO THE MINISTER OF LIVESTOCK INCORPORATED7.1. On 9 January 2012, the SRC submitted a letter to the Chairman of the 1MDB Advisory Board to seek support and views on the eight initiatives relating to the company's direction. One of the initiatives stated in this letter is the transfer of SRC shareholdings to the Minister of Finance Incorporated (MKD). The paragraph states that 'SRC is wholly owned by 1MDB and 1MDB is a 100% company under MKD. SRC will be 100% owned by MKD on February 17, 2012 ' . This was agreed on January 10, 2012. Accordingly, the

1MDB Board of Directors at the meeting on 12 January 2012 agreed to the sale of 1MDB shares in SRC to the MKD.

7.2. On February 2, 2012,   1MDB's management had submitted a memo to 1MDB's Board of Directors regarding dividend-in-specie payments to the MKD in consideration of the acquisition of SRC shares. This dividend-in-specie production does not involve cash withdrawals and does not affect the net assets position and 1MDB share capital structure. Based on the justification stated in the memo, the 1MDB Board of Directors through resolution dated 2 February 2012 approved the interim dividend-in-speciepayments to MKD through 1MDB's investment in SRC.

7.3. On the same date, the Ministry of Finance has agreed on the proposed transfer of the shares with the justification that SRC investments are concentrated overseas due to the lack of local strategic natural resources for power generation and power. The Finance Ministry is of the view that it is desirable that SRC be held directly by the Government through the holding of MKD's equity to facilitate bilateral cooperation negotiations with the Foreign Government for exploration and mining purposes, thereby enabling this strategic source to be brought back to Malaysia for local use.

7.4. The acquisition method of SRC shares by MKD is implemented through 1MDB's interim dividend-in-specie payment to the Government on 14 February 2012 where the Government has received dividends in the form of shares and not cash. Transfer of SRC shares from 1MDB to MKD is based on the original cost of 1MDB investment in SRC amounting to RM1 million. This amount is also taken into account as the cost of MKD's investment in SRC. The acquisition of SRC shares through this method will not involve financial allocation and there is no need to enter into a sale and purchase agreement.

7.5. at the date of transfer of shares, net liabilities and transfers from SRC Group reserves are as follows:

TABLE 3.3THE LEGAL LIABILITIES AND TRANSACTIONS   OF THE SRC GROUP ON THE 15 FEBRUARY 2012 DATE

ITEMS (RM)

Net Liability 15,371,000

Transfer from reserves 65,286,000

Source: 1MDB Financial Statement For Year 2012

Note: Included in net liabilities is cash and cash equivalent of RM1.778 billion transferred on the date of transfer of shares.

7.6. Transfer of ownership of SRC to MKD on 15 February 2012, has affected the following:

a. Group 1MDB Group Operational Losses decreased from RM25 million to RM16.2 million;

b. The 1MDB gearing ratio decreased from 12 times to 9.5 times and helped to reduce the restrictive covenants imposed by the borrowers to 1MDB for funding for the TRX and Bandar Malaysia projects; and

c. Reducing government guarantees to 1MDB Group amounted to RM2.902 billion.

END

CHAPTER 4 1MDB GROUP PROPERTY INVESTMENT

20 July 2016

 

 

1. BACKGROUND1.1. One of the objectives of the 1MDB establishment is to drive Malaysia's long-term sustainable development and growth economy. In line with these objectives, strategic property development is expected to create a multiplier effect in driving dynamic economic development. Group 1MDB's investment in the property sector starts with two major projects, the Kuala Lumpur International Financial District (KLIFD) and Bandar Malaysia. The project aims to transform Kuala Lumpur into an international city, in line with the Kuala Lumpur Structure Plan 2020.

1.2. On April 28, 2010, the Cabinet meeting had approved the proposed strategic development of Kuala Lumpur. The Cabinet agrees between them that approval is given on Kuala Lumpur's Strategic Development which involves the following:

a. KL International Financial District (KLIFD) - Alienation of Land-Freehold Status located in Imbi area, Kuala Lumpur to 1MB; and

b. Bandar Malaysia - Alienation of Lands-freehold status which includes the Royal Malaysian Air Force Simpang Sungai Besi Airport and the Government-bound area to 1MDB. 1MDB will work with the Armed Forces Fund Board in developing the Kuala Lumpur Air Base relocation project.

1.3. The Cabinet subsequently approved the transfer of the land to 1MDB on 28 July 2010 through a memorandum from the Minister of Natural Resources and Environment.

1.4. On June 29, 2012, the Cabinet Meeting decided that the KLIFD development project be renamed to Tun Razak Exchange

(TRX) to open more space for other economic activities such as trade, services and not limited to financial services only. The TRX project is estimated to have gross development value (GDV) of RM40 billion and is planned to be the first international financial and financial district of Kuala Lumpur. Meanwhile, Bandar Malaysia project is the Sungai Besi airport redevelopment project and will be built on five key economic indicators, namely transit-oriented development, creative enterprise, global business hub, shopping destination and tourism industry.

1.5. Kuala Lumpur's Strategic Development requires integrated involvement of various parties, whether Government or private agencies, to ensure the success of the planned development. In this regard, the Economic Planning Unit has been appointed and given the responsibility to facilitate and monitor the implementation of the TRX project. The Task Force Committee chaired by the Minister in charge of the Economic Planning Unit of the Prime Minister's Department was established with the membership agreed by YAB Prime Minister on 8 August 2012.

1.6. A summary of 1MDB Group's investment in real estate sector up to September 2015 is as follows:

2. CORPORATE STRUCTURE AND GOVERNANCE2.1. On February 2, 2010, 1MDB established a subsidiary company, City Streams Sdn. Bhd. with a paid-up capital of RM2.00 where the company's principal activity is investment and property development. City Streams Sdn. Bhd. has a subsidiary, Raintree Summit Sdn. Bhd. On May 13, 2010, City Streams Sdn. Bhd. has been renamed to 1MDB Real Estate Sdn. Bhd. (1MDB RE). Based on the 1MDB RE financial statements for the year ended 31 March 2011, the company has two subsidiaries, namely KLIFD Sdn. Bhd. (formerly known as Raintree Summit Sdn Bhd) and Bandar Malaysia Sdn. Bhd. as well as two sub-subsidiaries, Synergy Point Ltd. and Ivory Point Ltd. (Labuan). All of these companies are created for real estate development business. For the financial year 2012, 1MDB RE created another subsidiary, namely Ivory Merge Sdn. Bhd. and its subsidiaries, Pelita Merpati Sdn. Bhd. where both companies are also dormant status.

2.2. For the financial year ended 31 March 2013, 1MDB RE disposed of shareholdings in two sub-subsidiaries incorporated in Labuan, namely Synergy Point Ltd. and Ivory Point Ltd. and a subsidiary incorporated in Malaysia, Pelita Merpati Sdn. Bhd. In 2013, 1MDB RE also increased the authorized capital from RM100,000 to RM2.50 billion ordinary shares and paid-up capital from RM2 to RM2.50 billion. On September 25, 2012, 1MDB RE issued 1.78 billion common shares @ RM1.00 per share to 1MDB for the acquisition of 34 Tun Razak Exchange land lots and 69,999,998 ordinary shares of RM1.00 each as an amount due to 1MDB. Subsequently on 18 March 2013, 1MDB RE issued 650 million ordinary shares @ RM1.00 per share to 1MDB in exchange for 12 lots of Bandar Malaysia land titles.

2.3. As of March 31, 2014, 1MDB RE has four subsidiaries, namely KLIFD Sdn. Bhd., Bandar Malaysia Sdn. Bhd., Pristine Link Sdn. Bhd. (Dormant status) and Ivory Merge Sdn Bhd. (dormant status). Based on the 1MDB RE corporate structure until October 2015, 1MDB RE has six subsidiaries, namely Bandar Malaysia Sdn. Bhd., KLIFD Sdn. Bhd., 1MDB Commercial Sdn. Bhd., 1MDB Hotels & Resorts Sdn. Bhd., Pristine Link Sdn. Bhd., And Crescent Palace Sdn. Bhd. An associated company was established under 1MDB Commercial Sdn. Bhd., Namely LQ Retail Sdn. Bhd. and three associate companies under 1MDB Hotels @ Resort Sdn. Bhd., LQ Residential 1, LQ Residential 2 and LQ Residential 3. Details are as follows:

2.4. On December 16, 2015, 1MDB RE changed its name to TRX City Sdn. Bhd. However, the name 1MDB RE is still applicable for the purpose of this report.

2.5. The authorized capital information and paid-up capital of 1MDB RE and its subsidiaries are as follows:

2.6. The Board of Directors of 1MDB RE comprises three Boards of Directors of which two are representatives of the holding company, namely the President and 1MDB Group Executive Director, 1MDB Chief Financial Officer and 1MDB RE CEO. Meanwhile, for two subsidiary companies under 1MDB RE which serves as a special purpose vehicle for the TRX project and Bandar Malaysia projects each have two members of the same Board. More details are as follows:

2.7. 1MDB RE and its subsidiaries are monitored by a committee, the Real Estate Executive Committee (RE Exco) to ensure effective governance. The RE Exco comprises 1MDB Board Chairman (RE Exco Chairman), three 1MDB Board of Directors and 1MDB Group President and Executive Director. The role of RE Exco on terms of reference approved by the Board of Directors of 1MDB through a written resolution dated 21 January 2015 is as follows:

a. Evaluate the performance of subsidiaries involved in property development operations;

b. Consider and recommend solutions or proposals to enhance the achievement of a subsidiary in relation to property development; and

c. Assess business turnover, sales or proposals (feasibility and financial viability compatibility and value add) in real estate.

2.8. From the aspect of TRX project governance, the Task Force Committee established under the Economic Planning Unit (EPU), Prime Minister's Department on 8 August 2012 has the following terms of reference:

a. Enact Key Performance Indicator (KPI) of TRX implementation for 1MDB.

b. Coordinate, facilitate and monitor the progress of the TRX implementation.

c. Suggested improvement improvements.

d. Establish a working committee to manage specific issues.

e. Report progress of the project from time to YAB Prime Minister.

The Committee is chaired by the Minister responsible for the Economic Planning Unit of the Prime Minister's Department and has membership such as the following table:

2.9. In carrying out its roles and functions, the Task Force Committee is also assisted by the Working Committee and chaired by the Deputy Director-General (Macro) of the Economic Planning Unit. Members of the Working Committee comprise representatives from Ministries and agencies in the Task Force Committee including the Federal Territory and Kuala Lumpur City Hall. From 2012 to May 2015, the Task Force Committee met five times. Among the matters discussed, coordinated and decided are related to the following:

SMART office relocation;

Relocation of new Bukit Bintang market;

Access road to MEX;

Integrated trading complex projects;

Tax exemption incentives

Traffic deceleration and Road Tun Razak road project; and

Continued high speed rail connection .

2.10. JAN's review found that 1MDB had established a proper governance structure for the development of the Tun Razak Exchange and Bandar Malaysia projects. The involvement of various Government, private and government agencies through the Task Force Committee has provided a platform for solving project planning and development problems involving various stakeholders.

3. TUN RAZAK EXCHANGE PROJECT3.1. Project Planner

3.1.1. The Tun Razak Exchange Project (TRX Project), formerly known as KLIFD, was launched on July 30, 2012 and is a strategic project to develop Kuala Lumpur as an international financial center. The TRX Project backup location is as follows:

3.1.2. The TRX Project Development is to support the Government's initiative in particular in the following areas:

a. Drive economic growth, attract foreign investment in high value-added financial and business services.

b. To make Kuala Lumpur a leading international business center and focus for Islamic financial services in the region;

c. Attracting skilled talent to Malaysia and creating more job opportunities; and

d. Promote the implementation of sustainable development concepts and low carbon cities framework in infrastructure development.

3.1.3. 1MDB RE has prepared a Master Plan for TRX development approved by the Kuala Lumpur City Hall on 3 April 2012. According to 1MDB RE, the Master Plan provided is a living document in which it will be changed according to needs based on current market demand. Original masterplan has been revised twice approved on June 12, 2015 and July 8, 2015 respectively. The TRX development proposal based on the last approved Master Plan covers various builds for diverse mixture of users such as the following table:

3.1.4. Some of the key components of the TRX Master Plan as approved by the Kuala Lumpur City Hall on 8 July 2015 are as follows:

20.95 million square feet total area (excluding parking lot);

25 buildings;

2.20 million square feet of shopping center;

18,576 parking lot; and

23% open / green area.

3.2. Tun Razak Exchange Project Land Acquisition3.2.1. The 70.5 acres land in Imbi area was originally owned by the Federal Land Commissioner (PTP). Meeting of the Cabinet on 13 April 1994 agreed that the land was transferred to Dataran Perdana Sdn. Bhd. (DPSB), a company under the Minister of Finance Incorporated [before being taken over by Investment Property Berhad (PHB)]. Although the agreement has been obtained for a long time, land transfer agreement was signed on April 7, 2010 and DPSB has settled the transfer payment to PTP amounting to RM740,000 on April 22, 2010 and May 5, 2010. PHB has registered a private caveat on this land to guarantee its importance.

3.2.2. However, the Cabinet meeting on April 28 approved that Imbi's land was transferred to 1MDB to implement strategic development proposals in Kuala Lumpur. On June 15, 2010, the Ministry of Finance requested PTP to cancel a land transfer agreement between PTP and DPSB to enable transfer of land to 1MDB and to reinstate land transfer payments to DPSB. On July 28, 2010, the Cabinet decided that PTP transferred 34 DPSB land lots to 1MDB with a nominal value of RM1,000 for each lot and canceled the previous meeting's decision (April 13, 1994).

4.2.3. To implement the transfer of land to 1MDB, two cancellation agreements have been signed between the parties involved. The First Cancellation Agreement was signed between PTP and DPSB on 8 September 2010 to cancel the transfer agreement for 37 lots signed on April 7, 2010. The Second Cancellation Agreement was signed between the Minister of Finance Incorporated and PHB on

14 September 2010   to withdraw the caveat on DPSB 14 days after RM100 million is received under the Settlement Agreement.

3.2.4. On September 17, 2010, the Settlement Agreement was signed between 1MDB, DPSB and PHB whereby 1MDB agreed to pay a settlement of RM230 million, RM130 million to DPSB and RM100 million to PHB. The purchase of 34 lots of TRX land has been concluded with the signing of the Sale and Purchase Agreement between PTP and 1MDB on 1 October 2010 with a selling price of RM34,000 (RM1,000 per lot). The TRX land acquisition chronology is as follows:

3.2.5. JAN's review found that a total of RM230.11 million of the acquisition cost of TRX land was recorded in the 1MDB financial statements for the financial year ended 31 March 2011 as follows:

3.2.6. When TRX land was acquired, there were several tenants who had signed a PTP lease agreement to occupy the land. To vacate the TRX site, the 1MDB Group has signed a Settlement Agreement with the tenant and agreed to pay goodwill financial assistance , a settlement and advance payment amounting to RM72.27 million as follows:

3.2.7. The financial assistance for goodwill to all land tenants has been explained by the 1MDB Group. For Cempaka Vision, both parties have agreed to make a solution at no cost.

3.2.8. Meanwhile, for land leased by Bukit Bintang Umno Division, the agreement was reached between two parties where 1MDB RE agreed to buy another building to house the UMNO office. In line with the resolution of the 1MDB Board dated 14 October 2011, 1MDB has purchased a 6 storey shop office building unit at No. 1. 157, Jalan Maharajalela, Kuala Lumpur for RM2.80 million on 18 November 2011. The building was subsequently resold to the Bukit Bintang Umno Division at the same price as the signing of a sale and purchase agreement on April 20, 2012. Taking into account the compensation money of RM1 million to be paid by 1MDB, UMNO Division Bukit Bintang has to pay the balance of RM1.80 million in installments. The agreed installment payment amounted

to RM600, 000 should be settled by 60 months commencing from July 2012 to June 2017. While the balance amounting to RM1.20 million will be paid in the last installment of the 60th month. However, JAN's revision finds that the final payment made by Bukit Kiara UMNO is merely to the December 2013 installments received on February 21, 2014. The installment balance is RM1.62 million.

3.2.9. In addition, existing markets in the area need to be moved to conform to the TRX development concept. Approval has been reached for the redevelopment of the new Bukit Bintang market through a series of discussions between 1MDB and DBKL and meetings of the Task Force Committee. On 10 February 2014, the 1MDM Board of Directors through a written resolution agreed with the decision of the RE Exco meeting which approved the cost of construction of the new Bukit Bintang market to be borne by 1MDB limited to RM30 million. A sum of RM15.07 million was paid to DBKL until October 2015.

3.2.10. On the whole, TRX's land acquisition cost increased to RM302.38 million, taking into account the acquisition of land previously worth RM230.11 million as well as goodwill and settlement payments (including advances) amounting to RM72.27 million. According to Minutes of 1MDB Board Meeting dated 5 July 2010, TRX's land acquisition cost of RM230.11 million was funded through an existing cash reserve.

3.3. Exchange of Land Rights TRX Project3.3.1. The transfer of TRX Project land from PTP to 1MDB was registered on 23 November 2010 with a consideration of RM34,000. On 7 December 2012, TRX land was transferred to 1MDB RE with a consideration of RM1.78 billion. This value is equivalent to the valuation by Messrs CH Williams Talhar & Wong (CH Williams) on February 15, 2012 based on the following assumptions:

a. Freehold period of real estate

b. The property consists of 34 proprietary documents covering an area of 69,396 acres;

c. Properties are designated for commercial use / not set for any particular use in accordance with the express conditions in the proprietary documents;

d. Properties are designated for commercial use with a plot ratio of 1: 6.80; and

e. Property is valued based on vacant possession and is free of charge.

3.3.2. Transfer of land is approved via a 1MDB Board resolution dated 28 August 2012. The purchase and purchase agreement between 1MDB and 1MDB RE was signed on 20 September 2012 and amortized by 1.78 billion units @ RM1.00 1MDB RE shares to 1MDB. Subsequently, TRX land was transferred to KLIFD Sdn. Bhd. (KLIFD), a wholly-owned subsidiary of 1MDB RE on December 16, 2013 with a consideration of RM1.90 billion and was assessed by the same valuer on 17 December 2013 with a similarly priced selling price. The sale of this land is recorded in the 1MDB RE financial statement as an amount due from a subsidiary. The transfer was made because KLIFD was the SPV for the TRX project. The TRX land conversion chronology is as follows:

3.3.3. The increase in the selling price at each stage of the transfer of land to the subsidiary is accounted for in the project gross development cost. This affects the profitability of the project as a whole. The change of land title from 1MDB, 1MDB RE and finally to KLIFD has formed the TRX project management structure as follows:

a. 1MDB RE as the leading investment holding and developer company for Kuala Lumpur Air Base (PUKL) as well as major developers for TRX and Bandar Malaysia projects; and

b. KLIFD as TRX landowner and special purpose vehicle to finance the TRX project.

The 1MDB RE and KLIFD corporate structure are as follows:

3.3.4. On 17   December 2013, Messrs CH Williams has evaluated the TRX project land for 34 lots valued at RM1.90 billion. This valuation has been used to secure RM550 million from Ambank Berhad where the condition of the loan states that TRX's property value should be less than RM1.90 billion. While the second assessment was made by the same valuer on March 31, 2014 with a value of RM2.70 billion. This second assessment provided an increase of RM800 million to TRX land value within three months. The 1MDB financial statements ended March 31, 2014 recorded TRX's land costs of RM2.70 billion, which is to take into account the valuation made on the financial statement date of 31 March 2014.

3.3.5. On 8th September 2015, JAN has applied for assessment from the Valuation and Property Services Department (JPPH) to obtain their views. Based on a letter from JPPH's Headquarters dated 6 November 2015, JPPH's valuation shows a difference of RM994 million between the two valuation dates, December 17, 2013 and March 31, 2014 using the area, the basis of valuation and assumptions similar to the evaluation report by Messrs CH Williams. The significant difference is because it takes into account the expected infrastructure and road network planned and will be completed in the area.

3.3.6. Paragraph 2.1.1 Malaysian Valuation Standard (5th edition 2015) states that valuers should always understand the requirements, requirements and execute customer requests. The JAN review finds the basis of the first assessment assumptions and the second evaluation used by Messrs CH Williams as follows:

3.3.7. Comparison of TRX land valuation between Messrs CH Williams and JPPH valuation is as follows:

JAN's analysis found that the increase in the price of RM800 million by Messrs CH Williams and RM994 million by JPPH over the TRX land value in three months between December 2013 and March 2014 was reasonable considering the expectation of a new ingress / road infrastructure facility to be completed in the environment that is.

3.4. Proposed Joint Venture with Strategic Investors3.4.1. At the preliminary stage of project implementation, 1MDB RE intends to become a full-master developer for the TRX development project. In this regard, 1MDB RE has invited strategic investors as an investment partner as the TRX project is a large-scale development project, high impact and requires substantial investment. JAN's review of minutes of meetings and 1MDB's Board resolution found that two overseas investors have expressed interest in investing in the TRX project for the period 2010 to 2013 as follows:

3.4.2. However, JAN's analysis of Minutes of the 1MDB Board Meeting found AJP Investments PJS not showing seriousness or commitment to the TRX project. During the meeting on January 27, 2014, the 1MDB Board of Directors was informed that there was no progress in the proposed joint venture status between 1MDB and Aabar Investments PJS although a joint venture agreement between the two parties in the Abu Dhabi Malaysia Investment Company company was signed on March 12, 2013. Parties 1MDB's

management informed JAN that the proposed TRX project development in collaboration with the country's investors is not realized due to uncertainty. Without the involvement of outside investors, 1MDB RE's own development plans (full master developer) can not be continued. Therefore, TRX has been late and project development has to be missed by phase. Contracts for land works and building bases in Phase 1 which should involve Zone 1, 2 and 3 have been reduced to Zone 3 only resulting in the contract value being reduced to RM169.26 million from the total contract value of RM1.048 billion. The chronology of 1MDB Board discussions on strategic investor proposals for the TRX project is as follows:

http://www.sarawakreport.org/images/2016/07/Screenshot-2016-07-20-08.41.31.png

3.4.3. During the meeting on 12 January 2015, 1MDB Board Chairman recommended a joint venture proposal with Aabar for the TRX project to be reviewed as one of the ways to solve the cash flow problem faced by the 1MDB Group. However, according to 1MDB management, until September 2015, no final agreement was signed with strategic investors as proposed at the early stage of the TRX project development.

3.4.4. The 1MDB Board should direct the management to carefully review each joint venture proposal to determine whether the strategic investor is really interested in making actual investments with Malaysia to avoid delays in the implementation of planned projects.

3.5. TRX Project Development And CommercializationContinuing from joint venture proposals with strategic investors, 1MDB RE has taken over the role of a master developer for the development of the TRX Project. In this regard, 1MDB RE has issued a Memorandum of Investment to invite foreign and local investors to participate in TRX development particularly for the Lifestyle Quarter and Park Quarter. 1MDB RE has appointed CB Richard Ellis (Malaysia) Sdn. Bhd. (CBRE) and WTW Real Estate Sdn. Bhd. (WTW RE) as a property consultant. According to 1MDB RE, the bidding process for the Memorandum of Investment was finalized in April 2014. In 1MDB RE's efforts towards

commercialization or fund raising for the TRX project, three methods have been used, namely the sale of land plots, self-development and joint development. The status of commercialization of the TRX project as of October 2015 is as follows:

3.5.1. Sales of Land Plots3.5.1. As of September 2015, 1MDB RE has successfully sold five plots of land with a sales value of RM1.358 billion. Of these, a sum of RM1.27 billion was received in 2015 while the balance of RM88 million was to be obtained by the end of 2017. However, the proceeds from the sale of land plots that could be used for the TRX project development were only RM175 million as RM1.095 billion had come first to 1MDB and RM88 million will only be received in 2017. As a result of the land sales of the TRX project is as follows:

3.5.1.2. Whereas for the remaining 11 plots of unsold land, negotiations with potential buyers for the sale of three land plots are ongoing and are expected to be finalized in 2016 with an estimated sales value of RM722 million. For the remaining eight plots of land with an estimated sales value of RM1.87 billion, it is expected to only be sold between 2018 and 2019 as the plot is being used as a temporary site for TRX's construction materials. More details like the following table:

3.5.1.3. Overall, the commercialization of the TRX project through the sale of land plots for the period of 2015 to 2019 is estimated to provide a return to 1MDB RE of RM3.95 billion as follows:

3.5.2. Self Development

3.5.2.1. 1MDB RE signed the Heads of Terms with an international financial services institution on 23 September 2014 for the construction of a building on a commercial land plot for lease to the institution for a period of 15 years. This approach aims to attract international companies to spearhead TRX projects internationally. The construction of a 27-storey building will house 19 floors of office space, 6 floors of parking podium , multi-purpose space, underground parking and 370,000 square feet of clean rental space.

3.5.2.2. The institution has entered into a rental agreement of 426,500 square feet at a rate of RM8.20 per square foot with revised rental restrictions to 10% at market prices. The gross development cost (land cost, construction cost and financial benefits) commencing in 2016 and is expected to be completed in 2018 is estimated to amount to RM506.18 million. The return on investment from its own development is estimated at RM537.38   million after taking into account the rent of RM1.043 billion to be earned for 15 years (2019 to 2033).

3.5.2.3. Self-development through building construction for rental purposes to a global financial corporation contributes to an increase in international market confidence and a recognition of the TRX project although it has not impacted the short-term financial returns to the 1MDB Group.

3.5.3. Joint Development3.5.3.1. 1MDB Board has approved a joint venture with Lend Lease at a meeting dated October 20, 2014. The selection of Lend Lease as a joint venture for TRX Lifestyle Quarter zone development is made through a structured and transparent Memorandum of Investment process. This process is managed by CBRE. Lend Lease is an Australian property and infrastructure company based in Australia. Among its development projects in Malaysia are the Petronas Twin Towers (Kuala Lumpur), Pinewood Iskandar Malaysia Studios (Johor), Setia City Mall (Selangor) and Platinum Park (Kuala Lumpur). While Lend Lease is also involved in international urban development projects such as New York, Chicago, London, Sydney and Melbourne.

3.5.3.2. One of the building components to be built into the TRX project is the TRX Lifestyle Quarter . The joint venture agreement for the development of TRX Lifestyle Quarter was signed on March 19, 2015 between 1MDB RE and Lend Lease with a 40:60 equity ownership interest in several subsidiaries of LQ Retail, LQ Residential 1, LQ Residential 2 and LQ Residential 3. TRX Lifestyle Quarter involves mixed development of 17 acres of land comprising shopping malls, residential towers and hotels. Construction of shopping malls is expected to be completed in 2018 and residential towers by 2020.

3.5.3.3. Under this joint venture agreement, 1MDB RE will arise from the sale of land amounting to RM1.718 billion and will be paid by Lend Lease in stages from 2015 to 2020. This proceeds will be used to finance 40% equity of 1MDB RE in joint venture projects totaling RM1.142 billion. This will give a net return of RM576 million as follows:

3.5.3.4. The results of the joint venture project comprises rental of shopping centers, sales of residential towers and hotels are expected to provide long-term gross returns for the period of 2019

to 2024 totaling RM1.73 billion. This resulted in a joint venture return including land sales of RM2.306 billion as follows:

TABLE 4.16RETURNS FROM THE SAME BUSINESS PROJECT (RM MILLION)

RETURN

2015-

2018

2019

2020

2021

2022

2023

2024

TOTAL

Land Sale

354.0

81.0 141.0

- - - - 576.0

852.0

112.0

133.0

178.0

288.0

167.0

1,730.0

TOTAL 354.0

933.0

253.0

133.0

178.0

288.0

167.0

2,306.0

3.5.4. TRX Commercialization Returns3.5.4.1. Overall, commercialization of the TRX project for the period of 2015 to 2033 through the sale of land plots, self-development and joint venture projects is expected to return a total of RM7.30 billion. However, before the lease and land plots can be sold at a maximum value, infrastructure development needs to be implemented with an estimated cost of RM3.569 billion. Thus, the overall value of commercial TRX is RM 3.73 billion as follows:

3.5.4.2. The progress status of the TRX project infrastructure development until November 2015 is as follows:

3.5.4.3. The joint venture between 1MB RE and Land Lease is a long-term investment that can provide consistent returns to 1MDB RE and can assist in the development of the TRX project. However, the immediate yield of returns on the disposal of the remaining land plots amounting to RM2.855 billion (net of 1MDB's advance of RM1.095 billion) is inadequate to finance the entire infrastructure cost of TRX amounting to RM3.569 billion. Returns from self-development and joint venture projects amounting to RM2.843 billion are only received in stages in 2015-2033. Overall, commercialization of the TRX project is unable to settle the Group's 1MDB debt burden soon.

3.6. Financial Resources and TRX Project Cash Flow3.6.1. On 3 December 2013, the 1MDB Board of Directors through resolutions has agreed to 1MDB RE to receive a term loan facility from Ambank (M) Berhad amounting to RM550 million with

interest rate of 5.09%.  The purpose of this loan is to finance part of the construction cost of the replacement facility from Sungai Besi Air Base, Kuala Lumpur (PUKL) to the resettlement site, and to finance some of the initial expenses and mobilization of TRX project infrastructure costs. Therefore, the agreement was signed between 1MDB RE and Ambank (M) Berhad on 27 December 2013. However, the JAN review found that all the funds received from the loan had been advanced to 1MDB and were not used for the development of the TRX project or Bandar Malaysia projects despite the overall ordinary shares of KLIFD (1MDB RE subsidiary) have been pledged to AmBank (M) Berhad.

3.6.2. On August 10, 2015, a land sale and purchase plot of C7.9-CT of 1.246 acres with a sale price of RM255 million was signed between KLIFD and Affin Bank Berhad. On the date of the agreement, Affin Bank Berhad has paid 10% down payment of RM25.00 million while the balance amounting to RM229.50 million will be paid after the land grant is handed over to the buyer. As land surrender can only be implemented within six months and 1MDB has the obligation to repay the maturity and maturity of loan principal principal amount of RM92.50 million (Marstan) and RM120   million (1MDB Energy (Langat) Sdn. Bhd.), 1MDB through resolution of the Board of Directors dated August 10, 2015 has agreed to apply for a revolving creditwith Affin Bank Berhad amounting to RM229.50 million with a profit rate of COF + 2.0% per annum. The credit facility is deemed to be settled when a land grant is given to Affin Bank Berhad. As a guarantee of the credit facility, the land grant must be submitted within six months; 1MDB support letter and Ministry of Finance need to be obtained; and security on shares and 1MDB RE (Ayer Itam) Sdn. Bhd. and Farlim Properties Sdn. Bhd.

3.6.3. JAN's checks that the receipts from Affin Bank Berhad's financing have been used to pay 1MDB Energy (Langat) Sdn. Bhd. amounting to RM120 million, then Affin Bank's revolving credit of RM37 million, Affin Bank's escrow account amounting to RM8 million and advances to 1MDB amounting to RM64.50 million. Affin Bank Berhad's financing receipts amounting to RM229.50 were also not used to finance the development costs of the TRX project despite using KLIFD as SPV to secure the loan.

3.6.4. The next JAN review also found 1MDB through its subsidiary, 1MDB Global Investments Ltd. (1MDB GIL) has issued USD3 billion Note on March 19, 2013 with a letter of support from the Ministry of Finance. This note is issued for the purpose of initial capital investment in Abu Dhabi Malaysia Investment Company Limited (ADMIC), a joint venture between 1MDB and Aabar Investments Company PJS as well as for general corporate purposes. This note at interest rate of 4.4% per annum and maturity in 2023 was approved through a resolution of the Board of Directors and 1MB of Shareholders dated 12 March 2013.

3.6.5. Note 7 to the 1MDB GIL financial statements for 2014 states that ADMIC is a joint venture company to develop TRX projects. However, JAN's revision finds that the results of these notes are not channeled to the TRX project development. The review of the 1MDB GIL financial records ended on March 31, 2013 and March 31, 2014 found that the use of the USD3 billion Note is as follows:

Following the feedback from 1MDB's management dated 9 December 2015, ADMIC was established for long-term high-impact investment purposes for Malaysia and Abu Dhabi benefits where the project would be determined by both parties. While waiting for

an investment with ADMIC to be finalized, 1MDB has used the funds issued by 1MDB GIL to meet the appropriate requirements.

3.6.6. In addition, JAN's analysis of TRX's projected cash flow forecasts for 2015-2025 revealed negative cash flows expected by 1MDB RE for the TRX project in 2016 and 2017 due to the inadequate revenue received to cover infrastructure and construction costs. However, negative cash flows will be smaller if 1MDB returns the advance from 1MDB RE. Further details regarding the expected cash flow of the TRX project are as follows:

3.6.7. JAN analysis shows that 1MDB RE will have difficulty fulfilling its financial obligations for 2016 and 2017 due to the result of TRX's commercialization during the year unable to cover infrastructure and construction expenditure for the same period. To bear the cost of infrastructure development TRX, 1MDB RE relies entirely on the sale of land plots sold in 2015 and the following year. Although KLIFD was created as a special purpose vehicleTo obtain financing for the TRX project, loans obtained through KLIFD are not used for TRX development

purposes. Therefore, 1MDB's management agrees with JAN's proposal to return to 1MDB RE all the advance payment given to 1MDB after Edra's sales by the 1MDB Group expected to arrive in the first / second quarter of 2016 to ensure the smooth development of the TRX infrastructure.

4. MALAYSIAN TOWN PROJECT

4.1. Project planning4.1.1. The Bandar Malaysia project is one of the projects inspired by the Government of Malaysia as an element of the National Key Economic Areas under the Economic Transformation Plan announced by the Prime Minister of Malaysia in 2010. The project involves the redevelopment of 485.12 acres of land area of the Sungai Besi Airport, Kuala Mud under Greater Kuala Lumpur transformation . Among the major economic drivers of Malaysia's urban planning is to make Kuala Lumpur a world-class city and attraction for multinational corporations as well as a major transport hub within high-speed rail towns between Kuala Lumpur and Singapore.

4.1.2. 1MDB RE (a subsidiary of 1MDB) is the main developer of the Bandar Malaysia project. 1MDB RE established a subsidiary, Bandar Malaysia Sdn. Bhd. (BMSB) as a special purpose vehicle for funding funding for the Bandar Malaysia development project and the relocation of Sungai Besi Air Base, Kuala Lumpur. BMSB is the owner of Bandar Malaysia land. More details are as follows:

4.2. Redevelopment of Sungai Besi Airport Area4.2.1. The development of Bandar Malaysia was developed on the land owned by the Federal Land Commissioner (PTP) used for Sungai Besi Air Base, Kuala Lumpur (PUKL). The Cabinet meeting on July 28, 2010, among others, granted approval for the transfer of land owned by the Federal Government which included PUKL land to 1MDB at a nominal price of RM1,000 for each ownership. 1MDB also has to deal with the acquisition of three lots of land leased to Royal Selangor Flight Club where the lease period will expire in 2017. In line with the decision of the Cabinet on the transfer of Federal Land to 1MDB, on 12 August 2010,

4.2.2. The PUKL resettlement cost is also monitored by the Economic Council, chaired by YAB Prime Minister of Malaysia. The Economic Planning Unit, the Prime Minister's Department (JPM) acts as a secretariat to this Council. Based on the decision of the Economic Council meeting dated 14 February 211, 1MDB has to bear additional requirements through trade off the value of the building / facility which is not required by the agency involved and the Government will accommodate such provision if it is not sufficient. On 3 June 2011, the Economic Council decided that 1MDB and the Government would bear a total cost of RM1.60

billion and RM1.118 billion of the total cost of the resettlement of PUKL.

4.2.3. In addition, the PUKL Relocation Project Monitoring Committee is a committee established under the Development Agreement to review and decide on the implementation issues submitted by the Ministry of Defense, Ministry of Home Affairs or 1MDB. The Committee is chaired by the Director General, Economic Planning Unit, JPM and is also represented by a representative of the Ministry of Finance, a representative of the Public Works Department, two representatives of the Government, two representatives of the 1MDB and a representative of the Government agency that has the role of adviser and none voting rights. The decisions made by this committee are subject to Project Brief , Approved Schematic Design , Detail Drawing ,JKR Building Specifications 2005 , project cost and implementation schedule. The role of the Project Monitoring Committee is as follows:

4.2.4. On 15 June 2011, a Sale and Purchase Agreement was signed between PTP and 1MDB for the purchase of 12 PUKL land parcels after the Cabinet granted 1MDB rights on 28 July 2010 for the redevelopment of the area as a Bandar Malaysia project. Based on clause 3 of the Sale and Purchase Agreement dated 15 June 2011, the consideration for the sale of such land is as follows:

a. Payment of RM12,000 only;

b. Registration and transfer of Land Relocation 1 (Bandar Sri Sendayan land) under the name of the Federal Land Commissioner;

c. Deposit a total of RM129.43 million into a trust account to be established by the Government for the cost of Land Relocation 2 (Subang Properties Sdn Bhd) and Land Relocation 3 (Government land in the Royal Malaysian Air Force Camp, Subang).

4.2.4. Twelve Lease Agreements were signed between 1MDB and PTP on 15 June 2011 whereby the lease was given to the Government of Malaysia as 1MDB's obligation to the Transfer Agreement and Development Agreement were pending. All 12 of these titles were leased back to the Federal Land Commissioner for a period of five years from 19 August 2011 to 18 August 2016 with a value of RM1.00 per lot.

4.2.6. For the purpose of rebuilding the area, 1MDB also agreed to resettle the Royal Malaysian Air Force, the Royal Malaysian Air Force Unit and the Royal Malaysian Army based on the Resettlement Agreement signed on 15 June 2011 between the Government of Malaysia and 1MDB. On the same date, 1MDB signed a Sale and Purchase Agreement with. To acquire land in Bandar Sri Sendayan for the resettlement site of the Royal Malaysian Air Force for a consideration of RM294.03 million.

4.2.7. Clause 4.4. (A), (b) and (c) The Resettlement Agreement states 1MDB and the Government agrees that the development cost for relocation and replacement site (cost project) is not more than RM2.717 billion of which RM1.60 billion will be borne by 1MDB while RM1.117 billion will be advanced by 1MDB and the Government will repay the amount. Under Appendix 2 of the agreement, resettlement sites are as follows:

4.2.8. On 15 February 2012, an additional agreement to the Resettlement Agreement was signed to amend clause 3.3 of the Placement Agreement ie "the agreement to expire after the execution of the Last Development Agreement" was amended to "the agreement would expire within six months after the execution of the last Development Agreement". Subsequently, both parties signed a second supplementary agreement on 16 Aug 2012 for amendment of the clauses in Annexes 3.4, and 5 to the main agreement without affecting the project cost and are set out in Schedules 1, 2 and 3 to the second supplementary agreement. The summary of the relocation costs in the agreement is as follows:

4.2.9. The Government of Malaysia and 1MDB have also signed eight Development Agreements for eight relocations where 1MDB was granted the right to rebuild the Sungai Besi land. Furthermore, 1MDB has appointed 1MDB RE on 12 December 2013 as a developer to carry out the development of the land. More details are as follows:

Based on feedback from 1MDB RE's management dated 9 December 2015, the facilities to be prepared under the Development Agreement will be more than 6.3 million square feet in comparison to the original site availability of PUKL over two million square feet. The land area of 485 acres at PUKL has been replaced with over 90 acres of new land in three resettlement sites.

4.2.10. On 11 March 2013, 1MDB has appointed the Malaysian Property Officer Corporation (PPHM), a subsidiary of the Armed Forces Fund Board as the main contractor for designing, building and completing eight relocations by turnkey method with a total contract value of RM2.103 billion. More details are as follows:

Based on feedback from 1MDB RE's management dated December 9, 20155, the amount comprises basic construction cost of RM1.80 billion, the provisional sum for additional work amounting to RM283 million and work transfer amounted to RM19 million. The actual cost for additional work is subject to decision from the PUKL Redevelopment Project Monitoring Committee. However, the decision has not yet been entered into in the form of Supplemental Agreement.

4.3. City Land Land Transfer4.3.1. On 15 June 2011, a Sale and Purchase Agreement was signed between PTP and 1MDB for the purchase of 12 PUKL land lots, Sungai Besi for a consideration of RM12,000. Based on records in the Kuala Lumpur Federal Territory Land and Mines Office (PTG KL), the entire land involved with the transfer of land to 1MDB from the PTP involved the following transactions:

a. Transfer of 11 ownership of land to 1MDB and registered on 19 August 2011 with a consideration of RM11,000.00;

b. Transfer of one land title (Grant 74865) to 1MDB and registered on 2 March 2012 with a consideration value of RM1,000.00.

4.3.2. The 1MDB Board of Directors through resolution dated 28 August 2012 approved to dispose of 12 lots of land to its subsidiary, 1MDB RE for a consideration of RM650 million and paid by the issuance of 1MDB RE ordinary shares at RM1.00 per share. Further, the Sale and Purchase Agreement between 1MDB and 1MDB RE was signed on 20 September 2012 and is settled by 1MDB equity ownership of 650 million units @ RM1.00 in 1MDB RE ordinary shares on 18 March 2013. The land for this transfer is based on the evaluation by Messrs. CH Williams on August 6, 2010 with a base of "As Is" valued at RM650 million. JAN's revision of the PTG KL records found that the transfer from 1MDB to 1MDB RE for 12 land titles involved the following transactions:

a. Transfer of three land titles (Grant 71945, Grant 75669, Grant 7532) and registered on 12 April 2013 with a total consideration of RM245.83 million;

b. Transfer of nine land titles and registered on 12 April 2013 with a total consideration of RM404.17 million.

4.3.3. On 10 December 2013, 1MDB RE through a resolution of the 1MDB RE Board has disposed of the 12 lots of Bandar Malaysia land to its subsidiary, Bandar Malaysia Sdn. Bhd. with a consideration of RM4.20 billion. The valuation of the land transfer is based on the same valuation report on 1 August 2013 and is recorded in the 1MDB RE financial statements ending March 31, 2014. Based on the transfer records in PTG KL, the transfer of land transactions is as follows:

a. Transfer of three land titles (Grant 71945, Grant 75669 and Grant 7532) and registered on 26 March 2014 with a consideration value of RM1.586 billion;

b. Transfer of nine land titles and registered on March 5, 2014 with a total consideration of RM2.614 billion.

A summary of the transfer of the PUKL land ownership to the 1MDB Group is summarized in the following chart:

4.4. Urban Development Project Costs4.4.1. Gross development costs for Bandar Malaysia Project comprise land settlement costs, PUL relocation, soft cost-master

planning , development and financing amounting to almost RM8.698 billion. As of September 2015, a sum of RM853 million was paid by 1MDB RE. More details are as follows:

4.4.2. Expenditure on PUKL relocation costs up to September 2015 amounted to RM844 million. The resettlement cost includes land acquisition costs (RMAF Subang, RMAF Sendayan and RMP Subang) amounting to RM369 million, payments to trust funds maintained by the Ministry of Defense amounting to RM70 million for the purchase of specialized equipment, payments to PPHM as the main contractor amounting to RM375 million ( including RM30 million still in arrears) and payment to consultants amounting to RM30 million.

4.4.3. JAN's review of distribution of PUKL's development provisions found that the Government of Malaysia has clarified the overall Government payment commitment to 1MDB amounting to almost RM1.117 billion based on the consultant certification of work done . Payment details by Government are as follows:

4.4.4. However, the JAN review found that the allocation received from the Government amounted to RM1.117 billion was not fully utilized to cover the cost of resettlement as the real purpose of the provision was given by the Government. This was informed at the 1MDB Board meeting on August 17, 2015, whereby 1MDB RE CEO stated that the Government had made a full payment of RM1.10 billion as agreed to 1MDB for the PUKL relocation project. The details of the use of the allowances are as follows:

4.4.5. According to 1MDB RE, the value of outstanding payments to PPHM at the date of the meeting is estimated at RM370 million. 1MDB's Board of Directors at the meeting on 17 August 2015 requested that Mr Azmi (Chief Financial Officer 1MDB) clarify the use of the RM288 million used by 1MDB. However, until September 2015, the JAN found that this matter has yet to be met to the Board of Directors of 1MDB.

4.4.6. JAN's revision of the Interim Payment Certificate to PPHM found 50 certificates claimed for the development cost of the five relocation sites namely RMAF Subang, RMAF Sendayan, RMP Subang, 31 Kajil Kem Royal Artillery Regiment and RMAF Kuantan have been in arrears since December 2014 until September 2015 ( Certificate No 17 to 26). The value of outstanding payments to PPHM as at September 2015 amounted to RM396.41 million.

4.4.7. This situation shows that 1MDB RE has a problem to make payment to the resettlement contractor while a total of RM288 million allocation of Government resettlement provision which was supposed to be used for that purpose has been used by 1MDB for expenses not being informed to the 1MDB Board.

Feedback from 1MDB's management dated 9 December 2015 stated that a sum of RM288 million was used to settle the loan

interest payments in full compliance with the Group's 1MDB financial needs.

4.5. Source of City Malaysia Project Financing4.5.1. 1MDB RE has obtained funding sources for the PUKL relocation project, Sungai Besi through two loans and one issuance of sukuk. The two loans were received from the Social Security Organization (SOCSO) and Ambank (M) Berhad amounting to RM800 million and RM550 million respectively.

4.5.2. The loan obtained from SOCSO amounting to RM800 million was approved through a resolution of the 1MDB RE Board on April 24, 2012. The loan agreement was signed on 28 September 2012, with an annual interest rate of 10 years MGS + 0.5%   and will mature on 10 October 2022. Facilities This loan is intended to finance the resettlement cost of military installations operating at Sungai Besi Camp for a military installation redevelopment project operating at Sungai Besi Camp for Bandar Malaysia development projects and / or for other property investments. The Federal Government guarantees on this loan were signed between the Minister of Finance II (Government representatives) and SOCSO on 28 September 20009.

4.5.3. For a RM550 million term loan from Ambank (M) Berhad, the loan agreement was signed on 27 December 2013 to finance part of the resettlement cost of Bandar Malaysia and a portion of initial expenses and mobilization expenses for the TRX project. JAN's revision of 1MDB RE's bank statement found that a sum of RM550 million from term loans was entered into 1MDB RE account on 7 January 2014. However, on the same date all of the amounts had been transferred to 1MDB. The loan should be fully utilized for the PUKL relocation cost for the Bandar Malaysia project and the TRX project. The description of this loan is described in the preceding paragraph (paragraph 3.6.1.).

4.5.4. Whereas the proposed issuance of Murabahah sukuk by Bandar Malaysia Sdn. Bhd. (BMSB), a subsidiary of 1MDB RE, was approved at 1MDB Board Meeting on 20 May 2013 to cover the cost of resettlement of PUKL. Clause 2.2 The Program Agreement signed between BMSB and AmInvestment Bank Berhad on 13

February 2014 explains the use of sukuk issuance is for BMSB and 1MDB RE to finance part of the project's transfer costs and / or working capital requirements.

4.5.5. The published sukuk is unrated sukuk based on shariah principles, the sukuk Murabahah (via tawaruq arrangement). Unrated sukuk means that the sukuk issued is not rated by a relevant rating agency where the sukuk is not traded on the Second Board of Exchange and the investor to this sukuk issue does not require a rating on sukuk issued. On 13 February 2014, the security on the sukuk was made on the following:

a. Shariah Compliant Disbursement Account, Shariah Compliant Finance Service Reverse Account (FSRA), Shariah Compliant Proceeds Account;

b. Sungai Besi Sale & Purchase (SPA);

c. Asset, properties, revenues, undertakings and right over Sungai Besi Land;

d. Construction Contract (Development Agreements), insurance & takaful policies and performance bond-PPHM; and

e. Two ordinary shares held by issuer.

4.5.6. The Murabahah Sukuk amounting to RM2.40 billion is issued in two tranches comprising two series each according to maturity between 7 to 10 years. The first tranche was subscribed by Lembaga Tabung Haji (LTH) amounting to RM1.50 billion on 20 February 2014 while the second tranche of RM900 million was subscribed by the Retirement Fund (Incorporated) (KWAP) on 29 December 2014. The proceeds from the sukuk issuance, BMSB earns RM1 .498 billion with discounted rate and transaction costs amounting to RM901.57 million. More details are as follows:

4.5.7. At 1MDB Board meeting on July 24, 2015, Encik Azmi (Chief Financial Officer 1MDB) explained that the net proceeds from the issuance of the sukuk were used for other purposes as the funds were not required for the development of Bandar Malaysia at that time. He acknowledges that this is permissible under the terms of the sukuk and will not affect the implementation of Bandar Malaysia's development in which the funds will be repaid from the 1MDB Group as and when required. However, the 1MDB RE CEO at 1MDB Board meeting on 17 August 2015 has stated that the amount of outstanding payment to the contractor is estimated at RM370 million.

4.5.8. JAN also found that only RM34 million (4.3%) of the RM800 million term loan from SOCSO was used to finance the resettlement cost of PUKL. While RM457 million (57.1%) was advanced to 1MDB and the balance was used for the TRX project and 1MDB RE operating expenses. For the net turnover of sukuk amounting to RM1.498 billion, there was no distribution for the PUKL relocation expenses. Based on 1MDB RE's financial records,

a sum of RM550 million from net sukuk proceeds was used to settle a term loan of RM550 million maturing in January 2015 while RM919 million (61.3%) advanced to 1MDB. Further details on the use of loans and sukuk are as follows:

4.5.9. Overall, from all financing taken for the purpose of financing the PUKL relocation cost of RM3.75 billion (from SOCSO, Ambank and sukuk) it was found that almost RM1.93 billion (51.3%) was advanced to 1MDB.

4.5.10. Loan and sukuk facilities amounting to RM3.75 billion taken for the cost of placement of Sungai Besi PUKL and development of Bandar Malaysia should help complete the completion of the Bandar Malaysia project. However, almost RM1.93 billion (51.3%) of the funds that have been advanced to 1MDB to meet the 1MDB Group debt obligations have affected Kota Malaysia's project financing cash flows. This situation can

cause PUKL's resettlement delay from the original planning schedule and affect the overall development of Bandar Malaysia.

Based on feedback from 1MDB's management dated 9 December 2015, the Group's decision to use the funds as a whole was made to meet the company's financial obligations at the time.

4.6. Progress of Bandar Malaysia Project4.6.1. The development phase of Bandar Malaysia is categorized into four phases, namely relocation of Sungai Besi PUKL, development of Bandar Malaysia design, land matters and project implementation. The entire phase of redevelopment of the Sungai Besi airport is expected to be fully completed by 2040. 1MDB RE aims to complete the construction and revise of PUKL within three years starting from 2014 and is expected to be fully completed by December 2016. In October 2015, 1MDB RE has been granted the principle of Planning Permission in principle from Kuala Lumpur City Hall. The development phase for the Bandar Malaysia project is as follows:

4.6.2. Based on PUKL resettlement progress report until August 2015 submitted to the Ministry of Finance, it was found that five out of eight resettlement sites had been delayed between 132 days to 600 days from the original plan. While two locations, namely Butterworth and Gong Kedak will only commence in December 2015. The Ipoh Aviation Training Base, Perak is fully completed and the Acceptance Certificate was obtained on 13 June 2015.

4.6.3. Under the 1MDB RE briefing to JAN on 29 September 2015, delays in resettlement construction at RMAF Subang resulted from the delays in submission of land, postponement of approvals from the Shah Alam City Council (MBSA) and delays of endorsement by consumers. More details are as follows:

4.6.4 JAN visit on 2 November 2015 to the relocation site of RMAF Subang, RMP Subang and ARMY 31 RAD Kajang found construction work at a minimum where only a few construction workers were seen at the RMP Subang and ARMY 31 RAD Kajang sites. Whereas in RMAF Subang, no construction worker at the construction site. Among the pictures on the site are as follows:

4.6.5. During the Special Meeting on 11 May 2015, the Board of Directors of 1MDB has agreed to perform open tender for sale of Bandar Malaysia land or BMSB equity sale (company owning Bandar Malaysia land). Continued from the effort of obtaining an investment partner for the development of Bandar Malaysia, Mr Arul Kanda informed the Board of 1MDB during the meeting on 24 July 2014 stating that 1MDB had received the Expression of Interestof over 40 domestic and foreign investors. On the involvement of foreign partners, 1MDB Board Chairman believes the Ministry of Finance Malaysia should have a 30% stake in this project as Bandar Malaysia is a national project. The remaining

70% stake should be owned by a Government-linked company (GLC). Based on a briefing from 1MDB management on September 28, 2015, there are interested foreign investors comprising China, Australia, Singapore and Japan. 1MDB RE has appointed WTW Real Estate Sdn. Bhd. as a deal adviser on June 25, 2015 to manage the Request For Proposal for the Bandar Malaysia project. As of September 2015, four bidders have passed the third stage of assessmentRequest For Proposal and listed shortly with two final, binding and accepted endorsement offers on 9 November 2015.

4.6.6. Based on 1MDB media statement on December 31, 2015, 1MDB has signed a Share Sale and Purchase Agreement for the sale of 60% equity of BMSB to the Consortium of Iskandar Waterfront Holdings Sdn. Bhd. (IWH) and China Railway Engineering Corporation (M) Sdn. Bhd. (CREC). This consortium is a joint venture between IWH and CREC with a 60:40 interest rate. The IWH-CREC Consortium has valued 100% of Bandar Malaysia's land at RM12.35 billion where the value of 60% of the land is RM7.41 billion. 1MDB will receive a 10% deposit amounting to RM741.0 million when the Share Sale and Purchase Agreement is implemented. This transaction is expected to be complete in June 2016. However, the terms of the agreement and details can not be revised by JAN as 1MDB does not produce any related documents.

4.6.7. Subsequently, a press release issued by 1MDB on 6 January 2016 outlined the starting point of the net equity value calculation of 100% of   the land value of RM12.35 billion in which 60% of the IWH-CREC Consortium's holding was RM7.41 billion. Purchase consideration remains at a sum of RM7.41 billion although final pricing is subject to the following two conditions:

a. If the IEH-CREC Consortium agrees to take over the cost of resettlement of the PUKL and sukuk debt, the computation of purchase consideration is calculated based on the full valuation of the land, which is RM12.35 billion less the cost of resettlement of PUKL amounting to RM1.90 billion and sukuk cost amounting to RM1.63 billion make the net worth of purchase consideration at

RM8.80 billion, of which 60% of Consortium's holdings are equivalent to RM5.28 billion.

b. If consent is not reachable for these costs or does not get all the applicable permissions (such as from the Government of Malaysia, PPHM and sukuk investors), the purchase consideration of RM7.41 billion will be fully repaid to 1MDB, which will still be responsible for such costs .

4.6.8. The Sungai Besi airport land redevelopment project on mixed urban development under the Greater Kuala Lumpur transformation initiative has high economic value and great potential. However, the PUKL relocation phase is now delayed from its original expectations due to technical factors and outstanding payments to appointed prime contractors. 1MDB RE which originally acts as a full developer, has secured strategic development partners through the sale of 60% BMSB equity shares to the IWH-CREC Consortium as at the end of 2015. This is one step in the rationalization plan to help generate an additional 1MDB Group fund overall. The completion of the equity sale settlement, which is expected to be completed in June 2016, is expected to maximize the value of Urban Malaysia's redevelopment as a strategic project of the country.

5. LAND AREA LAND

5.1. Background5.1.1. 1MDB RE (Ayer Itam) Sdn. Bhd. which is a sub-subsidiary of 1MDB was originally established on November 3, 2010 with its original name, namely My Great Team Sdn. Bhd. with two ordinary shares of RM1.00 each. On June 13, 2011, My Great Team Sdn. Bhd. changed its name to Aluminum Development Sdn. Bhd. and then changed to 1MDB RE (Ayer Itam) Sdn. Bhd. on May 17, 2013. Board of Directors 1MDB RE (Ayer Itam) Sdn. Bhd. on January 1, 2015 comprised of Encik Arul Kanda Kandasamy, Encik Azmi Tahir and Encik Chen Kai Hong, with an authorized share of 100,000 ordinary shares of RM1.00 each, and shares issued & paid by two ordinary shares of RM1.00 each.

5.1.2. In April 2013, 1MDB intends to acquire several strategic land lots in the Northeast district of Penang in a developing township known as Bandar Air Itam (formerly known as Ayer Itam). The purpose of the land acquisition was to develop 9,999 units of low-medium-cost housing and affordable housing to meet part of the Federal Government's promise to provide 20,000 units of affordable housing in Penang in addressing housing needs in the state.

5.1.3. 1MDB has appointed Messrs Wong & Partners and Messrs KPMG Transaction & Restructuring on 5 April 2013 to conduct the due diligence assessment of the legal, financial and tax-related land acquisition. The 1MDB Board of Directors through a resolution dated 15 April 2013 has agreed to acquire land for the purpose of this project through the acquisition of interest in the land from several individuals and the acquisition of shares of two companies with an interest in targeted land lots. The consent is given as a result of the feasibility study undertaken on  land in Air Itam, Ayer Putih and Paya Terubong, Penang find that the land is suitable for development as low-medium-cost housing and affordable housing together with commercial and residential mixed development, and can generate additional returns to the company at gross margin positive 34% (approximately RM525 million). However, JAN can not confirm the suitability of the feasibility study because the document can not be submitted by 1MDB for further review.

5.2. Land Acquisition And Interested Companies5.2.1. On 25 April 2013, 1MDB through its subsidiary, 1MDB RE (Ayer Itam) Sdn. Bhd. (1MDB RE AI) has acquired shares in two companies which are registered owners and interested in undivided interest in 55 independent land lots in Air Itam, Penang totaling 234 acres, for the purpose of building affordable housing and other development projects, that is;

1. 6,600,000 ordinary shares of RM1.00 each, representing 100% equity in Farlim Properties Sdn. Bhd. (FPSB) for a fee of RM337.99 million.

1. Two ordinary shares of M1.00 each, representing 100% equity in Gerak Indera Sdn. Bhd. (GISB) for a fee of RM929.55 million.

5.2.2. The agreement between 1MDB RE AI and FPSB was signed by Farlim Holding Sdn. Bhd., Gem Galajaya Sdn. Bhd. and Saribunga Holdings Sdn. Bhd. as a shareholder of FPSB. The agreement between 1MDB RE AI and GISB was signed by Ng Kok Cheang and Mohammad Zubni bin Ismail (representative of Yeoh Gim Chew) as a shareholder of GISB.

5.2.3. The acquisition of 100% equity in both companies resulted in 1MDB directly and indirectly acquiring interest in undivided interest of 234 acres of land. 1MDB did not actually buy the land but instead acquired shares and interests in the land. In real estate, interest in undived interest is a special term relating to the type of ownership of property ownership in which two or more owners share the same property at the same time. This means that every owner has an interest in the property, and none of the owners have the exclusive right to use the property or to reduce the interests of the other owners without the consent of the owner.

5.2.4. 1MDB has made full payment for the acquisition of FPSB in 2013 through three transactions on 30 April 2013, 25 June 213 and 17 September 2013 amounting to RM337.99 million. However, five lots of Lot 222, 223, 1075, 1452 and 1453 so-called excluded lands are not included in the sale and purchase agreements because FPSB and GISB still want to hold the land. Therefore, in order to acquire full ownership of FPSB land, 1MDB RE AI through FPSB has entered into a sale and purchase agreement with Gem Galajaya Sdn. Bhd. on 17 September 2013 to acquire 25% of the non-subdivided portion of the excluded land for a fee of RM1.29 million.

5.2.5. For GISB's acquisition of shares, the terms set forth in the sale and purchase agreement are that GISB must submit its own land ownership in vacant possession with the remaining 14.3% Lot 1561 and category 3 land within six months from the date of sale and purchase agreement. Category 3 land means the land area owned by Kumplan Tan Jiak Chye (TJC). The TJC Group represents the interests of Tan Jiak Chye, Chong Sie Cheong, Ng Peng Wah and Choong Lye Hock Estates Sdn. Bhd. (estate trustee Chor Phaik Sim). However, as GISB was unable to meet the terms of the sale and purchase agreement until October 2013, GISB's equity

acquisition consideration was reduced from RM929.55 million to RM604.91 million. Two payments to GISB were made on 30 April 2013 and 25 June 2013 respectively amounting to RM604.91 million respectively. The balance of Lot 1561 and category 3 land will be negotiated again through a separate sale and purchase agreement when the transaction is finalized.

5.2.6. However, the process of transfer of land is expected to take a long time as the Tan Jiak Chye Group (TJC) also has 14.29% share of interest on almost 234 acres of land. Therefore, pending the completion and registration of the land title, on 23 September 2013, 1MDB has applied to the Registrar of Penang Land to enter a private caveat on the land to safeguard their interests.

5.2.7. On 23 September 2013, 1MDB RE AI signed an agreement with Farlim Group (Malaysia) Berhad (FGB) to acquire an undisputed share of three additional land lots, Lot 1457, 1561 and 1584 for a fee of RM112.50 million . With the completion of this land acquisition, the 1MDB Group has a total 85.7% share interest for each of the 60 undistributed lots of land. A summary of the ownership of the land is as follows:

5.2.8. Mr Hazem (CEO 1MDB at that time) at 1MDB Board meeting on 26 March 2014 announced an estimated RM1 billion of the USD3 billion Note issued by 1MDB Global Investments Ltd. has been used for land acquisition in Air Itam, Penang. In total, the acquisition cost of FPSB, GISB and FGB land is RM1.056 billion, as follows:

5.2.9. The 1MDB RE AI corporate structure and ownership of Air Itam after the acquisition of FPSB, GISB and FGB land are as follows:

5.2.10. To ensure that Tan Jiak Chye's (TJC) group ownership transfer process can be resolved and transferred to 1MDB, on 3 May 2013, 1MDB signed an agreement with Tan Jak Chye as a consultant on behalf of the TJC Group and paid RM6 million to Tan Jiak Chye for the expenses related to the land. The main scope of the delegation is to ensure that the TJC Group's share of exchange of lands is fully transferable to the 1MDB Group within nine months, at the latest on February 2, 2014. If Tan Jiak Chye fails to perform as agreed, payment The RM6 million should be refunded.

5.2.11. However, until April 2015, Tan Jiak Chye still failed to complete the task. In this regard, the 1MDB Board of Directors at the meeting on 23 April 2015 decided to reclaim RM6 million from Tan Jiak Chye after the deal on the 1MDB rationalization plan was completed.

5.2.12. As of October 16, 215, 1MDB has yet to transfer the interest or sign an agreement on land excluded from former GISB owners to own the entire land as the TJC Group has yet to conclude agreements on land conversion. Under Section 141A of the National Land Code 1965, property owners holding a majority interest in the land may apply for permission to partition the land. Therefore, 1MDB has another option for obtaining full ownership of the land by breaking the portion of the land. During the meeting on April 23, 2015, the 1MDB Board of Directors holding 85.

5.3. Land Assessment5.3.1. The Board of Directors of 1MDB through a resolution dated 15 April 2013 has appointed two property valuers on land acquisition in Penang to determine the value of the land for purchase and accounting purposes. Further details on the appointment and assessment by the two valuers are as follows:

5.3.2. The JAN review finds that both designated valuers have used the same valuation base, the market value by comparing the land

sale price in the area sold in the nearest trading period during the assessment. However, the JAN could not ascertain the criterion that resulted in a gap of valuation gap of nearly RM611 million between the two professional valuers.

5.3.3. Based on the land valuation report using the 'unattended' valuation basis with a variety of land burden, the acquisition of land through the acquisition of the company's shares is within the market price of between RM130 per square meter valuation by Messrs CH Williams Talhar & Wong (CH Williams) and RM190 square foot by Messrs Raine & Horne International Zaki + Partners, except for FPSB's acquisition of RM221 per square foot higher than the valuation by both appointed judges.

5.3.4. On April 10, 2015, the JAN has applied for assessment from the Valuation and Property Services Department (JPPH) for their views. JPPH conducted a valuation on the land based on the date of the same value and land area as the evaluation report by Messrs CH Williams. The valuation bases and assumptions adopted by JPPH are similar to those of the CH Williams assessment. Valuation is also taken into account the interests of all registered owners on the land, rather than the share of the real interest of the 1MDB Group only. Using the 29 September 2014 valuation date, JPPH on November 6, 2015 has recommended a total valuation of RM1.153 billion (RM113.34 per square foot) on an 'as is' basis, and RM1.795 billion (RM176. 52 square feet) with the 'empty possession' ground on the Air Itam ground. This shows the acquisition of FGB land and the acquisition of GISB shares is in the JPPH valuation environment except for the acquisition of land through FPSB's acquisition of almost twice the value of JPPH's valuation.

5.3.5. The comparison between the average cost of procurement by the 1MDB Group and Air Itam land valuation by three valuers is as follows:

The JAN analysis found that the average rate of Air Itam's land acquisition by the 1MDB Group was within the reasonable average of reasonable and reasonable market rates for land in the area. However, the cost of land acquisition for FPSB's interest is found to be unreasonable as it is much higher than the market price.

Based on feedback from 1MDB's management dated 9 December 2015, the acquisition of 85.7% of Air Itam's land portion was made through the Master Agreement dated April 25, 2013. Although the FPSB's acquisition price was higher than other revenue, 1MDB only agreed upon the acquisition price after taking into account the GISB which is obtained at a lower price.

5.4. Project Cost5.4.1. The 1MDB Board of Directors under a resolution dated 15 April 2013 approving the proposal for Air Itam's land acquisition also approved the appointment of four consultants and advisors for the project. JAN's revision found that for the period of 2013 to October 2015, the 1MDB Group paid a total of RM15.24 million for the cost of the entire Air Itam land (excluding the cost of shares and land acquisition), as follows:

5.4.2. The total acquisition cost of 235 acres of land in Air Itam until October 2015 amounted to almost RM1.072 billion comprising the cost of acquisition of shares and land of FPSB, GISB and FGB amounting to RM1.056 billion and revenue related costs amounting to RM15.24 million. However, this amount does not take into account the cost of borrowing costs used to finance the acquisition of the land.

5.5. Project Development5.5.1. At a meeting on 11 November 2013, the 1MDB Board agreed that the development of Tanah Itam land was balanced

between commercial and mixed housing development so that 1MDB could generate returns from the entire development of Messrs Wong & Partners appointed by 1MDB through a letter dated April 5, 2013 among them being given the task of providing Master Agreement and Development Agreement (Joint Land Development Agreement) for the construction of Air Itam land.

5.2.2 However, the development of Air Itam land is a complicated business for involving the acquisition of part of the interest of the land where some are held by others. To enable the land to be developed, 1MDB needs to have the entire land. As of October 16, 2015, 1MDB only managed to have 85.7% stake in the land either directly or indirectly. Therefore, the Development Agreement to develop Air Itam land has yet to be finalized until October 2015. The position of Air Itam land under the ownership of the 1MDB Group is as follows:

5.5.3. In addition, the land is inhabited by nearly 2,000 squatters since its inception. JAN's visit to the Air Itam area on September 30, 2015 found that there were many homes, workshops and small shops that had long been operating / inhabiting the area. Between the buildings on the site are as follows:

5.5.4. During a special meeting of 1MDB Board on 4 February 2015, Mr Arul Kanda (President and Executive Director of 1MDB) presented the results of 1MDB's strategic review which recommended some of the company's value-enhancing measures. Among the recommendations is to raise money from lands owned by 1MDB by selling or placing partnerships with any interested parties / parties to 1MDB's land in Air Itam, Penang. Following the rationalization plan which was tabled to the

Cabinet on May 29, 2015, 1MDB gave a press statement on June 30, 2015 among which 1MDB has received several proposals to sell its land. However, as of November 18, 2015, 1MDB's management informed Air Itam that it will not be sold as long as the 1MDB Group has not yet owned the land or land ownership issues with the TJC Group has not been completed. 1MDB also faces problems not getting full support from the state government to develop the land. The Penang State Government on July 8, 2015 openly makes a press statement saying the State Government is ready to freeze any matters relating to 1MDB land in the state.

5.5.5. In conclusion, 1MDB still has not received any returns from an investment of more than RM1.072 billion for the acquisition of Air Itam land until the end of October 2015, but also has to bear the costs of the acquisition / holding of the land totaling RM15.24 million to date. 1MDB's original purpose was to buy Air Itam land to build a difficult housing project due to land ownership and occupation problems and without the support of the State Government.

6. LAND ISLAND LAND

6.1. Background6.1.1. On September 9, 2010, 1MDB Real Estate Sdn. Bhd. (1MDB RE) has established a subsidiary company, Ivory Merge Sdn. Bhd. with a paid-up capital of RM2.00 and an authorized capital of RM100,000 where the company's principal activity comprises property development and investment holding companies. For the financial year 2014, Ivory Merge Sdn. Bhd. has been transferred from 1MDB RE to Ivory Point Ltd. (Laburan) which is a subsidiary of 1MDB Energy Holdings Limited. Corporate structure Ivory Merge Sdn. Bhd. is like the following chart:

6.1.2. Based on the proposed investment proposal to the 1MDB Board resolution dated 11 October 2013, 1MDB's management has informed the 1MDB Board that Tadmax Resources Berhad (Tadmax Resources) has offered to sell 310 acres of land owned by its subsidiary, Wijaya Baru Development Sdn. Bhd. there is a price of RM337.60 million or RM25 per square foot to 1MDB. The 1MDB management recommends that the land be used for the construction of a coal-fired 2000MW (Project 3B) power plant, which is currently in the process of competitive bidding by the Energy Commission, or any other alternative independent power generation project in the future. The closing date for the 3B project and the Energy Commission on the mason is on 30 October 2013.

6.1.3. The 1MDB management also informed that the land was located in Pulau Indah, Klang, Selangor and was a flat land. The land position that leads to the sea front, makes it ideal for coal

loading facilities, and accessible by paved roads. Preliminary assessment shows that the land is suitable for the development of coal-fired power plants. The location of the intended land is as follows:

6.1.4. Through resolution dated 14 October 2013, the 1MDB Board of Directors has agreed with the proposed purchase of the land for the purpose of developing a fully-owned power plant through a dedicated purpose (SPV) owned by 1MDB at a value of RM337.60 million or RM25 per square foot. However, the final price is still subject to independent evaluation and final deliberation between the two parties. The JAN review further

found Ivory Merge Sdn. Bhd. (Ivory Merge) has been used as SPV for this purpose.

6.2. Consultant Appointment6.2.1. On 13 January 2014, the Board of Directors of 1MDB approved the proposed acquisition of Tadmax Resources subsidiary Tadmax Power Sdn. Bhd. (Tadmax Power). The acquisition of 100% Tadmax Power equities is for the purpose of acquiring 310 acres of land in Pulau Indah which will be used as a new power plant development site, at a price of up to RM317.33 million or RM23.50 per square foot. With such approval, the proposed direct purchase of the land which was approved through a previous resolution dated 14 October 2013 was canceled and replaced with this resolution.

6.2.2. The 1MDB Board resolution dated 13 January 2014 also approved a total of RM4.78 million for the appointment of advisors and consultants to conduct a due diligence assessment on the acquisition of Tadmax Power equity and conduct feasibility studies to determine the suitability of Tadmax Power's land to be the site of power plant development. JAN's revised sum of RM2.10 million was spent on advisory fees and consultants for the project. More details are as follows:

6.2.3. Six diligence assessment reports on the project have been received from consultants who are waiting between April and August 2014. The report was tabled to the Board of Directors of 1MDB on 20 October 2014. Among the main summary of the report are as follows:

a. Land use for 2000MW coal-fired power plant. The marine environment around Pulau Indah makes jetty construction difficult to build a jetty according to the

conditions imposed by TNB as set out in the coal supply & transportation agreement.

Technically, this project can still be continued but with high capital requirements and maintenance costs resulting in an increase in electricity tariffs.

b. The use of land for 2000MW of solid cycle turbine power generator.

Marine conditions will make sea water cool through the cooling system.

Validation with Petronas is required to ensure the existence of gas at the project site.

c. Declaration of Share Sale Agreement (SSA) is canceled. If shareholder approval is not obtained, it does not meet contractual requirements and cause SSA to be canceled.

6.2.4. Following the due diligence report , the 1MDB Board agreed with 1MDB's management recommendation not to proceed with the acquisition of Tadmax Power. However, JAN's review found that Ivory Merge (a subsidiary of 1MDB) did not take action against the decision of the 1MDB Board. However, further review found that a total of RM34.40 million was paid in four tiers of payment to Tadmax resources approved by the 1MDB Board before the due diligence assessment report was tabled to the Board of 1MDB on 20 October 2014. Details are as follows:

6.2.5. During a meeting on October 29, 2014, the Board of Directors of 1MB appointed two Board of Directors to consult Tadmx Resources for a resolution on this matter. However, during the meeting on 25 November 2014, the 1MDB Board of Directors was informed Ivory Merge still did not commence the termination action of the Share Sale Agreement. Should such a take-over be discontinued, Tadmax Resources is expected to take legal action on the matter. The Chairman of the Board is of the view that the 1MDB Group will be in a weak position if the legal action is taken. Therefore, as a mitigation plan, the 1MDB Board directs 1MDB's management to get the discounted price for Tadmax Power's equity acquisition starting from RM18.50 per square foot.

6.2.6. The acquisition of Pulau Indah land should not be continued as the report from the designated consultant clearly shows the condition of the land is not suitable for the construction of a power plant as planned. 1MDB should insist on a preliminary decision that agrees with the consultants and take appropriate action to terminate the initial agreement with Tadmax Resources. The RM31.73 million deposit payment to Tadmax Resources should also be reclaimed after the consultant's report received that the land acquisition was not appropriate for the project.

Based on feedback from 1MDB's management dated 9 December 2015, during the acquisition process of Pulau Indah land in October 2014, 1MDB was in the final stages of the energy assets listing process before being submitted to the Securities Commission. Any legal action will have an impact and will affect the listing process as a whole.

6.3. Equity Acquisition Tadmax Power Sdn. Bhd.6.3.1. Tadmax Resources has appointed a property valuer, Messrs Azmi & Co. to set the offer price to 1MDB, while 1MDB has appointed real estate developer, Rua Raine & Horne International Zaki + Partners to determine the value of the land for equity acquisition purposes.

6.3.2. Based on a land valuation report using a valued basis of zero-valued land with allotment on the land (as is), it was found that the assessment by Tadmax Resources was RM22 per square foot compared to RM21 per square foot for assessment by property consultants appointed by 1MDB.

6.3.3. The Valuation and Property Services Department (JPPH) on the JAN application has determined the market value of the land on 12 May 2015. After taking into account all the factors affecting the valuation and adjustments made on the sale and purchase of land in the area, JPPH proposes market value for the land is M270 million (RM20 square feet). The comparison of the ratings between the three assessors is as follows:

6.3.4. On February 20, 2014, Ivory Merge (a subsidiary of 1MDB) has signed a conditional Share Sale Agreement (SSA) with Tadmax Resources for the acquisition of 15,400,000 ordinary shares of Tadmax Power at RM317.33 million or RM23.50 per square foot. The agreed price of RM23.50 per sq ft is reasonable considering the assumption of land use category changed from category of building / housing to industrial category.

6.3.5. The corporate structure of Tadmax Power after the Share Sale Agreement with Tadmax Resources is sealed is as follows:

6.3.6. However, taking into account the due diligence and instructions of the 1MDB Board of Directors, Ivory Merge and Tadmax Resources have agreed to reduce the purchase price from RM317.33 million to RM294.38 million. In addition, several new requirements are also agreed, namely:

a. Ivory Merge has to bear all costs (including interest) payable to Export Import Bank of the States (EXIM Bank) from 28 August 2014 until actual payments are made.

b. Tadmax Resources will not work on unused land of 33.44 acres.

c. Ivory Merge needs to bear the risk of changing the category of land from 'Buildings' to 'Industry' and incur a cost of RM38 million as an anticipated exchange premium value. The actual premium rate may only be determined at the latest price charged by the Local Authority later

d. Ivory Merge has to pay the assessment fee for the second half of 2014 amounting to RM154,659.

6.3.7. Ivory Merge also intends to implement the Option Agreement with two of the largest shareholders of Tadmax Resources, which both shareholders agreed to allow Ivory Merge to put Put Option to resell 310 acres of land to them at a price of RM294.38 million and the benefits to be agreed upon then.

6.3.8. On December 15, 2014, Ivory   Merge and Tadmax Resources signed an additional Share Sale Agreement that priceed after a discount of RM294.38 million. On March 20, 2015, the Call & Put Optionagreement was signed between Ivory Merge and one of Tadmax Resources's major shareholders.

6.3.9. Based on 1MDB financial records, Ivory Merge has paid a total of RM334.24 million to acquire 100% Tadmax Power equity and acquire 318.4 acres of land in Pulau Indah. Details of the cost of acquisition are as follows:

6.3.10. During a special meeting on 20 December 2014, 1MDB's management informed the Board that 1MDB was in fact facing a liquidity problem to pay Tadmax Resources according to the agreed schedule. Therefore, 1MDB needs to get funding sources to acquire the company's equity. On March 20, 2015, Timeline Zone Sdn. Bhd. (a subsidiary of 1MDB) has entered into a loan agreement with EXIM Bank for a term loan facility amounting to USD150 million. Part of the loan, amounting to USD64.87 million was used by 1MDB on March 23, 2015 to complete the EXIM Bank term loan taken by Tadmax Resources comprising principal, interest and penalty charges. The acquisition of Pulau Indah land has been fully completed on June 30, 2015.

6.3.11. This means that Tadmax Power's equity gains were made at an inconvenient time as 1MDB was facing a cash-settlement problem at the time the acquisition was made. Therefore, 1MDB is forced to take additional loans for the purpose of acquiring the company.

6.4. Pulau Indah Land Sales6.4.1. Tanah Indah Island was originally bought (via equity acquisition) for the development of the 3B Project in 2013. However, in June 2014, 1MDB had decided to implement the 3B Project with 1MDB-Mitsui Consortium on Mukim Jimah, Port

Dickson, Negeri Sembilan, namely next to Jimah Energy Ventures Sdn. Bhd. available. The decision was also in line with the report of the consultants which found Pulau Indah land unsuitable for the development of power plants. Thus, the land has no plans to be developed.

6.4.2. Following the rationalization plan which was tabled to the Cabinet on May 29, 2015, the 1MDB Board of Directors at its meeting on July 24, 2015 agreed with the proposed sale of Pulau Indah land as one of the fundraising efforts from 1MDB's property. Accordingly, 1MDB has appointed Savills (Malaysia) Sdn. Bhd. on August 11, 2015 as an exclusive agent for the proposed sale of Pulau Indah land. The Board of Directors was also informed by Mr. Arul Kanda (President and Group Executive Director 1MDB) that there was an amendment to the land area of Pulau Indah after being confirmed by the Selangor State Survey and Mapping Department, the land actually measuring 318.4 acres. Accordingly, a deal signed on a 310-acre land has been amended from 318.4 acres,

6.4.3. The 1MDB management informed on September 21, 2015, Savills distributed Information Memorandum on over 170 potential buyers by inviting them to send Expression of Interest (EOI) in writing. As of October 2015, Savills is still waiting for feedback from potential buyers. Therefore, 1MDB's management has agreed with Savills's proposal to extend EOI's closing date from October 26, 2015 to November 23, 2015. The Pulau Indah land sale process is expected to be complete in March 2016 according to the original planning schedule provided by Savills.

6.4.4. In addition, major shareholders of Tadmax Resources are given the option to issue Call Option when the Call Option period expires on June 20, 2016 and Ivory Merge may also enforce Put Option from 20 March 2016 to 20 June 2016.

6.4.5. Pulau Indah's land acquisition has not been ascertained whether it is a form of investment that benefits the 1MDB Group as its sales process is pending. However, during the purchase of this land in January 2014, 1MDB faced fund constraints. This shows that 1MDB's management does not fulfill the fiduciary duty

of advising the Board to make good business decisions in the interest of the 1MDB Group.

Based on feedback from 1MDB's management dated 9 December 2015, the decision of the 1MDB Board to acquire Pulau Indah land began in 2013 for the potential site potential for 3B Project and strategic location for alternative power generation projects. The Share Sale Agreement was signed on February 20, 2014. At the time the decision was made, 1MDB still had no cash flow problem.

7. ALOR GAJAH LAND7.1. On May 23, 2012, Messrs. Jones Lang Wootton (JLW) was appointed by 1MDB to acquire a market value of 99-year leasehold land in the Alor Gajah district of Melaka. This is in line with 1MDB's desire to expand its energy sector in an effort to enhance energy management efficiency. As such, on 5 June 2012, 1MDB has submitted a letter of intent to the Malacca State Development Corporation (PKNM) to purchase 100 acres of land for Telok Gong, Alor Gajah, Melaka for the purpose of building an additional power plant of 2,000MW. PKNM via letter dated July 3, 2012 has made the land sale offer at RM10 per square foot (amounting to RM43.56 million). PKNM also applied for non-reconsiderable commitment fee amounting to RM100,000 (not part of the bid price) to settle the sale and purchase transaction.

7.2. On 3 September 2012, 1MDB negotiated with PKNM to reduce the purchase price from RM10 per square foot (RM43.56 million) to RM8 per square foot (RM34.85 million) and this proposal was approved by PKNM on 13 September 2012. During the 15th meeting, October 2012, the Board of Directors of 1MDB has approved the acquisition of the land for a total consideration of RM34.85 million excluding land premium payments. Based on the Group's 1MDB financial statements for the year ended 31 March 2014, this land acquisition has been recorded as a significant event after the date of the financial statements for a consideration of RM39.50 million.

The description on the acquisition and use of Alor Gajah land is described in detail in CHAPTER 5: Investment in the 1MDB Group Energy Sector.

8. PROCUREMENT OF PROPERTY8.1. Paragraph 8, Malaysia Financial Reporting Standards (MFRS) 140 stipulates that an example of an investment property is a land held and has yet to be determined for future use and property being constructed or developed for future use as a property investment. Under the MFRS 140 accounting standards, investment property is land or building (or part of a building or both) held by the owner or the lessee under a finance lease to acquire rent or / for additional capital asset asset value (or both) , and not for use in the production or supply of goods / services or for business administration / sales purposes.

8.1.2. The 1MDB Group has adopted property investment accounting standards in accordance with MFRS 140 to record TRX and Bandar Malaysia project property acquisition transactions as property investment. 1MDB as a strategic development company will develop the acquired land for future use in line with the diversification of its investment portfolio. Therefore, TRX's land acquisition accounting method and Bandar Malaysia as an investment property by the 1MDB Group comply with the MFRS 140 accounting standards.

8.1.3. The 1MDB Group has categorized TRX and Bandar Malaysia as investment properties from financial year 2011 to 2014. These two properties are evaluated by Messrs CH Williams Talhar & Wong (CH Williams) where the valuer uses the 'as is' basis based on active market value for the sale of similar properties within the city of Kuala Lumpur and taking into account the land is a vacant possession and free from any burden. Based on the valuation report, land valued TRX and Bandar Malaysia are as follows:

8.1.4. 69.54 acres (34 lots) TRX land was first evaluated by Messrs CH Williams in February 2011 with a valuation of RM1.21 billion. The 1MDB Group has revalued the land for four consecutive years (2011-2014), where land valuation in the financial year 2014 amounted to RM2.70 billion. 1MDB adopts a property investment valuation policy that assesses real estate every year. This approach differs from other property developers who adopt a property revaluation will / should be made every three or five years.

8.1.5. The 495.2 acres of Bandar Tanah Malaysia was first rated in August 2010 with a total value of RM650 million. The land is divided into two parcels, parcel A and B. Parcel A is a combination

of 20 lots of land and parcel B of one lot. However, Messrs CH Williams estimates the property value of the 14 lots that can be identified. For the financial year 2012, the 1MDB Group did not undertake a revaluation of Bandar Malaysia land. The JAN also finds the CH Williams's certificates of CH Williams on March 31, 2013 for Bandar Malaysia land has been issued twice with the reference number and date of the same letter but contains the difference in land realities. Both of these valuation certificates were obtained by the JAN from the 1MDB Group. 42. 67 acres as of March 31, 2013, according to two letters of Messiah CH Williams, resulting in the reduction of the land value of RM400 million. On December 23, 2013, Messrs CH Williams assessed 12 lots of 452.53 acres of Malaysia's urban land with a value of RM4.20 billion taking into account the assumption that the land will be developed with 50% commercial development and 50% housing development where 30% for the development of affordable housing.

8.1.6. On April 10, 2015, the JAN has applied for assessment by the Valuation and Property Services Department (JPPH) for their views. JPPH has made an assessment of the land based on the valuation of the valuation, the date of valuation and the same land area as the CH Williams valuation report. Overall, the comparison between the two assessors found that the value of TRX and Bandar Malaysia's land valued by JPPH was higher than the value of Messrs CH Williams except for Bandar Malaysia's landmark in December 2013 which showed a discrepancy of RM354.27 million. More details are as follows:

8.1.7. 1MDB's accounting policy sets the revaluation made on the property annually and the 1MDB Group records property investment using the fair value model where the unrealized gains / losses from the fair value changes of property are recognized in the Statements of Profit / Loss and Other Comprehensive Income of the financial year related. Based on the financial statements of 1MDB Group for the year ended 31 March 2011, the company recorded a total of RM1.02 billion as investment property after taking into consideration cost of acquisition of 32 TRX land lots amounting to RM194.11 million and a fair value change amounting to RM826.59 million.

8.1.8. In the financial year ended 31 March 2012, two TRX land lots previously classified as plant and property were reclassified as investment properties amounting to RM189.37 million and fair

value changes for TRX land amounting to RM569.92 million. 1MDB's liability for development and relocation of PUKL amounting to RM1.60 billion was recorded as an additional part of investment property amounting to RM1.668 billion in financial year 2013. The effect of TRX's land and Bandar Malaysia in 2013 resulted in a change in fair value of RM2.735 billion recorded. For the financial year 2014, the change in fair value of real estate assets amounted to RM896.79 million and no increase in investment properties was recorded.

8.1.9. In summary, the 1MDB Group recorded an increase in the valuation of investment properties in its financial statements, ie RM826.59 million (2011), RM569.92 million (2012), RM2.735 billion (2013) and RM896.79 million (2014). Further details on the acquisition of real estate investment in the Group's 1MDB financial statements for the financial year 2011 to 2014 are as follows:

8.1.10. The accounting policy adopted by 1MDB under MFRS 140, allows 1MDB to revise property investment annually as long as the land has not yet entered the development phase. The revaluation of real estate investment for the fourth consecutive year has contributed to the 1MDB Group's 1MDB gains / losses for 2011 to 2014. Based on Profit / Loss Statement for the year ended 31

March 2011 to 31 March 2013, revaluation of real estate investment has impacted to 1MDB Group's profit of RM544.34 million (2011) (RM132.81 million (2012) and RM778.24 million (2013) while in 2014, the 1MDB Group recorded a loss of RM665.36 million despite taking into account land revaluation hers.

8.1.11. During the 1MDB Board meeting on February 23, 2015, Deloitte's Deloitte's representative stated that an estimated loss of RM600 million for the previous financial year would be greater if it did not take into account the revaluation profits of TRX and Bandar Malaysia. Representative of Deloitte also clarifies that the two lands will be classified as development properties when development begins and revaluation gains can not be recorded as profit unless the land is sold.

8.2. Recognition of Acquisition of Itam Island, Pulau Indah and Alor Gajah8.2.1. Roadblock 6 in MFRS 102 defines inventories as assets held for business sales; assets in the production process for sale; or assets in the form of materials / supplies used in the production or service process. Based on the 1MDB Group's financial statements for the year ended 31 March 2014, Air Itam's land acquisition amounting to RM1.109 billion by the 1MDB Group was recorded as an inventory (land held for development) based on MFRS 102's accounting standards in accordance with the views of Messrs Deloitte. This is because the 1MDB management stated that the

purpose of acquisition of Air Itam land was for business purposes and months as an increase in land capital.

8.2.2. For the acquisition of Tanah Indah, Selangor and Alor Gajah, Malacca, the land acquisition is disclosed after the date of the financial statements for the year ended 31 March 2014. The revised JAN on the 1MDB Group's financial statements for the year ended 31 March 2014 saw the acquisition of equity of Tadmax Power Sdn. Bhd. which owns 310 acres of land at Pulau Indah for a consideration of RM317.33 million and acquisition of 100 acres of leasehold land in the Mukim of Sungai Baru, Alor Gajah District, Melaka for a consideration of RM39.50 million for the purpose of the energy sector development has been recorded as a significant event after the date of the financial statements.

9. RETURNS OF INVESTMENT PROPERTY9.1. JAN's analysis of the 1MDB Group's investments found that up to September 2015, only TRX projects generated returns from the sale of five plots of land with a sale price of RM1.358 billion while the remaining 11 plots of land in the negotiation process with a proposed sales price of RM2.592 billion. In addition, the 1MDB Group is also involved in self-development for the construction of a building to be leased to international financial institutions beginning in 2019  to 2033 with an estimated return of RM537.38 million. For joint venture development with Lend Lease, the outcome of the joint venture project is estimated to provide long-term gross returns from 2015 to 2024 totaling RM1.73 billion. Overall, TRX's commercialization of projects between 2015 and 2033 through the sale of land plots, self-development and joint venture projects is expected to return a total of RM3.73 billion following the cost of infrastructure development with a cost estimate of RM3.57 billion.

9.2. Whereas for the returns of the Bandar Malaysia project, no real returns were recorded in the financial statements as it is still in the resettlement phase of the PUKL. In addition, Bandar Malaysia's land is one of the assets used in raising funds to repay the 1MDB Group debt. For the land of Air Itam, no return is expected in the near future as 1MDB still has no 100% interest in

the land. The status of the land reform agreement Pulau Indah, Selangor has yet to be finalized.

9.3. Fund raising from property assets is crucial to reduce Group 1MDB's debt as well as to ensure the long-term ability of two major property assets, namely the TRX and Bandar Malaysia projects. However, the commercialization of the TRX project, the equity sale of Bandar Malaysia Sdn. Bhd. and Pulau Indah land can not meet the financial obligations within a short period of time. For the land of Air Itam, land ownership issues with Tan Jiak Chye Group need to be completed before the sale is made.

CHAPTER 5 INVESTMENTS IN 1MDB GROUP ENERGY SECTOR

25 July 2016

 

 

1. BACKGROUND1.1.1. On 20 August 2009 the proposed investment framework of the company was tabled at 1MDB Board meeting. The company's main objective is to ensure sustainable economic development for Malaysia through strategic alliances in international remedies by encouraging foreign investment. The investment areas proposed by the management are focused on oil and gas, property and tourism sectors. For investments in the oil and gas sector, companies are more keen on oil and gas business than oil refineries and marketing processes. The 1MDB chairman reminded that although the returns in the sector are attractive, the initial investment cost in this sector is also high and there is no guarantee of return. Therefore,

1.1.2. 1MDB has also been invited to work with the Regional Economic Development Authority (RECODA) to develop and implement the Sarawak Corridor of Renewable Energy (SCORE). A joint proposal proposal with the State Grid Corporation   of China (SGCC) was tabled in the 1MDB Board of Directors' Special Meeting on 7 November 2009 for the approval of the Board of Directors to hold a Joint Cooperation Agreement (JCA). The opportunity to collaborate with SGCC in investment in Sarawak was proposed by Goldman Saches after the visit of 1MDB Advisory Board Chairman to China in June 2009.

1.2. Investment In Aluminum Smelting1.2.1. SGCC is a leading energy producer and distribution company in China and has expertise in advance distribution /

transmission grid technology and know how . SGCC has expressed interest in cooperating in Bakun hydropower development , aluminum smeltingas well as generating electric power and transmission. If this joint venture is successful, the role of SGCC is focused on technical aspects while 1MDB is responsible for the project financing aspect and as a facilitator in negotiations involving the Federal Government, State Government and other agencies related to SCORE. 1MDB is confident of strengthening its position and benefiting from a sustainable economy through foreign direct investment (FDI) with SGCC. Investment in these energy utilities will also enable 1MDB to generate strong and stable cash flows. SGCC agrees to invest financially and technologically only if the joint venture will be involved involving the construction and management of the aluminum smelting center.

1.2.2. At the Special Meeting of the 1MDB Board on 16 December 2009, Chief Executive Officer, Mr. Shahrol Azral informed that JCA was implemented and both parties agreed to cooperate in aluminum smelting and hydroelectric plant with expected investment value of USD3 billion to be shared equally. For capital injection, 1MDB intends to get concessions from the Government of Malaysia for the Bakun project while SGCC makes a cash investment of USD1.50 billion. Subsequently, at the 1MDB Board of Directors on 28 December 2009, Mr Shahrol Azral informed that a detailed Memorandum of Understanding (MOU) will be provided where SGCC will be licensed for smelter as a return to the readiness to build three new dams at SCORE.

1.2.3. For the purpose of issuing licenses, discussions were held with the Malaysian Investment Development Authority (MIDA) and the Sarawak State Government. Additionally, 1MDB management has proposed the acquisition of Bakun Hydroelectric Project from Sarawak Hidro Sdn. Bhd. (SHSB), a wholly-owned subsidiary of the Minister of Finance Incorporated (MKD) at 1MDB Board of Directors on 3 May 2010. SHSB is the company responsible for developing and managing Bakun's hydroelectric assets. The 1MDB management believes that it is a good opportunity as SGCC, Qatar Investment Authority and Mudabala are keen to enter into joint ventures. The project can also provide cash flow if it can be

secured and can be used for other investments. As such,due diligence for the proposed purchase of Bakun Project and SHSB shares. The meeting was also informed that the Sarawak State Government was also keen to take over this asset from the Federal Government. In this regard, the management has been advised to find a win-win-win solution for the three parties including the Federal Government and the Sarawak State Government. According to feedback received from the Economic Planning Unit (EPU) on November 13, 2015, the proposed acquisition of Bakun Hydroelectric Project by 1MDB could not be realized as SHSB was still under the control of MKD and electricity generated from the Bakun Hydroelectric Project was sold to Sarawak Energy Berhad.

1.2.4. Since the discussion with SGCC has not shown any progress, 1MDB has applied for an exclusivityterm issued in the previously signed JCA to allow further discussions with other parties interested in aluminum smelting at SCORE, the Qatar Inverstment Authority and Mudabala.

1.2.5. Next at 1MDB Board meeting on 2 August 2010, Chief Investment Officer, Nik Faisal Arif Kamil has proposed MOU with Energy & Industry Holding Company (EIH) a wholly-owned Mubadala Development Company (MDC) to work together to develop renewable energy, aluminum smelter and aluminum industry clusteron SCORE. EIH is also a partner in Dubai Aluminum (DUBAL). Based on a visit to the EIH, 1MDB management found EIH to have a good technical knowledge and experience in the aluminum business as well as to understand the socio-economic and political environment in Sarawak. At the Board meeting on 4 October 2010, the Board of Directors was informed that the MOU was signed on 3 August 2010 and a working visit led by HE Khaldoon Khalifa Al Mubarak was held on 8 August 2010 in which both parties agreed to sign the Collaboration Agreement . The 1MDB Board of Directors has been informed of the project site for the aluminum smelter plant has been identified at Samalaju Industrial Park at SCORE which is capable of producing output of 1.50 million tons per year.

1.2.6. However, on 18th June 2012, Mr Shahrol Azral has informed that at the 1MDB Board of Directors meeting this investment could not be continued as there was no electricity supply for the project. According to feedback received from the EPU on November 13, 2015, electricity generated from Bakun Dam and purchased by Sarawak Energy Berhad was sold to other companies that previously invested in Sarawak and the cooperation between 1MDB and SGCC was not continued.

1.3. Investment In GDF Suez SA Company1.3.1. At 1MDB Board meeting on 5 July 2010, the management informed PetroSaudi International Ltd. has offered joint venture investments for 4.23% equity at GDF Suez SA worth USD2.50 billion at a 20% discount on market prices. GDF Suez SA is an active French entity in the production and distribution of electricity, natural gas and renewable energy . The company is listed on the stock exchange in Paris, Brussels and Luxembourg and is the world's leading independent power producer (IPP) with 68.4GW capacity. It is also a major buyer of natural gas in Europe and a major importer of liquefied natural gas in the United States.

1.3.2. The 1MDB management intends to invest in GDF Suez SA through Murabahah Note facility because it is more prudent and its financial risks are lower. However, the 1MDB Board Chairman believes the investment will not have a significant benefit to 1MDB unless the investment in joint venture is changed to equity. PetroSaudi International Ltd. requires approval for this investment by July 19, 2010. 1MDB's Board of Directors has asked the management to arouse PetroSaudi International Ltd. about a short period of time to make a big investment decision. 1MDB Board of Directors has requested the position of GDF Suez SA are reviewed by an independent party (independent ) given that the company hashigh gearing . The 1MDB Board of Directors also raised this investment was against the 1MDB objective. However,   there is no document to prove or confirm that the Murabahah Notes investment has been invested in equity holdings at GDF Suez SA through PetroSaudi International Ltd.

1.4. Investment In Natural Resources

1.4.1. Among the key initiatives towards achieving Vision 2020 outlined under the 10th Malaysia Plan is to ensure safe production of energy through the management, development and development of natural resources such as coal, iron ore and uranium. Energy requirements from industry and competition from other Asian countries will impact the supply of natural resources in the country and increase prices because of its naturally limited production.

1.4.2. The 1MDB Board of Directors has been informed at the meeting on 6 September 2010 that Maybank Investment Bank Berhad has proposed that 1MDB establish a company to manage its resources strategically so its supply to the country will not be affected. The company will create synergies in the value chain of energy resources through the ownership of coal mines and power generating plants. The 1MDB Board agrees with the recommendation of Maybank Investmet Bank Berhad and appoints Bina Fikir Sdn. Bhd. to provide strategic and business plans for strategic resource companies with an estimated cost of RM1 million to establish a value chain of energy in Malaysia.

1.4.3. Encik Shahrol Azral has informed at 1MDB Board meeting on 5 August 2011, EPU has verified that 1MDB's subsidiary, SRC International Sdn. Bhd. (SRC) will receive a grant of RM20 million for strategic management of natural resources involving interests in mining, processing, transport, logistics and coal trading. Malaysia Treasury issued a grant to SRC on 15 August 2011 amounting to RM15 million and another RM5 million on March 5, 2012. On 15 February 2012, the SRC was transferred to the MKD.

1.5. Investment To Develop Re-Gasification Plant1.5.1. Pursuant to the Proposal Paper submitted with 1MDB Board Resolution dated 7 December 2011, the Government plans to develop three gas-based gasification and gas generator plants. At least one re-gasification plant will be developed by Petronas. The Government's decision to build a gas-based energy plant opens an opportunity for the import of gas from overseas as natural gas

reserves overseas have been increasing as a result of technological developments in the manufacture of unconventional gas.

1.5.2. The 1MDB management has consulted and obtained approval from the Chairman of the 1MDB Advisory Board in September 2011 on   the proposed gasification and reconstruction project of a gas-based power plant. The 1MDB Advisory Board chairman requested Tan Sri Dato 'Nor Mohamad Yakcob in connection with the EPU to look into this proposal. EPU has proposed feasibility study first to determine project viability and advise 1MDB to focus on one project only, namely LNG plant .

1.5.3. The 1MDB Board of Directors through a resolution dated 7 December 2011 has appointed Ranhill Worley Sdn. Bhd. as a consultant to implement feasibility study with an estimated fee of not more than RM1.60 million. At 1MDB Board meeting on 2 March 2012, several suitable project sites have been identified and feasibilitiy study reports are available at the end of March 2012. Next, the project proposal will be presented to the EPU and the National Economic Council for consideration. However, the status of the feasibility study report was not reported at 1MDB Board meeting.

According to feedback received from the EPU on 13 November 2015, the Regaacification Plant (RGT-1) construction project in Melaka was completed and operated by Petronas in 2013. While gas-powered power generation projects were offered to 1MDB by the Energy Commission in August 2014.

According to 1MDB's feedback received on December 9, 2015, laporn feasibility study by Ranhill Worley Sdn. Bhd is only presented to the management chaired by 1MDB Chief Executive Officer. Based on the findings of the consultants, no policy allows IPP companies in Malaysia to buy gas other than Petronas as contracted under the Gas Supply Agreement (GSA). At that point, no decision was made by Petronas on "tolling structure tariff of the gas pipeline for the distribution of gas". Therefore, this proposal has been postponed until the project is viable to be implemented.

However, the JAN has yet to receive a feasibility study report until December 18, 2015.

2. REVIEW OF INVESTMENT STRATEGIES2.1. On 2 November 2011, the 1MDB Board of Directors through resolution has agreed to appoint Bain & Company Malaysia Inc. (Bain & Co.) to undertake a revised 1MDB investment strategy for a fee of not more than RM3.04 million. This review aims to evaluate existing strategies and changes to the needs of the country and the external environment, providing proposed alternative models for strategic development of the company and the position of companies among Government Agencies. Business plans, governance structures and asset allocation with financial commitments also need to be updated. Roadmap and business plan for a five-year implementation need to be prepared with risk assessment and mitigation plans.

2.2. On February 8, 2012, Bain & Co. Has presented the findings at 1MDB Board meetings. 1MDB is recommended to offset the investment portfolio and will need to clarify new cash flow strategies either from existing shareholders or projects. 1MDB needs to focus 80% on smart FDI in high value sectors in Malaysia through investment ventures with outside investors and 20% in strategic projects

2.3. Ms Loo Ai Swan ( 1MDB's General Counsel at the time) thinks 1MDB investment should not focus on real estate, energy and tourism but should be open to any sector that can attract FDI. The focus on FDI remains the company's key strategy for future plans. Although 1MDB's main objective is to attract FDI, the 1MDB Board of Directors in the same meeting has asked the management to examine every investor interested in establishing a joint venture. The Board of 1MDB agrees with the proposals presented by Bain & Co. and management.

2.4. Based on the 1MDB Board meeting on October 15, 2012, for the long-term strategy, the 1MDB Group will increase the total generation of energy capacity to over 10,000MW with the acquisition of thermal power (coal) and greenfield assets . The management also informed that the Government is keen to protect, secure and ensure sustainable and stable energy supply to support the national economy and welfare of Malaysians.

2.5. JAN's review found that during the period 2012 through 2014, 1MDB's management had proposed the purchase of shares for five IPP companies and due diligence for all purchase proposals had been implemented after obtaining approval from the 1MDB Board. 1MDB's Board of Directors approved the purchase of three companies while the proposed acquisition of two other IPP companies was not continued. Details of the consultants who have been appointed for each acquisition are as follows:

3. GROUP STRUCTURE FOR ENERGY SECTOR3.1. The proposal to set up an investment holding company was tabled at the 1MDB Board meeting on 5 April 2010 with the acquisition of Cell Team Sdn. Bhd. and representative of the company appointed as Director are Encik Nik Faisal Ariff Kamil and Mr Vincent Koh Beng Huat.

3.2. Subsequently at 1MDB Board of Directors meeting on 1 December 2010, Cell Team Sdn. Bhd. has been renamed to 1MDB Energy Sdn. Bhd. In addition, a new subsidiary will also be established and will serve as the holding company of various Special Purpose Vehicles (SPVs) in the energy sector to be explored.

3.3. Group structure for the energy sector continues to grow and as of October 2014,   most of the energy related subsidiaries are placed under the management of a holding company and three of its wholly-owned subsidiaries which have been incorporated in Labuan. More details like the following chart:

3.4. However, in line with the growing investment in the energy sector and the need to create synergies through the consolidation and merger of operations management of power plants acquired under its three subsidiaries, the management structure for energy sector investment has been divided into two stages where six of the 77 subsidiaries are still under 1MDB directly while the remaining 71 subsidiaries are placed under a holding company established in July 2014 and is known as 1MDB Energy Group Berhad. In October 2014, the company was renamed Edra Global Energy Berhad in line with the integration and re-branding plan implemented. The restructuring of this group structure was also made in line with the proposed listing on the Bursa Malaysia as follows:

3.5. As of August 2015, there are 71 subsidiaries under Edra and six subsidiaries under 1MDB with a total capital investment of RM3.02 billion. Details of the subsidiaries related to the energy sector according to location and type of business are as follows:

4. STRUCTURAL GOVERNANCE STRUCTURE OF RELATED BUSINESS SECTOR COMPANY4.1. According to the Guidelines on Corporate Governance approved at 1MDB Board of Directors on 3 May 2010, each subsidiary will report to 1MDB's Chief Executive Officer, namely Mr. Shahrol Azral. Additionally, the 1MDB Group Management Committee was also established to report to the 1MDB Board on a quarterly basis on the activities and operations

of the subsidiary under it. At each Board meeting of 1MDB, the financial impact of the company's operations and business decisions is necessary to enable the company's financial standing to be monitored and evaluated.

JAN finds that Powertek Group representatives are only invited for the first time to present the financial and operating positions of the company on August 19, 2013, after more than one year the company was taken over. The management only acts after reprimandation by the Board of Directors of 1MDB at a meeting on 20 May 2013. The Chairman is of the view that the 1MDB Board of Directors has a fiduciary obligation on Powertek Energy Sdn. Bhd. (PESB) although PESB has its own Board of Directors. Therefore, it is desirable that the financial and operating positions of the company are periodically presented.

According to feedback received from 1MDB on 9 December 2015, although the Powertek Group was only invited to present to the 1MDB Board on August 19, 2013, the management presented a consolidated financial report for the group which took into account the financial position of the energy sector business. The management needs time to collect and consolidate its financial position as the takeover has just been implemented. 

4.3. At a 1MDB Board meeting in December 2012, 1MDB's management was reminded to provide important information relating to its energy assets. This strike was due to the comparative summary of power assets requested by the Board of Directors of 1MDB since the meeting on October 15, 2012 only presented three months later, at a meeting on 22 January 2013. Comparative summary of power assetsshould contain information on the acquisition price, taken, future plans and profit forecasts. This information is required as investment in energy assets is the largest investment of 1MDB Group.

4.4. JAN's review found 1MDB has appointed Egon Zehneder International (EZI) to find suitable candidates as Head of Energy Sector. This position is critical as the company's current priority is to seek strategic partners from abroad to work together in the energy sector. Proposed fee of USD180,000 was approved at

1MDB Board meeting on October 4, 2010. However, the status of the EZI search was not re-advised at the next Board meeting.

4.5. Starting in October 2014, Edra Global Energy Berhad (Edra) has managed the energy sector of the 1MDB Group. The structure of governance, management and Edra Board Member list in October 2015 are as follows:

5. ESTABLISHMENT OF INDEPENDENT ENERGY COMPANY (IPP)

5.1. Investment in Energy Sector5.1.1. 1MDB has invested in the energy sector through the purchase of shares and assets for three IPP companies in Malaysia from May 2012 to January 2014 involving investments of RM12.07 billion. Further details of the investment are as follows:

5.1.2. The acquisition of   these investments was made through the issuance of USD Notes on international debt markets and loans from domestic / domestic financial institutions. Nominal value of the loan principal that has been taken for financing the purchase of IPP shares and assets of the company amounted to RM18.16 billion and advances from the holding company amounting to RM625 million totaling RM18.79 billion. JAN's revision found that the funding exceeded the amount required for the acquisition of three IPP companies as a total of RM6.72 billion had been utilized for other purposes including general working capital and corporate use. More details are as follows:

5.1.3. In accordance with the financial statements ended 31 March 20014, Kumplan 1MDB has   interests in 13 power plants located locally and overseas. The Powertek Group has 11 dripda 13 power

plants in which three power plants are located within the country and the remaining eight power plants are located in Egypt (3), Bangladesh (3), United Arab Emirates (UAE) (1) and Pakistan ( 1). The Lagenda Mastika Group and the Jimah Group each have a power plant in the country. In terms of ownership, 10 out of 13 power generation plants are wholly owned by the 1MDB Group whilst holding interest in three power plants overseas ranging from 10% to 55%.

5.1.4. 1MDB's Board of Directors has approved the appointment of consultants to carry out due diligencebefore approving investment in the energy sector. From the acquisition of three IPP companies, only the acquisition of Tanjong Energy Holdings Sdn. Bhd. (TEHSB) is based on the tender invitation from the company. While the acquisition of the shares of Mastika Legenda Sdn. Bhd. (MLSB) and the Jimah Group were made through discussion and initiated by 1MDB in line with the investment strategy as proposed by Goldman Sachs at Board of Directors meeting on June 21, 2012. Consultants' fees approved for the implementation of due diligence on investments in the energy sector are as follows:

5.1.5. JAN's review found that consultant fees structure to Goldman Saches for TEHSB Group's acquisition of the Jimah Group and calculated on a 0.5% basis from the successful completion of the acquisition price. Determination of the consultant's fees by percentage is different from the fixed payment method to other consultants. Further revisions found that the method of setting the fee based on the acquisition price is less appropriate as it relies relatively relative to the acquisition price and is not profitable to the buyer.

According to feedback from 1MDB dated 9 December 2015, Goldman Sachs is an international financial and investment bank. Goldman Sachs is subject to fiduciary responsibility to its customers to perform the best work on the scope of the agreement. Goldman Sachs also realized they could be subject to legal action if they did not perform their obligations by safeguarding the interests of 1MDB.

5.2. Procurement of Tanjong Energy Holdings Sdn. Bhd.5.2.1. Proposed Sales From Tanjong Energy Holdings Sdn. Bhd.5.2.1.1. On 20 January 2012, Tanjong Energy Holdings Sdn. Bhd. (TEHSB) has briefed interested parties on tender offer to sell their shares. TEHSB is through its subsidiaries and associated companies engaged in electricity generation business and holds interest in 13 power generation plant plants with a total of 6,666MW of gross energy and 3,951MW of net energy including a water desalination plant with a capacity of 16 million imperial gallons a day. In terms of gross capacity production, it is the largest IPP company in Bangladesh and Egypt while the second largest in Malaysia. Details on TEHSB's proprietary plant at the date of the offer as in the following table:

5.2.1.2. In the briefing, TEHSB is also working on the extension of the concession period for Sri Lankan plants as well as the opportunities and growth potentials in Egypt and Bangladesh. Energy demand in Malaysia is also estimated to increase at 5% per annum and this will provide opportunities for new plant construction. In 2010, the Government of Malaysia announced a tender offer of 4,500MW to meet the energy needs of the future. In preparation for entering the offer with the Government, TEHSB made a negotiation with the Malacca State Development Corporation to buy land next to the existing plant in Teluk Gong.

5.2.1.3 Parties interested in buying TEHSB shares are given a period of up to 10 February 2012 to submit their offer. 1MDB has attended a briefing on the offer and has appointed a consultant for the purpose of preparing a preliminary first due diligence report .

5.2.2. Execution of Acquisition

5.2.2.1. The Special Meeting of the Board of 1MDB on 8 February 2012 discussed the proposal on the acquisition of TEHSB shares. During the meeting, Goldman Sachs consultant informed that the energy sector in Malaysia was strategic and energy sales proceeds through TEHSB's operations were stable. TEHSB has experience in energy production business with an efficient management and has a global investment portfolio. Nine out of its 13 energy assets have more than 10 years of concession and are capable of bringing in a stable cash flow of approximately RM450 million annually. The concession agreement has also taken into account the protection against the risk of rising fuel prices. It will also provide investment opportunities to 1MDB to develop world class power plants.

5.2.2.2. The   1MDB Board of Directors was informed by Goldman Sachs that the disposal of energy assets by Usaha Tegas Sdn. Bhd. (UTSB), the parent company of TEHSB, is to enable UTSB to invest in other sectors with higher returns. UTSB is also not confident of extending the concession period through the Power Purchase Agreement (PPA). According to Goldman Sachs, the extension of the concession agreement will be better if TEHSB is taken over by 1MDB according to its status as a Government Link Companies (GLC). Thus, 1MDB as a GLC status company has the potential to enter into bidding for pre-emptive power generating projects .

5.2.2.3. Goldman Sachs believes this investment is a positive investment opportunity if the PPA concession agreement can be extended and the existing energy production capacity is enhanced. The value of the company is expected to increase between RM117 million and RM807 million if TEHSB gets an extension of the service concession period from the authorities for power plants in Malaysia for 15 years and power plants overseas as well as a new project of building a new power plant with a capacity of 2,000MW at Melaka was implemented.

5.2.2.4. Return on investment is estimated at RM636 million with IRR equivalent to 7.3% based on existing PPA but it will increase to RM1.70 billion with IRR equivalent to 16.5% if the PPA period is extended and gets a new project. However, the JAN could not

confirm the method of calculating returns expected by Goldman Sachs for not being disclosed in the report submitted for review.

5.2.2.5. Additionally, Goldman Saches did not explain the cost of the financing / loan and repayment period to the Board when considering the proposed bid for TEHSB's acquisition of shares on February 8, 2012. The management only presented proposal papers to finance TEHSB's acquisition on       March 19 , 2012 after signing an agreement the share sale and purchase on March 2, 2012. The     borrowing costs incurred for this acquisition should be taken into account when calculating the   return on the acquisition of TEHSB shares.

5.2.2.6. Goldman Sachs has proposed a bid strategy with competitive bids but not overpayment for the asset. Goldman Sachs believes UTSB is likely to disagree with selling TEHSB if the reserve price is not fulfilled as the number of IPPs that have quality energy assets in Asia to be limited is limited. The value of the company was determined through three methods, namely Discounted Cash Flow (DCF), Public Trading Comparables and Precedent Transaction with valuation by method ranging from RM7.24 billion to RM11.82 billion respectively.

5.2.2.7. Among the three methods, the DCF method is chosen by Goldman Sachs for bid prices. This bid price is the enterprise value of all energy assets under TEHSB covering energy assets in Malaysia, Egypt, Bangladesh and UAE sold separately. The enterprise value calculation is based on the estimated cash value received over the remaining term of the existing concession with Weighted Average Cost of Capital(WACC) between 5% to 6% and the expected selling price of the asset at the end of the concession date ( terminal value ) according to a technical consultant's proposal. Enterprise valueearned in the range of RM10.37 billion to RM10.99 billion. However, the JAN can not confirm the method of computing the enterprise value that Goldman Sachs has calculated and the terminal value calculation as it is not provided with relevant documents. The terminal value of the power plant also should not be taken into account in the enterprise value calculation as the asset is no longer worth at the end of the concession period. The

cost of this power plant has also been paid back to the seller fully through the payment of the capacity payment contracted out in PPA.

5.2.2.8. Messrs KPMG appointed as a financial consultant for TEHSB's acquisition has also made pricing analysis based on ' as is' . Enterprise value has been calculated based on a discount rate of between 4.5% to 8% for two financing either at 60% of the loan or 80% of the loan. Enterprise value earned if funded 60% of the loan is ranging from RM6.08 billion to RM6.56 billion while if financed 80% of the loan amount ranges from RM6.59 billion to RM7.33 billion. Detailed details are as follows:

5.2.2.9. JAN's revision finds that enterprise value at the same discount rate of 5% to 6% according to Goldman Sachs count is more than the KPMG Messrs. This is because Goldman Sachs has taken into account the estimates of the terminal value of the energy assets as confirmed through feedback from 1MDB on 9 December 2015. Reports prepared by KPMG's notion are also not disclosed at the 1MDB Board of Directors meeting although Messrs KPMG is the appointed consultant for this acquisition. This means there is no comparison made between Goldman Sachs and

Messrs KPMG that shows a significant difference when making decisions about the value of the purchase. The difference in enterprise value computations is as follows:

5.2.2.10. JAN's revision found that in determining the acquisition price of TEHSB, Goldman Sachs had applied the DCF method based on cost of funds by 5% to 6%. Further revisions indicate that TEHSB's earnings have also been funded by loans from Maybank Bhd. with a borrowing cost of 5.80% and USD Notes with a borrowing cost of 5.99%. This loan rate is within the discount rate used in pricing. This means that with enterprise value calculated on the cost of funds equivalent to the lending rate, the investment made can not provide the expected return. Enterprise value calculationshould be calculated based on IRR rates for expected returns. According to the Board, the viable IRR rate is 7% to 16%.

5.2.2.11. Meeting on 8 February 2012, 1MDB's Board of Directors view 1MDB had the opportunity to buy TEHSB at lower prices as there were not many bidders   capable of financing the purchase of this asset because of its high value. The owner of TEHSB is determined   to continue selling although the reserve price is not met. Mr Shahrol Azral informed the management jointly with the consultant to scrutinize the proposed bid price carefully and support the suggested bid price. However, the JAN can not confirm whether the Board is informed of the reserve price of TEHSB as this information is not submitted for review.

5.2.2.12. The Board also believes that the consulting fees charged by Goldman Sachs by 0.5% of the bid price of RM53 million are high. According to management, Goldman Sachs initially charged a consultation fee of 1% from the bid price and was lowered to 0.5% after negotiations. The job scope of Goldman Sachs is as financial advisor for financial due diligence and valuation , assisting TEHSB's acquisition, financing structure and negotiation with UTSB until sales and financing are finalized. Goldman Sachs also has links with various Government Departments and international investors. Management will not be able to perform this transaction independently within a short period of time (tight deadline ).

5.2.2.13. The 1MDB Board has called on the management to carry out sensitivity analysis on foreign assets if it is subject to a 50% discount rate and comparing PPA terms between TEHSB assets in Malaysia and abroad. However, these two requests were not presented at the next Board meeting.

5.2.2.14. On 8 February 2012, the Board of Directors of 1MDB approved the acquisition of TEHSB equity at a price of RM10.60 billion via 1MDB Energy Sdn. Bhd. (1MESB). 1MESB shares will be increased from RM2 million to RM10 million. The Board has asked the management to negotiate for the sale and purchase of the proceeds and obtain funding and obtain approval before making any commitments.

5.2.2.15. At a Board meeting on March 2, 2012, the management informed that the sale and purchase agreement of the shares was exclusively held with Tanjong Power Holdings Sdn. Bhd. (TPHSB). Subsequently, the 1MDB Board approved the acquisition of TEHSB shares at purchase price of up to Rm10.60 billion.

5.2.3. Implementation of Share Sale and Purchase Agreement5.2.3.1. The share sale and purchase agreement was signed on 2 March 2012, the same day that the Board's approval was obtained for this investment. Purchase price agreed and entered into in a share sale and purchase agreement amounting to RM8.50 billion

which was calculated based on the enterprise value ofRM10.60 billion deducted by TEHSB's loan and cash amounting to RM2.10 billion.

5.2.3.2. 1MDB is given a six-week period until April 16, 2012 for funding, fulfilling the precedent's conditionin the agreement and making a payment which fails if 1MDB is required to pay a RM100 million break feeagreed upon the agreement.

5.2.3.3. During a Board meeting on March 2, 2012, Goldman Sachs has informed that Maybank initially only agreed to lend a sum of RM6 billion provided the Government agreed to provide government support. However, Maybank agreed to finance TEHSB's turnover of up to RM6.17 billion, which is 72.6% of the turnover price of RM8.50 billion on the condition that Tanjoong Public Limited Company (Tanjong) gave Tanjong a Commitment of RM2 billion. On 19 March 2012, the 1MDB Board of Directors has been informed that Goldman Sachs has recommended to the bankers to be exempted from the terms of Tanjong Commitment and is willing to pay higher financial interest rates but the proposal has been rejected by the bank. JAN's review found that support in the form of Tanjong Commitment of Tanjong amounting to RM2 billion is still required although Maybank has imposed securities on TEHSB's future assets, shares, dividends, and future cash flows as well as corporate guarantee of 1MDB.

According to feedback from 1MDB dated 9 December 2015, the decision of the financial institution to lend does not reflect the true value of the investment. Financial institutions do not lend 100% on purchase price and require credit enhancement or additional securities depending on the circumstances. Juka has no additional securities, the bank will lend up to a certain margin. Maybank's decision to lend RM6.17 billion is tied to 'Single Customer Limit' as approved by the Bank's Credit Committee.

5.2.3.4. However, the JAN could not confirm knowing Single Customer Limit as stated in 1MDB's feedback as no supporting documents were submitted to JAN.

5.2.3.5. At the Board meeting on March 19, 2012, Goldman Sachs presented proposals for TEHSB's share-financing structure to be

financed from the bridging loan of RM6 billion and RM2.50 billion from part of the issuance of USD1.75 billion Notes. A loan of RM6 billion (70.6% of the purchase price) is a syndicated loan from two financiers, namely Maybank Bhd. a total of RM4 billion (47.1% of the purchase price) and RHB Bank Bhd. a total of RM2 billion (23.5% of the purchase price). The loan amount excludes the first financial interest reserve of RM0.17 million.

5.2.3.6. 1MDB has applied for an extension of three times of TPHSB from its original date on April 16, 2012. This extension is due to funding negotiations with Maybank Bhd. pending. The acquisition of TEHSB shares has been finalized for a fee of RM8.50 billion on May 22, 2012.

5.2.3.7. The acquisition of TEHSB has been accounted for in the financial statements of 1MDB Group for the year ended 31 March 2013. The revised JAN on TPHSB's financial statements, the holding company which owns TEHSB shares for the year ended 31 January 2013, found THBSB posted a profit of RM7.96 billion (ie 93.6% of RM8.5 billion in consideration). This gain was obtained after taking into account the carrying value of investments in subsidiaries amounting to RM450.99 million and the related disposal costs amounted to RM84.56 million.

5.3. Shareholdings Mastika Lagenda Sdn. Bhd.5.3.1. Background5.3.1.1. On June 21, 2012, Goldman Sachs informed on the 1MDB Board Special Meeting that it is good if value enhancement prior to Initial Public Offering (IPO) Tanjong Energy Holdings Sdn. Bhd. (TEHSB) through the acquisition of new projects, expansion or purchase of power from third parties. At the same meeting,     Datuk Shahrol Azral also informed that the 1MDB management had initiated internal discussions on potential buyers of third-party power plants and the owners of power plants may be interested in selling them to avoid the risk that their PPA is not linked when their PPA expires.

5.3.1.2. 1MDB's Board Resolution dated 25 July 2012 stated after TEHSB's acquisition, 1MDB actively seeking procurement

opportunities in the power generation industry to strengthen its portfolio of energy assets.

5.3.2. Execution of Acquisition5.3.2.1. Based on the 1MDB Board Resolution dated 25 July 2012, Genting Sanyen Kuala Langat Power Station is a 762MW gas fired combined cycle power plant   located at the Genting Sanyan Industrial Complex in Kuala Langat, Selangor which is proposed for procurement. The plant has PPA with TNB in 1994   for 21 years and will expire in 2016. This plant is the first thermal power plant in the country with its own water supply and supply steam to other industries. This plant is the first plant that uses wet cooling tower with environmentally friendly hybrid cooling tower conceptwithout seeing smoke. The plant is also one of the most efficient plants in the country, has strong management with continuous annual cash flows and without debt.

5.3.2.2. Mastika Lagenda Sdn. Bhd. and Genting Sanyen (Malaysia) Sdn. Bhd. is a subsidiary and subsidiary of Genting Berhad. Mastika Lagenda Sdn. Bhd. owns 75% equity in Genting Sanyen Power Sdn. Bhd. which owns Genting Sanyen Kuala angat Power Plant Station, 100% equity Mastika Utilities & Services Sdn. Bhd. which owns a water treatment plant and 100% equity of Mastika Water Management Sdn. Bhd. which is a dormant company. While Genting Sanyen (Malaysia) Sdn. Bhd. owns land site power plant and water treatment plant owned by Mastika Lagenda Sdn. Bhd. and empty land for future development. The target company for revenue consideration is Mastika Lagenda Sdn. Bhd. and Genting Sanyen (Malaysia) Sdn. Bhd.

5.3.2.3. Among the benefits stated in the 1MDB Board Resolution are as follows:

1. The PPA will expire in 2016 and 1MDB has the potential to extend the PPA in favor of favorable terms. Subsequently, it may be able to improve the long-term cash flows of this asset;

2. Improved power generating capacity and strong flow will stimulate the attractiveness of 1MDB's energy division in the capital market and enhance its ability to attract potential lenders and investors;

3. This project will provide the Government with the opportunity to consolidate IPPs in the country through 1MDB; and

4. The unification of IPPs through 1MDB, under the full possession of the MKD, the Government can reinvest profits derived from targeted companies in the economy or implement social projects with higher multiplier effects and benefits to the people.

5.3.2.4. On 25 July 2012, the 1MDB Board Resolution has also agreed to appoint a consultant and approve a budget of RM19.30 million to perform due diligence for the acquisition of the share capital and assets of Genting Sanyen (Malaysia) Sdn. Bhd. and Mastika Lagenda Sdn. Bhd. engaged in power generation and water treatment business activities. The same 1MDB Board

resolution also empowers 1MDB's management to initiate such revenue negotiations subject to the approval of the 1MDB Board prior to making any commitments. The list of approved consultants and budgets is as follows:

5.3.2.5. On 10 August 2012, the Board Resolution 1MDB approved an aggregate turnover of up to RM2.75 billion for the proposed acquisition of the entire equity of Mastika Lagenda Sdn. Bhd. The resolution also states that the method of acquisition is similar to the method of acquisition of TEHSB and the overall acquisition price is paid through debt financing. Subsequently, the resolution granted 1MDB and / or a wholly-owned subsidiary of 1MDB to obtain financing facilities not exceeding RM1 billion and issued USD1.75 billion 10-Year Structured Loan Notes (10-Year SLN) at 5.25% up to 5.99%.    Additionally, 1MDB's management is also approved to negotiate, amend, finalize, approve and implement all matters and documents pertaining to financing facilities and 10-Year SLN in accordance with the resolution's intentions and purposes.

5.3.2.6. JAN's revision finds that the entire equity acquisition's approval on 10 August 2012 is only given through 1MDB's Board Resolution is an improper act as there is no detailed discussion of high value investments. In addition the 1MDB management

proposal submitted with the resolution does not contain any manegement assumptions in making the following decisions:

1. base and components of procurement / enterprise value up to RM2.75 billion;

2. target return on investment and ability to pay borrowing / financing costs as well as loan principal within the expected period;

3. a detailed description of the use of excess cash receipts from syndicated loan / financing facilities not exceeding RM1 billion and issuance of USD1.75 billion 10-Year SLN  against the aggregate turnover price of up to RM2.75 billion; and

4. "10-years call and swap option" implication to SPV Aabar, IPIC's subsidiary to IPO and overall financial performance of 1MDB Group.

5.3.2.7. The JAN review finds the assets / due diligence reports / results, due diligence and red flagsprovided by all appointed consultants are not tabled at 1MDB Board Meetings before approving the acquisition of the equity of Mastika Lagenda Sdn. Bhd. although the need for the presentation of the report is stated in a resolution dated July 25, 2012. Available reports provided by legal consultants are dated August 17, 2012, seven days after the approval of the proceeds and four days after the sale and purchase agreement was signed on 13 August 2012. Next found Presentation Materials to 1MDBprovided by Goldman Sachs (Singapore) Pte. submitted to JAN on December 16, 2015 has taken into account due diligence reports prepared by three other consultants, namely legal, accounting and technical consultants. This shows Presentation Materials to 1MDB Goldman Sachs also available after 1MDB signs the sale and purchase agreement. Hence, key information in Presentation Materias to 1MDB Goldman Sachs such as the proposed offer summary , proposed financing summary and valuation judgments can not be taken into account by the 1MDB Board of Directors in making this high-value acquisition decision. The date of the consultant report is as follows:

According to feedback from 1MDB on 9 December 2015, the 1MDB Board of Directors knows about the proposed acquisition before the Board Resolution issued. 1MDB not only has Board meetings on a monthly basis but also special meetings and informal discussions from time to time. The management also informed on 15 August 2012, the Board and shareholders were briefed on deal parameters, strategy for energy sector and deadline. The Board will not pass a resolution dated 10th August 2012 if it does not agree with the deal parameters or is not satisfied with the management's explanation.

5.3.2.8. However, the JAN was unable to confirm the information given on 15 August 2012, five days after approving the proceeds as no documents were submitted to confirm the matter.

According to feedback from 1MDB, Goldman Sachs has proposed an indicative valuation range for enterprise value from RM2.56 billion to RM2.64 billion. Assessment is based on Discounted Cashflows Methodology (DCF) with five consecutive conservative assumptions. As of July 30, 2012, the Energy Commission (ST) has approved the 10-year redemption. The management has executed all transactions such as the approval of the Board.

5.3.2.9. By calculating Goldman Sachs, enterprise value for the entire equity acquisition of Mastika Lagenda Sdn. Bhd. and land owned by Genting Sanyen (Malaysia) Sdn. Bhd. amounting to RM2.58 billion. This valuation is based on WACC rates ranging from 4.75% to 5.25% and DCF ranges from RM2.56 billion to RM2.64 billion with a total of RM1.16 billion terminal value at the end of the concession period.

5.3.2.10. JAN's review found that the WACC rate was lower than the average cost of borrowing of 5.81% for a loan of RM700 million (2% + fund cost financier) and Note USD1.75 billion (5.75%) paid 1MDB in financial year 2013. WACC higher rates lower than the cost of borrowing is to be detrimental to 1MDB. JAN also did not evaluate the fairness and fundamentals of the 1MDB Board of Directors in making such procurement and financing decisions on 10 August 2012 because at that time 1MDB has not received Presentation Materials from Goldman Sachs. In addition, JAN can not confirm the terminal valuecalculation method of RM1.16 billion by Goldman Sachs for not being given relevant documents. Terminal valuefor power plants should also not be accounted for in the enterprise value count as the asset is no longer worth at the end of the concession period.

5.3.2.11 The JAN Review also found that the entire equity of Mastika Lagenda Sdn. Bhd. and land owned by Genting Sanyen (Malaysia) Sdn. Bhd. for a cash consideration of RM2.34 billion was completed on 22 October 2012 and included in the Group's 1MDB financial statements for the year ended 31 March 2013. Revised JAN on the financial statements of the holding company, Genting Bhd. for the year ended 31 December 2012 found Group Genting Bhd. recorded a profit of RM1.89 billion (ie 80.8% of the consideration of RM2.34 billion) as a result of the disposal of the entire interest of Genting Bhd. that is. However, investment book value information for MLSB sales and plant site land is not disclosed in the notes to the financial statements of Genting Bhd.

5.4. The Company's Turnover Jimah Energy Ventures Sdn. Bhd.5.4.1. Background of Jimah Energy Ventures Sdn. Bhd.5.4.1.1. Jimah Energy Ventures Sdn. Bhd. (JEV) is an IPP company for coal-based 2 x 700MW (capacity of 1.400MW) based on coal at Mukim Jimah, Port Dickson, Negeri   Sembilan. This power station is developed on 515 acres of leasehold land from Jalur       Jernih Sdn. Bhd. (JJSB). Part of the land of 257 acres is leased to   Jimah East Power Sdn. Bhd. (JEP) for the construction of the 3B Project

power station. The Power Purchase Agreement (PPA) for JEV is for 25 years, ending in 2033.

5.4.1.2. Equity in JEV is held 65% each by Jimah Teknik Sdn. Bhd. (JT). 10% by Jimah O & M Sdn. Bhd. (JOM),   20% by Tenaga Nasional Berhad (TNB) and the remaining 5% by the Negeri Sembilan Government. The corporate structure of JEV is like the following chart:

5.4.2. Execution of Acquisition5.4.2.1. Proposed acquisition of investment in Jimah O & M Sdn Bhd. (JOM) and Jimah Teknik Sdn. Bhd. (JT) was first discussed in 2010. On 2 February 2010, the 1MDB Board of Directors was informed by the 1MDB Group Investment Officer, Encik Nik Faisal

Aril Kamil on the offer made by Starnergy Sdn Bhd. to acquire a IPP company that owns a Jimah power plant in Mukim Jimah, Port Dickson, Negeri Sembilan. However, this investment was not continued when Jimah did not intend to sell their holdings at that time.

5.4.2.2. 1MDB's Chief Investment Officer, Mr. Vincent Koh Beng Huat, once again presented the proposed acquisition of the entire equity interest in JOM and JT at the 1MDB Board of Directors meeting on 4 December 2012. The 1MDB Board of Directors has agreed that the proposed acquisition be reviewed by the consultant to carry out due diligence based on value added to investment portfolios of the existing energy sector as follows:

1. This power plant is still new with the remaining 21-year concession period under the PPA which will expire in 2033;

2. Company cash flows are also sustainable;

3. This power plant can be developed because it has an infrastructure for coal management;

4. The company has experienced management and technical expertise to build and manage coal-based power plant. This expertise can be utilized by the 1MDB Group for the acquisition of existing existing power plants and new site development projects ( greenfield projects );

5. The acquisition will assist the 1MDB Group in the pursuit of Public Listing (IPO); and

6. It was able to create a platform for 1MDB to bidding 3,000MW of energy capacity under Track 3A and 3B Trucks (3A and 3B Projects) announced by the Energy Commission (ST).

5.4.2.3. At 1MDB Board meeting on May 20, 2013, Goldman Sachs has tabled an due diligence report for the proposed acquisition of the Jimah power plant. To determine the acquisition price, Goldman Sachs has used several methods, namely DCF, Public Trading Comparables and Precedent Transaction Analysis . Subsequently, it states that the DCF method is more appropriate to use as it assesses the expected cash flows of the year over the remaining concession period and this method is more stable than other methods. There are two DCF computational methods in the Jimah Group procurement pricing, which uses Weighted Average Cost of Capital(WACC) of 8% (cost of equity accounted for was 11.7% and after-tax cost of debt is 6.8%) and cost of equity at 12% of operating margin (operating margin). The calculation of the acquisition value through the DCF method is based on the expected cash flow of the company for the remaining 21-year concession period. The comparison of the acquisition value using two methods is as follows:

5.4.2.4. The basis of selection used by Goldman Sachs is expected cash flows based on PPA, equity cost ranges between 11% and 13% and approximately zero terminal value . 1MDB Board meeting on May 20 had agreed to the proposed acquisition at a price amounting to RM1.225 billion after taking into account the net value of loans amounting to RM485 million.

5.4.3. Purchase agreement5.4.3.1. On June 21, 2013,   1MDB signed a Share Purchase Agreement with equity holders, Jimah Teknik Sdn. Bhd. (JT) and Jimah O & M Sdn. Bhd. (JOM). According to the agreement, 1MDB needs to obtain financing facilities to cover the agreed acquisition price within 90 days from the signing date. The Company is also required to provide a bank guarantee amounting to RM2 million from the date the agreement is signed until all terms of the agreement are complied with. However, 1MDB has been granted an extension of 90 days through the Supplemental Share Purchase Agreement signed on 20 November 2013.   The terms set forth in the agreement are as follows:

1. The need for approval from the financier, the Malaysian Development Bank and Infrastructure through an agreement signed on 20 April 2005 and RHB Sakura Merchant Berhad through a loan agreement dated June 15, 2005.

2. The need for approval from other authorities such as the Ministry of Energy, Green Technology and Water and the EPU to amend equity holders for the Power Purchase Agreement (PPA).

3. Amendment of Article of Association (Schedule A and Schedule 4 of the Companies Act); and

4. Application to the Board of Engineers Malaysia to cancel Jimah Operation & Maintance Sdn. Bhd. rather than providing consultancy services (engineering consultancy practices).

5.4.3.2. The JEV revenue of RM1.225 billion is financed from the RM600 million Ambank loan while the balance of RM625 million is an advance from 1MDB. The ultimate payment to JEV, JT and JOM shareholders was completed on 9 January 2014 after six months of the sale and purchase agreement signed.

5.4.3.3. JAN's review found that the acquisition price of JEV shares amounting to RM1.225 billion based on equity cost at 12% was lower than the WACC rate at 8%. This method is more profitable than 1MDB compared to the acquisition method of TEHSB and MLSB. Basis of pricing for all three IPP companies is inconsistent. This is due to the lower discount rate used during DCF calculations for TEHSB with higher discount rates during the acquisition of JEV. Terminal values are also taken into account during DCF calculations for TEHSB and MLSB but are not considered for JEV. This has led to higher prices for TEHSB and MLSB than JEV.

6. DIFFERENT PRICES OF EXPENSES WITH THE REVENUE ASSET VALUE

6.1. Introduction6.1.1. In the context of accounting, intangible assets are assets that do not exist physically but may provide financial and value-added benefits to an entity such as brand name , customer lotalty , trained workforce, patent, royalty, contract of work or service contract and gooodwill on acquisition . Goodwill on acquisitionor other intangible assets will only exist in the financial statements of an entity when the entity makes the acquisition of another company.

6.1.2. At the date of acquisition of IPP companies, 1MDB has to execute the purchase price allocation to match the value of asst and liabilities that have been acquired for the purpose of computing goodwill on acquisition . Goodwill on acquisition is the excess of the purchase price over the net asset value of the acquired company. The net value of the company's assets is the difference between the total assets and the total liabilities

recorded in the financial statements including the intangible assets identified during the buying process of the shares.

6.1.3. During the implementation of the purchase price allocation for the three IPP shares in 2012 and 2013, the 1MDB management has identified the Service Concession (SC) as an intangible asset. The SC is the contract value obtained from PPA signed between TNB and IPP to generate capacity for electricity production.

6.1.4. Based on Deloitte's paperwork, the SC has been evaluated based on the DCF that will be accepted for the period from the date of acquisition to the date of expiration of the existing PPA. In accordance with the 1MDB financial statements on 31 March 2014, the total intangible assets totaling RM8.56 billion comprising the SC amounted to RM6.45 billion and goodwill amounted to RM2.11 billion. Details of 1MDB's intangible assets at 31 March 203 and 31 March 2014 are as follows:

6.2. Purchase Price Allocation6.2.1. Net Asset Value6.2.1.1. At the date of acquisition, the net worth of acquired assets of the three IPPs amounted to RM1.835 billion. The TEHSB Group recorded the highest asset value of RM2.565 billion for involving the purchase of nine power plants in four countries as opposed to only one power plant for the Mastika Lagenda Group and Jimah Group.

6.2.1.2. Assets acquired by the 1MDB Group involving power plants in Malaysia were recorded as Plant, Property & Equipment (PPE) amounting to RM6.350 billion while power plants in Egypt and Bangladesh have been accounted for as Lease Receiveables amounting to RM1.462 billion and Service Concession Receivables totaling 3.477 billion. The power plant in Malaysia is conceptualized Build Operate own (BOO) where the power plant is the property of the concessionaire. In addition, in Egypt it is conceptualized Build Operate an Transfer(BOT), the power plant will be handed back to the authorities in Egypt. In Bangladesh, although the concept of construction is BOO, however, the construction of a power plant has been made on Government-owned land. Methods of acquiring different power plants result in differences in   asset coding .

6.2.1.3. The highest liability value is a loan of RM9.18 billion. Jimah Group recorded the highest loan amounting to RM5.723 billion as its five-year power plant operates and still has a balance of 20 years of concession during the takeover. The details of the assets and liabilities at the date of acquisition are as follows:

6.2.2. Service Concession (SC)

6.2.2.1. Based on the Notes to the Financial Statements, the SC for the acquisition of the three IPPs totaling RM7.447 billion. According to the papers of Messrs Deloitte, the value of SC by management is based on the expected cash flows to be received from the power plant and its Operation and Management (O & M) over the remaining concession period. For Kuala Langat power plant, the management estimates the expected future cash flows 1MDB is for 18 years. However, JAN's review found that the remaining concession period is actually 14 years. The details count SC of 11 power plants and O & M as a whole are as the following tables:

6.2.2.2. Based on the SC's calculation, JAN's review found that the acquisition price agreed by 1MDB had taken into account the foregone revenue of the original IPP company. At the date of sale, the original owner of the IPP company has earned cash flow anticipated payment for the remaining term of the concession.

6.2.3. Goodwill On Acquisition

6.2.3.1. Goodwill on acquisition has been calculated based on the difference between the purchase price and the net asset value of the SC. The net asset value is the net book value of all assets less any of the liabilities recorded in the financial statements of the acquired company at the date of acquisition. In accordance with the Notes to the 1MDB Financial Statements commencing financial year 2013 , the specified goodwill on acquisition is for the trained and experienced workforce that has been acquired. The details of the goodwill on acquisition calculation are as follows:

6.2.4. Impair Goodwill Value6.2.4.1. At each financial year end, this goodwill needs to be evaluated by the management to determine whether the capitalized assets are capable of generating financial benefits to the company. This assessment is known as impairment test. During this test, the management needs to make a recoverable amount and a carrying amount.

6.2.4.2. Recoverable amount is the expected cash flows that will be received over the life of the asset being used by the company to benefit him. While carrying amount is the net value of the assets as disclosed in the financial statements. Both of these numbers will be compared when making a yearly impairment test. If recoverable amount exceeds the carrying amount , the goodwill value should

not be impaired. However, if the reversal occurs where the recoverable amount is less than the carrying amount, then this difference should be impaired.

6.2.4.3. Based on the 1MDB management's impairment test, goodwill on acquisition has been impaired a value of RM1.19 billion at the end of the financial year 2013, which is within the first year of acquired assets. This shows that the 1MDB Group has paid off the purchase price which exceeds the net worth of energy assets. However, in 2014 no impairment was impaired on goodwill on acquisition . Based on the assumption of management of 1MDB, the recoverable amount of the power plant exceeds the carrying amount of the asset as disclosed in the financial statements. According to the Group's 1MDB Financial Statements for the years ended 31 March 2013 and 31 March 20014, goodwill on acquisition and diminish values like the following table:

According to 1MDB's feedback received on 9 December 2015, the cost of acquisition of energy assets based on the discounted cash flow valuation proposed by Goldman Sachs and cross-referenced with trading comparables and precedent transaction valuation is justified. The acquisition cost of assets reflects the intrinsic value of control of the assets - net effective capasity of 5.594MW, acquisition of expertise in the energy industry, platforms for

developing new regional power generating projects, synergy of assets, expertise to develop and operate multiple sources of power (coal, gas and diesel) and expertise for managing various types of plants (open cycle, combined cycle and thermal). Impairment on goodwill on acquisition is subject to accounting standards and financial regulations that are to be complied with. However it is not the only way to evaluate the energy sector business. Impairment under the accounting rules can not recognize the strategic nature of the business to the group in terms of achieving its strategic objectives.

6.2.4.4. Based on the assumptions provided by the management, Messrs Deloitte has reviewed the recoverable amount of the management. Recoverable amount has been recalculated at a more prudentWACC rate of RM10.88 billion.

6.2.4.5. Revised January found in the determination of the recoverable amount , management has assumed that the PPA will be extended for five years after the expiry of the existing PPA. However, the JAN review finds that the assumptions are less appropriate because the PPA extension is not automatically created. The extension of the concession period for a restricted tender was made in 2012 in line with Government policy to control the rates at the lowest prices by using the latest technologies more efficient in generating capacity.

6.2.4.6. Based on the JAN simulation, if the extension of the five-year concession period is not taken into account, the expected cash flow will be reduced by RM1.96 billion. The impact will reduce the recoverablevalue from RM10.88 billion to RM8.92

billion. If a sum of RM1.99 billion impairment was made against goodwill on acquisition on 31 March 2014, JAN found that goodwill on acquisition would decrease from RM2.11 billion to RM120.68 million as computation of the table below:

6.2.4.7. The impairment will also reduce the total assets of the 1MDB Group by RM1.99 billion from RM51.41 billion to RM49.42 billion . Total comprehensive income with a profit of RM50.54   million will also decrease with the same amount making the current year's loss amount to RM1.94 billion. This loss is due to the Group's total share capital and reserves of 1MDB amounting to RM1.73 billion.

6.2.5. Payment Service Concession6.2.5.1. Intangible assets such as the Service Concession (SC), are categorized as assets that have contracts and a life expectancy that can be calculated accurately. Therefore, these assets need to be settled and not impaired. For the purpose of settling the SC, the management has taken into account the remaining term of the concession as the life-span of the asset. Accordingly, the value of the SC will be reduced at the end of each financial year. Based on the Group's 1MDB financial statements, the SC's value as at 31 March 2013 and 31 March 2014 amounted to RM5.6598 billion and RM6.451 billion respectively. The details of SC and amortization of assets are as follows:

7. FINANCING 1MDB GROUP ENERGY SECTOR

7.1. Background7.1.1. The 1MDB Group has acquired three IPP companies, the Tanjong and Mastika Lagenda companies in 2012 and the Jimah group in 2014. To finance the acquisition, at the early stage of the 1MDB Group has taken six loans / financing totaling RM18.79 billion. Between May 2014 and March 2015, the 1MDB Group has taken six additional loans and advances amounting to RM13 billion to refinance existing loans and termination options. Of the loans / financing, six loans with a principal amount of RM13.34 billion have been amortized to 31 October 2015. A total of 12 loans / financing amounted to RM31.79 billion relating to the energy sector taken up to March 2015 as follows:

7.1.2. Based on the table above, the total loan / financing / issue of USD Notes amounted to RM31.79 billion comprising 10 loans amounting to RM21.10 billion and two issuances of USD Notes amounting to USD1.75 billion equivalent to RM10.69 billion respectively. The ten loans / financing comprises three Syndicated Bridging Loans totaling RM12.37 billion, five term loans amounting to RM7.15 billion, a Standby Credit of RM950 million and advances by 1MDB amounting to RM625 million.

7.2. Loan RM21.10 BillionThe energy sector's revenue comprises six Ringgit Malaysia (RM) loans amounting to RM14.55 billion and four US Dollar loans (USD) amounting to RM6.55 billion (USD1.93 billion). Among the more information on the loans taken are as follows:

7.2.1. Syndicated Bridging Loan RM6.17 Billion7.2.1.1. Goldman Sachs as the 1MDB Group financial consultant for the acquisition of Tanjong Energy Holdings Sdn. Bhd. (TEHSB) has proposed 1MDB Board Meeting on 19 March 2012 to 1MDB to finance RM8.50 billion in revenue through two sources, namely Syndicated Bridging Loan totaling RM6.17 billion and issuance of USD1.75 billion Notes. The Principal Syndicated Bridging Loan will be repaid through the issuance of new sukuk / bond issues and Initial Public Offerings (IPOs).

7.2.1.2. On March 5, 2012, Maybank Investment Bank Bhd. (Maybank Bhd.) Has issued a Syndicated Bridging Loan offer letter to 1MDB Energy Sdn. Bhd. (1MESB) amounting to RM6.17 billion for the acquisition of TEHSB shares. The Board of Directors on 19 March 2012 has agreed on the loan terms and conditions and authorizes Mr Shahrol Azral to negotiate and finalize the loan agreement.

7.2.1.3. On May 17, 2012, 1MESB signed a Syndicated Bridging Loan agreement of RM6.17 billion with Maybank Bhd. and RHB Bhd. The loan interest rate is COF + 2.50% and matures on 23 November 2013. In addition, one of the key agreements signed by 1MESB on May 17, 2012 is as follows:

7.2.1.4. Among the key terms of the Syndicated Bridging Loan Agreement are as follows:

a. The borrower may apply for a loan repayment extension for a period of six months from the date of repayment upon obtaining consent approval.

b. Tanjong Plc. need to deposit RM1 billion into the financier's account as a pledge.

c. 1MDB as corporate guarantor should provide written undertaking to ensure 1MESB finds PPA extension within 12 months from the date the loan is issued.

d. 1MDB should seek to get the offer of new concession proposals as an added value factor to the IPO proposal within 18 months from the date the loan is issued. The proposed new concession refers to the proposed new IPP implementation, which needs at least 2,000MW capacity including a power plant under the modified TEHSB subject to the consideration of the Energy Commission (ST).

e. 1MDB needs to get Tanjong Plc approval. to buy 1MESB shares equivalent to RM2 billion if the IPO is not implemented until the maturity of the loan. If the IPO is implemented and its value is less than RM2 billion, Tanjong Plc. need to accommodate these differences. This condition is contained in the Subscription Agreement and known as Tanjong Commitment.

f. 1MESB should issue a warrant for 214.28 million units of shares at a price of RM5.00 per unit as set out in the Subscription Agreement .

g. 1MDB has to deposit a total of RM2.50 billion into the Revenue Account before the Syndicaated Bridging Loan can be used to pay TEHSB's share price of RM8.50 billion.

7.2.1.5. The JAN revision gets up to the maturity date of Sydicated Bridging Loan on November 21, 2013, between the terms of the Syndicated Bridging Loan agreement which has not been complied with as follows:

a. Failure to obtain concession extension and PPA for Powertek power plant with capacity of 440MW within 12 months. This is to be informed when ST issues a successful bidder in October 2012.

b. Still have not received any offers from ST related to the proposal of a new power plant with a capacity of 2,000MW.

c. Failure to execute IPO within 18 months as planned to settle the loan.

7.2.1.6. In this regard, 1MDB has applied to Maybank Bhd. on 22 November 2013 to amend the terms of the original agreement to postpay the six-month payment period in accordance with the terms of the agreement. Fees charged by Mayybank Bhd. amounting to RM30.85 million equivalent to 0.5% of the principal amount of the loan. However, the approval of the 1MDB Board is only available on 13 December 2013 by resolution, which is 21 days after the loan extension application is submitted.

7.2.1.7. Syndicated Bridging Loan is still at RM5.50 billion after 1MESB amended its RM500 million principal on 22 May 2014 and a total of RM170 million on 14 August 2014.

7.2.1.8. JAN's review found that 1MDB was still unable to settle a loan of RM5.50 billion although the maturity date of the loan was extended to 22 May 2014. 1MDB's Board of Directors through a written resolution approved a refinancing loan of RM5.50 billion. However, based on the approval paper (Approval Paper) attached to this resolution, the management only submits the

background information on the loan in general and the refinancing proposal by the bank. 1MDB also has to pay additional costs to Tanjng Plc. amounting to RM15 million for extension of Tanjong Commitment.

7.2.2. Syndicated Bridging Loan RM5.50 Billion7.2.2.1. Syndicated Bridging Loan RM5.50 billion from Maybank Bhd. divided into two tranches, namely Tranche 1 amounting to RM3.50 biilion payable by 20 quarterly installments ending in May 2024, while Tranche 2 amounting to RM2 billion to be paid no later than 30 November 2014.

7.2.2.2. Under the terms of the agreement dated May 22, 2014, the method of payment for the settlement of the Tranche 2 loan is through the proceeds of the IPO and / or the implementation of the Tanjong Commitment. Should IPOs not be implemented, Maybank Bhd. can ask Tanjng Plc. to purchase equity in 1MESB (Tanjong Commitment) to cover outstanding amounts as set forth in the new Subscription Agreement dated 7 August 2014.

7.2.2.3. As the IPO has not been implemented and the loan is almost mature, on 25 November 2014, 1MDB's management has informed on the 1MDB Board Special Meeting that if the Tanjong Commitment was implemented, Tanjong Plc. is expected to have 70% equity in PIHSB through subscription of warrants. In addition, the meeting also informed the management of 1MDB to hold discussions with Maybank Bhd. to extend the repayment period of Tranche 2. Bank Negara Malaysia (BNM) has also directed Maybank Bhd. to diminish the value of the loan amounting to RM2 billion if the loan is not repaid by period and this will cause cross default event. The 1MDB Board has reprimanded the management for not providing funds for repayment of loans while the IPO suspension was known six months earlier. Subsequently, the Board of Directors of 1MDB has instructed management to take the following remedial action:

a. Obtain new loan from Ambank with Tanjng Commitment as a guarantee;

b. Redeem investment in the Segregated Portfolio Company (SPC) fund under Brazen Sky Ltd. Alternatively, if you fail to get a new loan;

c. Apply for extension of the repayment period from Maybank Bhd. subject to BNM's approval.

7.2.2.4. The 1MDB management at the 1MDB Special Board meeting on 20 December 2014 has informed that SPC redeemed so far amounted to USD1.392 billion has been used for option termination payments to Aabar Ltd. and total SPC investment amounting to USD2.30 billion has been pledged to Deutsche Bank for USD975 million loan. Therefore, SPC can not be redeemed to settle Transche 2 Syndicated Bridging Loan . 1MDB's Board of Directors has reprimanded the management for not mentioning the collateral when taking term loanamounting to USD975 million in September 2014. This shows that the management has disobeyed the 1MDB Board's directive for still placing SPC investments on Deutsche Bank on 1 September 2014 while the SPC management directives were given since May 2013. On 25 November 2014, the management has not yet inform the redemption position of the SPC as the 1MDB Board recommends the redemption of SPC as a settlement of Transche 2 .

7.2.2.5. At 1MDB Board meeting on January 12, 2015, Mr. Arul Kanda informed that Transche 2 loans had been extended to 31 January 2015 by Maybank Bhd. after taking into account collateral (pledge) from Tanjong Plc. amounting to RM1 billion. The meeting has approved an extension fee of RM3.34 million imposed for the purpose. At the same time the management has also negotiated with Tanjong Plc. regarding the implementation of Tanjong Commitment. However, the negotiations were unsuccessful.

7.2.2.6. According to the clarification given by Mr Arul Kanda at the PAC meeting on 1 December 2015, the weaknesses in the terms of the agreement that did not set the time frame for both parties to agree on PIHSB's equity value has resulted in the Tanjoong Commitment unenforceable to settle the Transche 2loan on January 31 2015.

7.2.2.7. Pursuant to the proposal to the 1MDB Board of Directors resolution dated 10 February 2015, Maybank Bhd. has approved an extension of the indulgence of time until 18 February 2015. Maybank Bhd. will direct the loan be immediately paid and payable if the 1MDB Group still fails to settle the loan on maturity date. As the most optimal solution taking into account the simplest and fastest implementation, both parties have agreed to 1MDB to take the Term Loan Facility in USD capped at RM2 billion from Tanjong Plc. or its subsidiaries. The Board has agreed with the implementation of this rustic by resolution dated 10 February 2015.

7.2.3. Term Loan USD555.02 million (capped at RM2 billion)7.2.3.1. Term Loan Facility Agreement USD555.02 million (capped at RM2 billion) between 1MDB and Marstan Investment NV Netherlands (Marstan) signed on 12 February 215. The interest rate for this loan is 8.5% per annum with a 2-year interest charge, for the period 15 months maturity on May 12, 2016. The loan received from Marstan through a bank agent, RHB Bank Berhad, was used to settle the Transche 2loan on February 13, 2015. The loan repayment paid for the principal amounted to RM2 billion and the cost of borrowing amounted to RM6. 14 million. Additionally, the 1MDB Group also incurred an agency cost of USD60 million which must be paid to RHB Bank.

7.2.3.2. Mr Arul Kanda informed at 1MDB Board meeting on 23 February 2015 that the management is in the process of negotiating with Tanjong to cancel Tanjong's Commitments after settling the Transche 2loan . He also notified the warrants held by Tanjong Plc. as in the agreement is not terminated even if the loan has been repaid. JAN's revision finds that apart from the gain on sale of TEHSB's assets, Tanjong Plc. also benefited from a high interest rate of 8.5% on term loan of USD555.02 million (capped at RM2 billion) granted to the 1MDB Group.

7.2.4. Syndicated Bridging Loan RM700 Million

7.2.4.1. The Lagging Mastika Group's revenue amounting to RM2.34 billion was funded by USD1.75 billion Notes and domestic loans approved through 1MDB Board resolution dated October 9, 2012. The USD1.75 billion note was issued on 17 October 2012, before The RM700 million Syndicated Bridging LoanAgreement was signed on 6 November 2012. The Syndicated Bridging Loan of RM700 million was taken by 1MDB Energy (Langat) Sdn. Bhd. (1MELSB) and mature in February 2016.

7.2.4.2. According to the Syndicated Bridging Loan of RM700 million, the purpose of the loan is to "to part finance the acquisition, provided however that in the event the acquisition price has been fully settled by or on behallf of the borrower, proceeds from th facility shall be utilized to reimbursed the borrower subject to receipt of satisfactory documentary evidence by the facility agent, evidencing that the ordinary shares of Mastika Legenda acquired pursuant to the acquisition have been transferred into the name of the borrower. " However, JAN could not confirm the actual use of Syndicated Bridging Loan RM700 million.

7.2.5. Loan Facility From Federal Government ( Standby Cedit ) RM950 Million7.2.5.1. A total of RM625.78 million (65.9%) of Standby Credit amounting to RM950 million was used for principal repayment and borrowing costs for the 1MDB Group energy sector. Details of the Standby Creditloan usage amounting to RM950 million are set out in Table 6.5 and Chapter 6 of the Group's 1MDB Financial Position.

7.2.6. Term Loan RM600 Million And Advances From 1MDB to RM625 Million7.2.6.1. The Jimah Group's proposed turnover financing amounting to RM1.225 billion was tabled at 1MDB Board meeting on 19 August 2013. The meeting also approved the proceeds of financing through the Syndicated Term Loan Facility of RM700 million with Ambank as lead arranger . However, Ambank only approved Term Loan financing amounting to RM600 million for a period of 15 months rather than a Syndicated Term Loan as approved by the

1MDB Board. The additional terms of this loan require 1MDB to provide Corporate Guarantee (CG) to 1MDB Energy (Jimah Sdn Bhd as a borrower.

7.2.6.2. The loan was still insufficient to finance the acquisition price of the Jimah Group and 1MDB had provided an advance of RM625 million as additional funds. The JAN understands that the advances given are from the consolidated funds of the 1MDB Group and the identifiable sources of borrowing used.

7.2.7. Term Loan USD150 MillionBased on the minutes of the 1MDB Board meeting dated March 24, 2015, Mr Arul Kanda informed that a total of RM250 million of the term loan USD150 million (RM557.40 million) acquired in March 2015 from Export-Import Bank Berhad (EXIM) term loan of RM600 million from AmBank.

7.2.8. JAN analysis found that the 1MDB Group had obtained short term loans / financing between 15 to 48 months to finance the acquisition of long term nature energy assets. Therefore, the returns generated from long-term assets are insufficient to settle the principal and maturity of borrowing / financing costs. Subsequently, the 1MDB Group was forced to apply for new loan / financing which was largely used to repay the mature short-term loan / financing. It was found that all new loans taken were also short-term loans mature between 10 and 18 months.

7.3. Notes Issue USD3.50 BillionIn 2012, the 1MDB Group issued two USD Notes amounting to USD1.75 billion for the Tanjong Group and Lagenda Kumumpika Kum. The issuance of both USD1.75 billion Notes has been approved without Government guarantees. The first USD1.75 billion note was issued to cover Tanjong Group's turnover price of RM8.50 billion. It is in addition to Syndicated Bridging Loan amounting to RM6.17 billion which is still inadequate.

7.3.1. Approval And Use of USD Notes Issuance

7.3.1.1 Goldman Sachs has proposed to finance the acquisition of TEHSB shares through the issuance of USD Notes on 19 March 2012 and this financing method has been approved by the Board of Directors of 1MDB. For the subsequent acquisition, the acquisition of the Mastika Lagenda shares, the same financing method used involves the issuance of the USD Notes and was approved by the Board of Directors of 1MDB at a written resolution on 10 August 2012. The first USD note was issued by 1MDB Energy Limited (1MEL), while the second USD Notes published by 1MDB Energy (Langat) Limited (1MELL). Details of the terms and conditions of the USD Notes issue are as follows:

7.3.1.2. JAN's review found that the Board of Directors of 1MDB on 30 April 2012 approved the issuance of USD1.75 billion Notes and related documents such as Deed of Guarantee, Interguarantor Agreement,   Trust Deed , Arranger Agreement and Agency Agreeent for the Tanjong Group's acquisition. For the issuance of the second Notes, the preparation of the same documents was passed through a resolution by the Board of Directors of 1MDB on 9 October 2012 except for the Interguarantor Agreement . The 1MDB Group's financial statements for the years ended 31 March

2013 and 31 March 2014 have stated that both the USD Notes are guaranteed by 1MDB and IPIC. However, the JAN also can not confirm the Deed of Guarantee for the issuance of the two notes is provided as decided by the 1MDB Board of Directors at a meeting dated 30 April 2012 and a resolution dated 9 October 2012.

7.3.1.3. JAN's review found that 1MDB Group had sold 100% equity in 1MDB International Holdings Limted (BVI) (1MDB-IHL) in September 2012 with a value of not less than USD2.22 billion to Bridge Partners International Investment Limited (Bridge Partners) established at BVI. In August 2012, the 1MDB Group has appointed a consultant to carry out due diligencefor the acquisition of the second IPP company, the Mastika Leganda Group. As revenue from equity sales was received in September 2012, it could be used as a source of the Laguna Mastika Group's revenue fund. However, the proceeds from this equity sale have been reinvested by a licensed investment management company. JAN's review also found that the 1MDB Group did not plan to use the proceeds to finance the proceeds.

Based on the feedback from 1MDB's management dated 9 December 2015, the Sale and Purchase Agreement for the disposal of PSOSL was signed on 12 September 2012. However, the disposal is subject to the terms set forth and the sale can not be implemented immediately. At the same time 1MDB has a Commitment with Genting Sanyen's revenue based on an agreement dated August 14, 2012 with a definitive period of time. To ensure that the funds are issued, subsequent decisions have been made to proceed with the Guarantee Sanyen financing through the issuance of USD1.75 billion Notes on October 17, 20012. "In addition, keeping the proceeds from the disposal of PSOSL in USD provided a natural hedge of the company's USD liabilities ".

7.3.1.4. Based on USD Information Memorandum , the first USD Notes was subscribed by four companies related to Tanjong Group on May 18, 2012 with a total of USD650 million. JAN's analysis found that besides gains on IPP sales, the Group also benefited from the subscription of USD Note via Coupon acceptance at

5.99% of the 1MDB Group. The detailed details of the first USD Notes issue subscription are as follows:

7.3.1.5. At 1MDB Board meeting dated June 21, 2012, Goldman Sachs has informed the net receipts of RM4.77 billion (USD1.50 billion) from the first USD1.75 billion notes. However, 1MDB's management did not present to the Board the performance of the second US $ 1.75 billion note. The net usage of the first USD1.75 billion notes is as follows:

7.3.2. Guaranteed Notes USD1.75 BillionThe Double Notes USD1.75 billion for the 1MDB Group's energy sector requires the provision of collateral documents such

as Option Agreement, Collaboration Agreement for Credit Enhancement (Security Deposit) and Interguarantor Agreement .

7.3.2.1. Option Agreementa. On March 19, 2012 at 1MDB Board of Directors meeting, Goldman Sachs presented a proposed guarantee for the issuance of the first USD1.75 billion Notes. This guarantee will be provided by IPIC and in return, 1MEL will provide an option to Aabar Ltd. This option has been granted to Aaba Ltd. for his help getting a guarantee from IPIC. This option entitles Aabar Ltd., to acquire 49% equity from the total equity value in 1MESB of RM2.50 billion at a price of RM1.225 billion. This situation gives advantage to Aabar Ltd. to acquire 49%   equity at a fixed price if the 1MESB equity value increased from RM2.50 billion.

b. On May 18, 2012, the Option Agreement was signed between 1MEL (Mr. Shahrol Azral) and Aabar Ltd. (Mohamed Badawy Al-Husseiny). Among the conditions in the Option Agreement to state if an option is made, Aabar Ltd. not only as a shareholder in 1MESB but also his representative can be appointed as a Board member within 1MESB. If the option is not executed, Aabar Ltd. still holds a representative as a member of the Board of Directors in 1MEL and 1MESB. Attendance Aabar Ltd. as representative in the meeting is required to complete the meeting quorum. In other words, the JAN can not confirm the representative of Aabar Ltd. which has been appointed as stated in the Option Agreement .

c. Subsequently, for the second issue of the USD1.75 billion note that was also guaranteed by IPIC, the same reply was given to Aabar Ltd. Based on the Group's 1MDB financial statements for the year ended 31 March 2013 and the audited paper, the option granted allows Aabar Ltd. earning 49% equity at RM862.40 million. However, the JAN could not confirm the value of the entire 1MELSB equity because the Option Agreement for the issuance of this second Notes is not submitted for auditing.

c. The adoption of the options from the 1MDB Group is set out in the Notes to the Financial Statements of IPIC for the years ended 31 December 2013 and 2014.

7.3.2.2. Collaboration Agreement for Credit Enhancementa. In accordance with Note 23 (a) to Group 1MDB's Financial Statements for the year ended 31 March 2014, 1MDB has signed two Collaboration Agreements with Aabar, a subsidiary of IPIC whereby IPIC has agreed to provide a USD USD5.5 billion Notes and a refundable deposit held as collateral for guarantee as a strategy to list energy assets.

b. JAN has received two Collaboration Agreement for Credit Enhancement dated 21 May 2012 and 19 October 2012. The first agreement was made between 1MEL and Aabar Ltd. while the second agreement is between 1MDB Energy Holdings Ltd. (1MEHL) and Aabar Ltd. However, the two agreements submitted to JAN are incomplete.

c. Goldman Sachs during the Board meeting on June 21, 2012 has recommended credit enhancementrequired to attract investors to subscribe to the USD Notes issue as the existing 1MDB Group's existing property assets can not be pledged for collateral . However, Goldman Sachs did not state in detail the implementation of the Credit Enhancement as it states.

d. Credit Enhancement is a method for a company to improve its credit capabilities. Through Credit Enhancement , financiers are confident that the guarantor will pay off its liabilities through collateral placement. According to Clause 2.2 (a) Collabortion Agreement for Credit Enhancement , the purpose of credit enhancement is as follows:

"... such guarantee providing significant credit enhancement to 1MEL / 1MELL from a non-related bond of significant equity-like risk profile as described in clause 2.1 (d) above to a rated bond with similar to IPIC's credit rating which will require payment of coupon and only single digit annual interest rates ... ".

e. Collaboration Agreement for Credit Enhancement has set 1MEL and 1MELL give options to abar Ltd. and pay cash- enhancement credit (deposit securities) within three days after receipt of both Notes USD1.75 billion in consideration of the guarantee obtained

from IPIC. The computation of these cash flows is based on present value of the total guarantee amount (USD1.75 billion) with annual interest rates of 2.80% and 3.85% respectively for 10 years as collateral. The annual interest rate charged for the issuance of a second USD note of 3.85% is higher than the first USD Notes issue as IPC's overall risk risk has risen to USD3.5   billion.

f. JAN's review found that deposit securities amounting to USD1.367 billion (RM4.468 billion) were paid by 1MEL and 1MELL to Aabar Ltd. has been recorded as a security deposit in the 1MEHL financial statements for the years ended March 31, 2013 and 2014. However, these deposit security payments have been made without the Board's specific approval. In respect of the first USD note issue security deposit, the liability of the payment has been transferred to 1MEHL since 1MEHL has acquired 1MEL shares from 1MDB. This is based on the Assumption for Obligations Agreement dated 1 November 2012, between 1MEHL and 1MEL. Detailed details regarding the payment of deposit securities are as follows:

g. JAN analysis found that net note of USD3.50 billion amounted to USD3.197 billion (91.4%) was used within three days for IPP acquisition amounting to USD1.495 billion and payment of deposit securities amounting to USD1.367 billion. The net receipts of both USD notes which can be used for general use of the 1MDB Kumplan corporation only amount to USD334.68 million. Hence, from a total of USD3.50 billion, only USD1.830 billion (52.3%) is used for energy sector investment and general corporate use of

1MDB Group. Details of net receipts of Note USD3.50 billion as follows:

h. The JAN analysis found that the first USD1.75 billion notes issuance arranger fee is 1% of the USD USD nominal value of USD17.5 million. While the arranger fee for the issuance of the second USD1.75 billion note is home to USD110 million of its net value is 6.3%. This fee arranger is higher than the average arranger fee for the global market between 0% -0.5% as informed by JAN by those who are well-known in bond investments. In addition, Goldman Sachs also received USD175 million for the first issue of the USD Notes as commission fee. This shows that Goldman Sachs received USD302.50 million (RM1 billion) a home equivalent of 8.6% of the total USD note issue.

According to 1MDB's feedback received on 9th December 2015, the high notes issue of the USD Notes is due to the following factors:

1. 1MDB has a very low equity of RM1 million and just venture into the capital market without having a record credit record. The USD notes issued were fully underwritten which provides certainty of funding. High specified expenses include underwriting fee.

2. The notes are important as Mezzanine Debt and help lower 1MDB equity structure. Financing Mezzanne Funding generally has a cost of more than 10% on an annual basis, whereas with all the stated costs of the notes this issuance of this note will be issued at the yield of 6.62% -7.70%. Due to this factor, Note 1 of the Group 1MDB Group could be considered cheaper than the usual Mezzanine Funding.

i. JAN's review found that information on the use of the first issue of the USD Notes issued by Goldman Sachs at 1MDB Board meeting on June 21, 2012 is different from the analysis of the use of the first USD Notes by JAN. This means the 1MDB Board of Directors is not informed of the actual use of USD note receipts to pay deposit securities amounting to USD576.94 million while payments have been made within three days of receipt.

j. Based on Clause 2.4 for both Collaboration Agreeent for Credit Enhancement , Aabar Ltd. will only refund the deposit securities to 1MEHL from 60 days after the following conditions are met:

k. Based on Clause 2.5, both Collaborative Agreement for Credit Enhancement states:

"Aabar Ltd. shall be unconditionally entitled to retain, apply or deal with the credit enhancement collateral at its sole discretion and as it deems fit including but not limited to the payment of the

interest and principal due under the 1MEL / 1MELL Notes and in furtherance of the strategic collaboration between the parties herein, towards investments, projects or commercial transactions which enhances the value of the overall collaboration between the parties. "

l. Until October 31, 2015 IPOs have not been implemented in accordance with Clause 2.4 Collaboration Agreement For Credit Enhancement . However, the 1MDB has confirmed that these deposit securities have not been refunded by Aabar Ltd.

m. According to the minutes of the 1MDB Board meeting dated February 23, 2015, Messrs Deloitte has confirmed security deposit amounting to USD1.40 billion has been paid to Aabar in 2012. Messrs Deloitte has also communicated with Aabar Executive Director-General Mohamed Badawy Al-Husseiny who has confirmed the receipt a total of RM4.25 billion (USD1.40 billion) and is a refundable deposit . However refundable depositthis is not disclosed as a liability in the financial statements of Aabar. According to Messrs Deloitte again, this matter is serious and a detailed review should be made to ensure that this amount has been accounted for by Aabar. The JAN also can not confirm the recording of this transaction in Aabar's financial statements as the documents are not available. During the PAC Meeting on December 1, 2015, Mr Arul Kanda informed that the matters reported in the IPIC Financial Statement were beyond the control of 1MDB.

According to 1MDB's response received on 9th December 2015, a security deposit is required as a guarantee to Notes issued by 1MEL due to the following:

1. 1MDB only has an equity of RM1 million. Because of this 1MDB requires it as a capital market access to finance the acquisition. With low equity and no guarantee from the Federal Government, the guarantee from IPIC allows entities with AA2 to provide appropriate credit assistance.

2. The security of the deposit remains an asset to 1MDB. Generally a guarantor will charge a guarantee fee of at least 1% annually or in the issuance of this Note, only a sum of USD17.50 million becomes the expense to the company. During the issuance of this USD Note, a sum of USD17.50 million will be the company's expense. However, deposit securities remain as 1MDB assets instead of spending items.

1. IPIC guarantees are for the whole principal of Note USD amounting to USD3.50 billion for 1MEL and 1MELL. IPIC guarantees include principal and benefits. IPIC exposures to USD note interest are USD200 million per year or USD2 billion for 10 years. As a result, IPIC's exposure to the Derivative Notes comprises principal and interest amounts totaling USD5.50 billion compared to 1MDB which provides collateral deposits amounting to USD1.40 billion or 24% of the total exposure of USD5.50 billion.

7.3.2.3. Interguarantor Agreementa. IPIC and 1MDB signed another agreement known as Interguarantor Agreement on May 21, 2012. This agreement was signed by Mr Shahrol Azral on behalf of 1MDB and Khadem Al-Qubaisy on behalf of IPIC, three days after the Option Agreement was signed on 18 May 2012.

b. Under the terms of this agreement, 1MDB must remain fully owned by the MKD. 1MDB should also obtain sufficient support and funding from the MKD to repay to IPIC, if 1MDB fails to pay all costs, expenses and all liabilities in respect of this note. Despite the assurance given by IPIC, 1MDB still bear all risks in the event of failure to pay all costs related to USD note financing.

c. The JAN also can not confirm whether this Interguarantor Agreement is also provided for the issuance of the second USD1.75 billion Notes on 17 October 2012. In addition, the terms of the Interguarantor Agreement are contrary to the approval letter from the Minister of Finance dated 26 March 212 and 3 August 2012 stating that the issuance of both USD Notes is approved without Government guarantees.

d. JAN's review found that the agreement did not state directly the requirement of 1MDB or its subsidiary to issue USD Note to exercise options and credit enhancement to Aabar Ltd. in return for a guarantee provided by IPIC.

7.3.3. Termination of Option Aabar Limited7.3.3.1. The 1MDB Board of Directors through its resolution on 22 May 2014 has approved the termination of option Aabar Investment PJS Group and other minority interest on a basis of arm-length basis . The termination requirement is to dispose of the interests of minority interest ie Aabar Ltd. rights. acquiring 49% equity in 1MESB and 49% equity in 1MELSB proposed for IPO. Options granted to Aabar Ltd. will reduce the value of the IPO and management intends to cancel it.

7.3.3.2. On the same date, the management has signed an option termination agreement known as Relating To Option Agreement (Settlement Agreement) between Aabar

Ltd. (Mohamed Badawy Al-Husseiny) with 1MEHL (Mohd Hazem). Aabar Ltd. agree to sell and discharge its right to interest in 1MEL as an equity holder in 1MESB and 1MELL holding an equity interest in 1MELSB.

7.3.3.3. According to the Settlement Agreement , Aabar Ltd. will resubmit the options granted to him. 1MEHL will pay to Aabar Ltd . assignment price within 30 working days from the IPO approval date or date agreed upon by 1MDB. Assessment of options is based on the following:

1. Enterprise Value Group 1MDB Energy on the date listed on the IPO;

2. Expected grouwth  Group 1MDB Energy over the next 8 years;

3. Group 1MDB Energy's equity expenditure allocated to 1MDB; and

4. Corporate review, control and capital structure and post completion of all the proposals under the approved listing scheme under the 1MDB Energy Group.

7.3.3.4. Assignment price to be paid to Aabar Ltd. via electronic transfer . It must be paid in a manner as follows:

1. Refundable Deposits amounting to USD300 million in one or more tranches and fully paid on 30 September 2014; and

2. The difference between the assignment price and refundable deposit (full payment) should be made 45 days after the IPO Group 1MDB Energy listing.

7.3.3.5. Should the 1MDB Group fail to be listed until 31 December 2015, Aabar Ltd. will refund a refundable deposit of USD300 million within 45 days from 31 December 2015. In addition the two parties also need to reach agreement to restore the rights of Aabar Ltd. in 49% ownership of the 1MDB Energy Group.

7.3.3.6. Board of Directors' Meeting on November 4, 2014, Encik Azmi Tahir, 1MDB Chief Financial Officer has announced the assignment price is between USD868 million and USD1.358 billion while the final assessment of the assignment price will depend on the IPO listing to be implemented. As such, he informed Aabar Ltd. agreed to receive USD993 million as an interim payment of option termination. Based on the Audit Work Papers, assessment of the assignment price is made through Aabar's internal valuation with its investment bank.

7.3.3.7. In addition, 1MDB has also agreed to pay compensation to Aabar to terminate the option at an agreed price pursuant to the terms set by the Settlement Agreement . The final price is based

on the final assessment of all energy assets listed in the IPO. Messrs Deloitte stated that the process of discussion between 1MDB and Aabar regarding post-completion of the IPO has not been finalized and the estimated amount for termination purposes has yet to be determined.

7.3.4. Term Loan USD250 Million7.3.4.1. The 1MDB Board has approved a term loan proposal of up to USD300 million dealt with Deutsche Bank AG, Singapore by resolution dated 22 May 2014 for the purpose of termination of two options to Aabar Ltd. However, after this date no discussions were made at 1MDB Board of Directors' meetings on status and performance of borrowing. On May 26, 2014, 1MDB through its resolution, 1MDB Energy Holdings Ltd. (1MEHL) has entered into a term loan agreementwith Deutsche Bank AG, Singapore amounting to USD250 million. According to the agreement, the purpose of the loan is for corporate use of Kumplan 1MDB as stated in the resolution 1MDB of the Board dated 23 May 2014. However, the JAN can not confirm the purpose of the loan stated in the 1MDB Board Resolution dated 23 May 2014 as the document was not submitted to the JAN party. JAN's revision received no further presentation on the status of loan utilization at Board meetings after the approval was given for the term loan .

7.3.4.2. JAN's revised sum of USD250 million has been paid to Aabar for termination purposes based on disclosure in Note 41 (e) Significant Events Subsequent to the End of the Reporting Period in the Group's 1MDB Financial Statements for the year ended 31 March 2014. This note explains 1MEHL as a borrower has received a Bridging Loan Facility amounting to USD250 million for the purpose of financing "... the acquisition of options granted to Aabar and non-controlling interests which exist in certain subsidiaries in the Group which are involved in the Energy business".

7.3.4.3. During the PAC meeting on December 1, 2015, Mr Arul Kanda has informed that a total of USD250 million is not used for option termination payments to Aabar. However, he did not disclose the actual use of the loan and will review with the management of 1MDB. Therefore, the JAN has taken into account

that the loan is used for termination of options pursuant to the resolution of the Board and the financial statements of the 1MDB Group.

7.3.5. Term Loan USD975 million7.3.5.1. On 21 August 2014 the Board of Directors 1MDB through its resolution and shareholders approved an additional term loan of USD975 million from Deutsche Bank AG, Singapore for the purpose of termination of Aabar's option. Through this resolution, the 1MDB Group must ensure that at least USD1 billion free cash float is kept under its account through the redemption of the SPC fund managed by Brazen Sky from December 10, 2014 and it must remain until the term loan term or term loan is fully amortized. If this condition is not complied with, 1MDB will have to repay the term loan.

7.3.5.2. JAN found that the purpose of a USD975 million term loan agreement signed between 1MEHL and Deutsche Bank AG, Singapore on 1 September 2014 has been specified specifically for the termination of option Aabar Ltd. compared to USD250 million term loan agreement . The term loan term of USD975 million is as follows:

1. Refinancing existing loan Deutsche Bank AG, Singapore amounted to USD250 million;

2. Financing the acquisition and cancellation of the call option granted by 1MELL in favor of Aabar Ltd. in respect of the shares in 1MELSB and the call option granted by 1MEL in favor of Aabar Ltd. in respect of shares in Powerteck in accordance with the terms of the Aabar Termination Agreement;

3. Paying all fees, cost and expenses payable by any member of the Group under the Finance Documents; and

4. Funding the Debt Service Reserve Account (DSRA).

7.3.5.3. According to Clause 2 Part II Conditions Subsequent, "The Aabar Discharge Letter duly executed by the parties to it, to be provided within one business day of Utilization Date". The JAN review also found that Clause 2 requirements were complied with by Aabar Ltd. when discharge letter dated 2 September 2014 from Aabar Ltd. which was signed by Mohamed Badawy Al-Husseiny was submitted to Deutsche Bank AG, Singapore, after the agreement was signed and the drawdown was received on 1 September 2014.

7.3.5.4. Encik Azmi has informed at 1MDB Board meeting on 20 December 2014 that the total SPC fund amounting to USD2.30

billion has been secured for a term loan of USD975 million. Of the total investment of SPC funds, a total of USD1.392 billion has been put in place. The 1MDB Board of Directors is also   pleased to inform that Deutsche Bank AG, Singapore has agreed to allow a sum of USD993 million to be used for the option termination Aabar Ltd. of the proceeds of redemption of SPC funds amounted to USD1.392 billion. This is in accordance with the terms of the Clause 1 Part II Conditions Subsequent on term loan agreementUSD975 million. While the balance of USD399 million has been used for the USD note financing cost. In this regard, the 1MDB Board of Directors is required to use the term loan ofUSD975 million previously taken for the purpose of termination of the option. However, Encik Azmi can not explain at this meeting otherwise inform it at the next meeting. The JAN review finds that this has yet to be informed to the Board of Directors of 1MDB to date. Even during the PAC meeting on December 1, 2015, Mr. Arul Kanda also was unable to disclose the actual use of the term loan USD975 million.

7.3.5.5. The Chairman of the 1MDB Board said it was unfair for Deutsche Bank AG, Singapore to demand a full collateral of SPC funds amounting to USD2.30 billion compared to the value of the loan amounting to only USD975 million. The chairman was also dissatisfied with the 1MDB management never informed the Board of 1MDB on this matter. This matter was raised again at 1MDB Board meeting on 23 February 2015 on the following:

a. not being informed that redemption proceeds have been secured to Deutsche Bank;

b. it is not informed that the redemption of the SPC has been used for termination of the option because assuming the termination of the option will be made through IPO receipts;

c. are not notified of the actual amount paid for the termination of the option Aabar and only to be informed after payment has been made; and

d. there are times when the Board is required to sign a written resolution without detailed explanation or explanation scraps.

According to 1MDB's response received on December 9, 2015, the loan from Deutsche Bank was approved by the Board on August 21, 2014 which included an attachment to the loan terms for the amount of USD1 billion cash float in Brazen Sky in December 2014. The Board recognizes the terms of this loan . At the same time, the IPO process is underway and is expected to be implemented in November 2014 to enable the company to repay Deutsche Bank according to the original plan. However due to the inevitable situation, the IPO could not be implemented in November 2014.

7.3.5.6. The JAN check found according to the terms of the Settlement Agreement , termination of the option payable amounting to USD300 million only on 30 September 2014 and the balance is only payable after 45 days after the IPO is executed. However, 1MDB's management has paid a total of USD993 million more than the fixed amount without referring to and obtaining the approval of the 1MDB Board in advance.

7.3.5.7. Based on a resolution of the 1MDB Board of Directors dated June 2, 2015, USD975 million loan has been amortized from USD1 billion IPIC cash payment  . However, the JAN can not confirm the actual date of repayment and other detailed details because the complete information is not submitted.

7.3.5.8. JAN's analysis of the 1MDB Group has made an option termination payment of RM6.646 billion (USD1.968 billion) by taking two short-term loans from Deutsche Bank AG, Singapore and redemption of SPC investment funds. Details of the source of termination payment options are as follows:

7.3.5.9. The revised JAN on IPIC's financial statements for the year ended 31 March 2014 found that the IPIC Group has entered into the Agreement Relating to Option Agreement whereby the IPIC Group has assigned all of its rights under the Options Agreement to 1MDB and its subsidiaries at a fixed price. As of 31 December 2014, 1MDB is still owing a total of USD481.33 million to the IPIC Group. However, the JAN can not confirm the details of the outstanding amount.

7.3.6. Group 1MDB Transaction With Aabar Investments PJS Limited7.3.6.1. Based on revisions to some documents received from 1MDB such as agreements entered into, letters from Aabar Investments PJS Limited (Aabar Ltd) to 1MDB subsidiary and 1MDB Board meeting minutes, the JAN found that there were two companies with similar names relating to the issuance of two Notes USD. The two companies are Aabar Investments PJS (Aabar) and Aabar Investments PJS Limited (Aabar Ltd.). Aabar is a subsidiary of IPIC established in Abu Dhabi while Aabar Ltd. was established in the British Virgin Island (BVI) with its corporate address also at BVI. The revised JAN on the financial statements of

the IPIC Group for the year ended December 31, 2013 and 2014 found only Aabar listed as a subsidiary of IPIC. 1MDB has submitted a copy of the CertificateIncumbency for Aabar Ltd. but JAN can not confirm with the relevant authorities.

7.3.6.2. The JAN review further found that the 1MDB Group has established a business relationship with Aabar Ltd. starting in 2012 until 2014. JAN checks find all letters or documents Aabar Ltd. was signed by Mohamed Badawy Al-Husseiney as representative of Aabar Ltd. He also holds the post as Chief Executive Officer of Aabar. The JAN review further found that Aabar discharge letter signed by Mohamed Badawy Al-Husseiney had used letter headAabar instead of Aabar Ltd. This can cause confusion to 1MDB's Board of Directors, financial institutions and Auditors when considering the proposed transactions involving Aabar and Aabar Ltd. The following are the documents that have been signed between 1MDB Group and Aabar Ltd .:

8. FINANCIAL PERFORMANCE OF ENERGY SECTOR

8.1. Overall Returns8.1.1. 1MDB through equity holdings in IPP companies is the owner or operator of a power plant which has been granted a concession or license by off receiver , the Authority responsible for electricity needs. Power Purchase Agreement (PPA) that has been signed by licensees and off takerscontains the terms of plant management technically and in detail as well as methods and formulas for payment of capacity and energy sales. Based on the Group's 1MDB financial statements, income derived from investments in the energy sector comprises capacity and energy sales. In addition, there are also income from finance leases, which are the result of capacity charges from power plants under the Powertek Group located in Bangladesh and Egypt. Income from disposal of capacity and energy as well as finance leases for the financial year ended 31 March 2013 and 31 March 2014 are respectively RM2.59 billion and RM3.87 billion respectively as follows:

8.1.2. JAN's analysis found 94.3% of the total 1MDB Group's revenue for 2013 and 2014 amounting to RM6.85 billion was from the energy sector. Earnings amounting to RM6.46 billion for 2013 and 2014 were obtained from domestic and foreign power plants owned by three groups, namely Powertek Group (formerly known as Tanjong Energy Holdings Sdn. Bhd.), Lagenda Mastika Group and Jimah Group . The Powertek Group contributed 78.1% of the

energy sector revenue. Overseas income accounted for 56.8% of Powertek Group's total revenue. Earnings for the financial year 2013 and 2014 both domestic and international for the three IPPs are as follows:

8.2. Analysis Of Income And Profit From The Energy Sector8.2.1. The JAN's analysis of the gross and net income and profits of the Powertek Group, Mastika Lagenda and Jimah for a period of two to three years before and after the acquisition has shown that it has posted a profit after tax every year. This is because the income from the payment of capacity and energy payments is sufficient to cover the operational costs and financing of the construction project of the existing power plant which enables the company to record profits.

8.2.2. For Powertek Group, plant operations provide stable and consistent returns before and after procurement. The rate of return is increasing after post acquisition and has recorded gross profit between 35% to 40% while net profit is 22% to 26%. There is no significant change in the generation of capacity and energy from the power plant. Summary of profit and financing costs of the Powertek Group are as follows:

8.2.3. Legendary Mastika Group (MLSB) has recorded lower revenues and profits after earnings than ever before. Earnings and profits of Kumplan MLSB after turnover have declined dramatically by 86% from RM320.22 million in financial year 2013 (15-month period) to RM43.38 million in financial year 2014. MLSB Group has also completed all loan-related plant construction generate power and no longer cost funding ( project cost financing ). The summary of Kumplan Mastika Lagenda's profitability is as follows:

8.2.4. Income management is due to conditions that have been applied during the limited bid for extension of the concession period offered to five First Generation IPP companies. In March 2012, all of the companies include two now under Kumplan 1MDB, namely Genting Sanyen Power Sdn. Bhd. (GSPSB) and Powertek Sdn. Bhd. have agreed to reduce existing commercial rates , which are the pre-requisite conditions required before entering a limited tender bid. According to the Request For Proposaldocumentissued by the Energy Commission (ST) on 20 April 2012, the company is required to provide rebates not less than RM6 / kW / month for a minimum period of 48 months before the existing PPA review expires. According to the terms, GSPSB in February 2013 has agreed to lower the financial capacityfrom RM42.75 / kW / month to RM12.29 / kW / month effective from March 2013. Genting Sanyen Power Sdn. Bhd. (known as Kuala Langat Power Plant Sdn Bhd after acquisition) a subsidiary under MLSB Group, is one of two First Generation IPP companies selected as preferred bidder by ST in October 2012.  Kuala Langat Power Plant

Sdn. Bhd. (KLPPSB) has been approved for extension of the 10-year concession period which came into force on 23 February 20016 until 22 February 2026. However, Powertek Sdn. Bhd. did not succeed in a limited bid to get an extension of the 10 year concession period.

8.2.5. Income for the Jimah Group is consistent with the gross profit rate of between 30% and 34% for the period of 2012 to 2015. This is because starting 2012 the income accounting method has been made based on the amount billed as compared to the previous using the straight line methodbased on PPA formulation. However, the net profit rate of the Jimah Group was lower than 0.5% to 4% compared to Powertek Group between 22% and 26% and MLSB Group between 8% and 31%. The reason for this small net profit rate is that power plants are still in the early stages of the concession and only five years of operation in the year of acquisition. High project financing costs are a major contributor to the decline in net profit rates. The results of this analysis were also found to be consistent with the information submitted to the JAN, ie there is a difference between the Fourth Generation PPA signed between TNB and Jimah Group with First Generation PPA between TNB and the Powertek Group and MLSB Group where profit rates for IPP companies are decreasing. The sum of the profit and financing cost of the Jimah Group is as follows:

8.3. Cost Analysis of Financing, Loans and Commitments Incurred8.3.1. JAN's analysis found that the 1MDB Group had used 12 types of loans for the acquisition of IPP companies between the financial year 2013 and 2015. Of these 12 loans, five loans were for the acquisition of IPP companies, namely loans for the acquisition of TEHSB and MLSB Shariah shares as well as a loan for acquisition of Jimah Energy Ventures Sdn. Bhd. (JEVSB). 1MDB has awarded a RM625 million advance to 1MDB Energy (Jimah) Sdn. Bhd. to buy JEVSB shares and a loan has been taken to abolish the option to Aabar Ltd. Meanwhile, five other loans have been taken to replace existing loans.

8.3.2. The JAN analysis found that borrowing and financing costs incurred during the financial year 2013 to 2015 in relation to investments in the energy sector amounted to RM3.36 billion. However, this figure does not include financial costs for

four loans taken after the financial year 2014, namely Standby Credit , Exim Bank and two Deutsche Bank loans. These borrowing costs can not be analyzed as 1MDB's financial statements for 2015 are not disclosed. Tanjong's turnover, which was the major turnover, recorded the highest borrowing cost of RM2.38 billion (71%) of the total borrowing cost of RM3.36 billion.

8.3.3. Two USD notes issue amounting to USD1.75 billion each recorded the highest financing cost of RM1.192 billion (57%) over three years. Details of the loan and financing costs incurred during the financial year 2013 to 2015 are as follows:

8.3.4 JAN's analysis of the energy sector's investment-linked commitments found that a sum of RM22.94 billion is required to repay the principal of maturity loans between October 2015 and May 2024. While finance loan costs for 2015 up to the due date payable amounted to RM7.62 billion. Upon the sale of Kumplan Edra, 1MDB still has to provide sufficient cash flow to clarify overall financial commitment of RM30.56 billion. Loan information, principal and borrowing costs are as follows:

8.4. Matching Matching Results With Borrowing Costs8.4.1. As of October 2015, investment in the energy sector has been fully funded from loans and issuance of USD Notes due to the intention to obtain financing from the IPO has not yet been realized. Therefore, in assessing the actual returns obtained from investments in the energy sector, JAN has compared profits from the Powertek, Lagenda and Jimah Group with the borrowing / financing costs incurred for the financial year 2013 to 2015. For that purpose, financing costs have been taken of the subsidiaries' financial statements under the EDRA Group and also subsidiaries under the 1MDB holding company., term loanMarstan, standby credit from Federal Government and term loan from EXIM Bank.

8.4.2. The results of the JAN analysis found that the Powertek Group, Lagenda and Jimah Group posted profit after tax. However,

taking into account the cost of the loan incurred by 1MDB including its SPV, Powertek Group and Lagenda Mastika will suffer losses. For the Jimah Group, as there is no complete information submitted to JAN, the analysis of its financial position can not be fully verified. Details of revenue matching with borrowing costs for energy sector procurement and investment according to Powertek Group, Mastika Lagenda and Jimah Group are as follows:

8.4.3. JAN's review found that IPP's IPPs acquired by the 1MDB Group were good and could generate profits. This is because the cost of financing the construction project of the power plant and

the company's operating costs during the concession period and profit margins have been secured through tariff negotiations with the relevant Authority and fuel producers before the PPA is signed. However, for fiscal year 2013 to 2015, profit after tax amounting to RM2.38 billion could not cover borrowing costs and financing amounting to RM3.36 billion after the acquisition of energy assets.

9. PROJECT DEVELOPMENT OF NEW POWER PLANTThe demand for energy demand in Malaysia is provided annually by the Load Forecast Unit , Planning Division, Tenag Nasional Berhad (TNB) and the Energy Commission (ST). The projected forecasts hit the energy requirements for the next 20 years encompassing sales, demand and energy generation. Planning on this energy requirement will be discussed at the Planning and Implementation Committee on Electricity and Tariff Supply (JPPPET). Upon receipt of the JPPPET certificate, it will be brought by the Minister to a higher meeting, the Economic Counciland hence the Cabinet for consideration of the implementation phase. The government has to decide on the need for the construction of a new power plant, the type of plant to be built either new to gas or coal or to extend the concession period of existing power plants. The consideration factor in the Government's decision is the provision of electricity to the rakat at the most cost-effective price . 1MDB has also sought to get the new power plant construction project as follows:

9.1. Power Plant Project 1,000 - 1,400MW In Prai9.1.1. On January 12, 2012, 1MDB has expressed a desire to enter the tender for the Construction of Combined Cycle Gas Turbine (CCGT) Gas Turbine (CCGT) Plant in Prai. This project is seen to provide good value as the company is also moderate assessing investments in LNG re-gasification terminal construction projects and also the acquisition of Tanjong Group's power plant. The combination of this project will benefit efficiency and cost

savings through resource sharing in terms of management and spare parts.

9.1.2. The management has negotiated with several potential partners and TNB and intends to establish a consortium for this tender. Accordingly, the approval of the 1MDB Board by a written resolution was obtained on 14 February 2012 to hold a Memorandum of Understanding (MOU) with Hyundai Engineering & Construction Co. Ltd. and International Power Plc. where each will act as an EPC contractor and operation and maintenance contractor ( Operation & Maintenance ).

9.1.3. 1MDB has submitted Pre-Qualification on 20th February 2012 and has received a conditional offer to enter the tender bid after the Pre-Qualification evaluation . However, the announcement by the Energy Commission on 9 October 2012 has chosen TNB to implement this project.

9.2. Coal-based 2,000MW Plant Project (Project 3B)9.2.1. Project Background 3B9.2.1.1. 1MDB's Chief Investment Officer, Mr. Vincent Koh has informed the company's plans to bid on the 3,000MW additional 3,000MW capacity under the Energy Commission (ST) at 1MDB Board of Directors on 4 December 2012 during the proposed Jimah Group's acquisition. The capacity of 3.00MW is divided into two projects, namely 1,000MW for brownfield projects and 2,000MW for greenfield projects . The Brownfield project is a powerhouse project on the project site that was once developed while the greenfield project is a project developed on a new site.

9.2.1.2. The 1MDB Board of Directors through a resolution dated 21 January 2013 agreed to sign a Memorandum of Understanding (MoU) with Mitsui & Co. Ltd. (Mitsui) on the proposal for joint submission of a bid for the development of 1,000MW coal-fired power plant to be commissioned in October 2017 and appointment of consultants for the 3A and 3B Project scope. JAN's review found that the MoUwas replaced by the Joint Development Agreement (JVA) signed on October 29, 2013. Under

the JVA, 1MDB and Mitsui are responsible and cooperate with each bid and project development / development and provide all project requirements.

9.2.1.3. 1MDB-Mitsui Consortium has used Jimah East Power Sdn. Bhd. (JEP) (formerly known as Incremental Resources Sdn Bhd) as a project company for implementing the 3B Project. 1MDB and 3B Power (wholly owned by Mitsui) each holds 70% and 30% equity interest in JEP. The equity holding structure for Project 3B is as follows:

9.2.2. Project Bid 3B9.2.2.1. On December 18, 2012,   ST has opened the Request for Qualification (RFQ) bid for Project 3B, a greenfield project with a capacity of 2 X 1,000MW coal. This 3B project is implemented

by Build-Own-Operate (BOO) concession . Among the conditions prescribed for   this project are applicants are consortium companies, possessing land suitable to the energy capacity to be generated and having technical expertise.

9.2.2.2. A total of 30 companies have purchased the RFQ until the flotation closing date on 4 January 2013. From that, seven consortium companies have submitted applications to participate in pre-qualification based on the requirements in RFQ documents. On April 3, 2013, ST has announced five eligible consortium companies to the Request For Proposal (RFP).

9.2.2.3. ST issued the RFP on April 23, 2013 and a total of four consortium companies have attended the RFP briefing on the same date. All of the consortium companies submit proposals before or at the closing date of the bid on 30 October 2013.

9.2.2.4. On February 28, 2014, ST has announced 1MDB-Mitsui consortium as preferred bidder . In the letter ST to the 1MDB-Mitsui consortium dated March 5, 2014, the terms of the preferred bidderappointment are to finalize the Agreement with Off Takers for Bottom Ash Project 3B, Power Purchase Agreement (PPA) with Single Buyer (TNB) and Coal Supply Transportation Agreement (CSTA ) with TNB Fuel & Services Sdn. Bhd. before March 31, 2014. However, this period was extended until May 31, 2014 due to technical problems of   late 500kV line-ups .

9.2.2.5. Subsequently, letter of award issued by ST to the 1MDB-Mitsui consortium on 3 June 2014 and letter of acceptance is returned on 5 June 2014.

9.2.3. Project Implementation 3B9.2.3.1. 1MDB-Mitsui Consortium will develop a 3B Project over two acres of 257 acres of land in Mukim Jimah, Port Dickson, Negeri Sembilan next to Jimah Energy Ventures Sdn. Bhd. (JEV). Most of the 257 acre project site is the reclaimed land. The project is expected to commence operations in November 2018 with a 25-year concession period of up to 2043. The following picture shows the location of the 3B Project:

9.2.3.2. The land used for the development of the 3B Project (area within the red line as shown above) is the land owned by Jalern Jernih Sdn. Bhd. (JJSB), a subsidiary of the 1MDB Group during the acquisition of the Jimah Group on June 21, 2013. On October 28, 20013, JJSB and JEP signed the Term Sheet which contains the salient term of the sale of the 3B Project land at RM44 million. Subsequently, on June 13, 2014, JJSB and JEP entered into a Sale and Purchase Agreement. On September 11, 2014, JEP and JJSB signed an Supplemental Agreement to cancel the lease of 3B project land to JEV. This is because the land has been leased to JEV since the construction of the JEV power plant.

9.2.3.3. On July 22, 2014, JEP and TNB signed PPA for coal-based energy supply for 25 years. This PPA sets JEP (Consortium 1MDB-Mitsui) to get funding for the entire construction cost of the project on October 15, 2014 (financial closing date). On this date, ST informs that the application for JEP dated October 13, 2014 to extend the financial closing date from 15 October 2014 to 14 November 2014 is approved provided that the Commercial Operation Date (COD) is unchanged.

9.2.3.4. Special Meeting 1MDB Energy Group Berhad (now known as Edra Energy Global Berhad (Edra)) on 10 November 2014 is informed that on 23 October 2014, JEP entered into the Sukuk financing agreement and JEP was targeting financial close by 14

November 2014, and extention granted by ST. A similar Special Messaging Minute also states that JEP was not able to draw down from the Sukuk proceeds as planned due to non-meeting of the conditions precendents to the financial close. Mr Adzahar (Edra's Board of Director) commented it was imperative to raise the RM2 billion funds via injection via injection of capital or bridging loan as it was one of the conditions precedent for the drawdown of the Sukuk, which was to be utilized to fund the development of JEP.

9.2.3.5. The PPA dated July 22, 2014 sets the Occurance Financial Closing Date on April 15, 2015 to be complied with by the Consortium. The JAN check found COD was extended until May 15, 2019 (Unit 1) and November 15, 2019 (Unit 2). Financial closing date and COD are as follows:

9.2.3.6. Chairman of 1MDB Board of Directors notified in 1MDB Special Message on 12 January 2015 that the 1MDB Group had serious financial difficulties. Mitsui, the Group's JV partner for Project 3B, had threatened to call an event default due to the Group's inability to meet its equity contribution obligations.

9.2.3.7. On 4 February 2015, Mr Arul Kanda, President of 1MDB Group presents Board Papers and informs the Board of Directors of 1MDB such as the delay of the 3B Project is the problem of 1MDB / Edra Global Energy Berhad to get financing for project construction and supply of sand for marine fishing activities. In addition, the Negeri Sembilan Government has yet to approve sand dredging and jetty land lease and Project site 3B. On the

same date, Chief Executive Officer of Edra Global Energy Berhad (Edra), YBhg. Dato 'Ir. Mohd Nazri presented three options whether to proceed with the project, terminate the project or submit the project to a third party to overcome the financial problems of Project 3B. Next,

9.2.3.8. Clause 21.3 and Appendix N , PPA specifies walk away events occur when one of the conditions of walk away events and dates such as the following table is not followed:

9.2.3.9. On 23 February 2015, Mr Arul Kanda informed the 1MDB Board that 1MDB was required to pay RM126 million to Mitsui on March 12, 2015 which has been in arrears since December 2014 under the terms of the consortium agreement with Mitsui. The meeting was also informed that TNB is conducting due diligence on the proposed acquisition of 70% equity in JEP.

9.2.3.10. On February 25, 2015, 1MDB applied for ST's permission to sell its 70% equity stake in JEP to strategic investors. Furthermore, the Mesyurat Cabinet on 29 May 2015 has agreed TNB to take over 70% of 1MDB's interest in JEP. On June 29, 2015, ST informed 1MDB, Mitsui and TNB of this approval.

9.2.3.11. The Board of Directors of TNB on June 30, 2015 approved the purchase of 70% equity interest in Jimah East Power (JEP) from 1MDB Group. TNB's decision was reached after detailed due diligence , technical, legal and financial reports were made by TNB-appointed consultants.

9.2.3.12. On July 3, 2015, TNB has signed the Share Sale aand Purchase Agreement with 1MDB for the sale of 1MDB equity holding 70% in JEP with a consideration of RM46.98 million. On 9 July 2015, TNB with Mitsui, 3B Power Sdn. Bhd. and JEP has signed the Shareholders Agreement. Subsequently on 26 August 2015, TNB signed Supplemental PPA with the establishment of a financial closing date on 15 October 2015 and COD Unit 1 and 2 on respectively 15 June 2019 and 15 December 2019. The change of consortium management structure after the disposal of JEP to TNB is as follows: :

9.2.3.13. JAN's review found that site work was discontinued in February 2015 and resumed in July 2015 after the takeover by TNB. During the JAN visit on October 12, 2015, 257 acres of 3B Project site has been completed for the first phase and is in the process of soil improvement . However, until the date of the visit, Notice to Proceed (NTP) has not yet been issued by JEP to the EPC contractor. JEP only issues Limited Notice to

Proceed (LNTP). The following figure shows the progress of work on the project site:

9.2.4. Costs And Returns 1MDB Group Investment In Project 3B9.2.4.1. JAN's review found TNB paid a total of RM46.98 million (56.1%) of the total cost incurred by 1MDB of RM83.68 million on July 9, 2015. Accordingly, the 1MDB Group incurred a loss of RM36.70 million from the disposal of 70% equity in JEP. The breakdown of the 3B Project cost and expenditure paid by the 1MDB Group is as follows:

9.2.4.2. On July 8, 2015, JJSB and JEP signed the Second Supplemental Agreement to a Land Sale and Purchase Agreement dated June 13, 2014. Clause 4.1.5. in the Second Supplemental Agreement states "The parties hereby agree that the Property shall be revalued by an independent valuer apppointed by JEV's Financiers prior to the expiry of the Completion Period. In the event that the valuation of the Property is higher than Ringgit Malaysia Forty Four Million (RM44,000,000.00) ("Said Sum"), the purchaser shall pay the difference between the determined revaluation value and the Said Sum ("Adjusted Sum") . All costs and expenses in relation to the revaluation of the Property pursuant to this clause 4.1.5 shall be borne by the Purchaser. "

9.2.4.3. The JAN review finds that TNB has undertaken a revaluation such as the provision of clause 4.1.5.   The assessment was conducted by Messrs Burgess Ramsan appointed by Maybank Trustees on behalf of JEV. The value of the land is RM42 million,

which is lower than the value set. However, TNB agreed to pay at RM44 million.

9.2.4.4. In conclusion, the 3B Project which is expected to provide a return to the 1MDB Group has resulted in a loss of RM36.7 million as the 1MDB Group faces serious financial difficulties and is unable to meet its financial obligations.

9.3. Gas-Based 2,000MW Power Plant Project In Alor Gajah9.3.1. BackgroundOn August 20, 2014, the Cabinet agreed to approve the construction of a 2,000MW integrated Combined Cycle Gas Turbine (CCGT) power plant to meet energy requirements by 2021. Consensus has also been given in direct negotiation with 1MDB. On August 29, 2014, 1MB received the Conditional Letter of Award(CLOA) for the Development of A New Combined Cycle Power Plant from ST. This project will be implemented     through a consortium between 1MDB and TNB. Apart from building power plants, this project also involves the construction of 85km double circuit 500kV transmission linefor connecting the circuit from the project site to the national grid in Bahau, Negeri Sembilan. ST will only issue a Letter of Award (1MDB), all the conditions set forth in the CLOA are complied with.

9.3.2. Project Implementation9.3.2.1. Among the conditions set out for the proposed construction of the CCGT power plant project in Alor Gajah by direct negotiation in CLOA dated 29 August 2014 as follows:

a. Letter of acceptance, feasibility study , commitments bonds amounting to RM10 million and head of agreement should be submitted to ST within two months from the date of the CLOA letter.

b. The feasibility report should include project-related information such as the consortium structure to be created, the role of each company in the consortium, project site, land area, environmental

factors, assessment of transmission systems , verification of adequate gas supply and infrastructure related to the gas distribution to the project site.

c. Appointment of Engineering Procurement Construction (EPC) contractor should be made on a tender basis to ensure pricing among experienced EPC contractors and responsible turbine gas producers is more competitive.

d. Upon the appointment of an EPC contractor, the company should consult for the provision of technical specifications in more detail by taking into account the project financing method for tariff determination.

e. Given the project involving the construction of the transmission line, the company is required to negotiate with TNB Transmission Division, Petronas Gas Bhd. and Melaka State Government to discuss technical specifications and requirements for interconnection facilities and gas delivery systems .

f. After consultation with the EPC contractor and other related parties, 1MDB has to submit complete technical and commercial proposals including tariff rate tariffs to ST within four months from the date of the receipt of the signed agreement. The proposal is for a period of 21 years and meets scheduled commercial operation date (SCOD) on 1 January 2021.

g. The tariff setting for this project does not exceed the tariff for the Prai Project, the most recent matching project is finalized through open tender by ST with similar project size and components and IRR for project at 5.43% while IRR for company equity at 8.60%.

h. If successful and offer letter is issued, the company is required to submit a replacement bond amounting to RM30 million and seek for funding not later than six months after the issuance of the offer letter.

9.3.2.2. JAN's review found that 1MDB has submitted a letter of application to change conditions against CLOA on 22 September 2014. ST has reviewed the application and submitted a review to

the Ministry of Energy, Green Technology and Water (KeTTHA). Upon approval at KeTTHA level on 7th October 2014, ST has informed 1MDB of the agreed terms of change as follows:

9.3.2.3. On March 9, 2015, Edra Global Energy Sdn. Bhd., A subsidiary of 1MDB has submitted a wish for the Government to develop this project on its own ( stand alone ) without TNB's involvement. This issue was discussed at a meeting between Edra and TNB on March 18, 215 where TNB had anticipated that the date of the Target Transmission Line Transmission could only be fully completed in 2023, exceeding 2 years from 2021, the original year of supposedly operating power plant. On August 7, 2015, TNB

has decided not to continue the Line Transmission work . On September 18, 2015, ST has informed KeTTHA of TNB's withdrawal and the work will be executed by Edra with a bank guarantee.

9.3.2.4. On March 27, 2015, Edra has submitted a letter of application for extension of time to submit documents as required in CLOA for another 3 months. This is because Edra needs time to discuss and finalize the Head of Agreement with TNB. Namum ST on behalf of the Government only extended one month extension until April 29, 2015. Again on 10 July 2015, Edra submitted an extension of the term extension to KeTTHA on the grounds of Edra's internal restructuring in the listing of Bursa Malaysia.

9.3.2.5. ST has recommended the cancellation of the 1MDB direct contract talks to KeTTHA's Minister on June 26, 2015. This decision was made due to delay and failure to form a consortium with TNB, submit a head of agreement and conditional offer letter from financial institutions for the purpose of implementing a stand-alone project without cooperation with TNB. However, on 13 August 2015 the KeTTHA has approved the extension of application requested. The extension of the last time is given for another eight months until April 5, 2016. In this regard, ST has issued a final approval letter of extension of the time period to submit technical and commercial proposals for the power plant construction project. It includesBank Support Letter to ensure that the power plant will operate in 2021. Meanwhile, the acquisition of land and 85km transmission line from Alor Gajah Main Entrance Substation (PMU) to PMU Bahau, Technical and Commercial Proposal together with the Tranmission Works Agreement (TWA) -First on November 30, 2015.

9.3.2.6. JAN's review found that 1MDB not only made an extension of 2 times for submission of document feasibility report, guarantee bond, acceptance letter and head of agreement but 1MDB also did not comply with the new date set. The determination and amendment of the date of submission of the required documents as well as achievements by 1MDB are as follows and charts:

TABLE 5.45

DETERMINATION AND AMENDMENT OF DATE AND ACHIEVEMENTS

Terms on CLOA RECORDING NEW

DATE

STATE APPROV

AL ST

THE DATE OF

THE PROVISION TO

BE-PROVIDED BY 1MDB

ITEM ORIGINAL DATE

Submit feasibility study

28.10.2014

29.03.2015

11.11.2014

27.03.2015

Acceptance letter

28.10.2014

29.03.2015

11.11.2014

26.11.2014

Bond commitments amounted to RM10 million

28.10.2014

29.03.2015

11.11.2014

27.03.2015

TNB - Signed Acceptance

28.02.2015 *

29.03.2015

11.11.2014

None

Signed Head of Agreement

28.10.2014

29.03.2015

15.05.2015 (2nd)

05.04.2016 (3rd)

11.11.2014

10.04.2015

13.08.2015

TM

Technical Proposal and Commercial Project and Levelised Tariff

25.03.2015 *

05.04.2016

13.08.2015

TM

Bank Support Letter

15.05.2015

15.05.2015

05.04.201

13.08.2015

TM

6 (2nd)

Source: Documents from Edra

Note: (*) Four Months AfterTM Resolution Letter - No information

9.3.2.7. Edra should also submit a timeline for the implementation of the 2,000MW CCGT Power Plant Project in Alor Gajah, Melaka to ST. During a JAN visit to the project site and Powertek and Panglima power plant in Telok Gong on 28 September 2015, JAN informed that Edra is in the process of implementing Competitive Tender for EPC. The Edra party has also presented the timeline of project implementation that has been prepared as follows:

9.3.2.8. JAN's review found that the delay in fulfilling the conditions stipulated by ST would result in the implementation of the project offset from the period fixed on January 1, 2021. In fact, delays from the company would affect the energy source requirements in 2021 as projected by ST covers the projection of sales, and power generation. Based on the 1MDB Group financial condition, this project will only be successful if it receives capital injection from either a partner or interested investor.

9.4. Land Acquisition in Telok Gong, Alor Gajah, Melaka

9.4.1. During a briefing on the investment of Tanjong Energy Holding Sdn Bhd (TEHSB), 1MDB has informed TEHSB is in the midst of negotiating with the Malacca State Development Corporation (PKNM) to buy land next to the existing power plant site at Telok Gong 1 and Telok Gong 2 for the purpose of increasing production expansion project.

9.4.2. The JAN also found that the terms of the loan agreement for TEHSB's acquisition of shares with Malayan Banking Bhd (Maybank) also involved the proposed expansion project . In an agreement signed on May 17, 2012 Maybank has required 1MDB to submit an undertaking that it will seek to extend the concession period for the existing power plant, Powertek Bhd., Pahlawan Power Sdn. Bhd. and Panglima Power Sdn. Bhd. 1MDB also needs to get the award of the proposed new concession agreement for the 2,000MW power plant as value enhancement factors towards the proposed public listing (IPO).

9.4.3. Under the special terms set by Maybank, 1MDB failed to obtain the award of a new concession project for a 2,000MW power plant within 18 months from the date of issue of the loan which ends in November 2013.   The management should make careful planning before agreeing to the terms of the loan agreement on unrealistic terms as the process of awarding new projects by the Government can not be made immediately, especially the procurement process involving tenders.

9.4.4. In this regard, 1MDB has taken further action on the proposed expansion project by continuing land acquisition negotiations after TEHSB's share ownership. At the 1MDB Board meeting on 15 October 2012, the approval was granted for land acquisition at Telok Gong. Furthermore, the approval of Special Rights Redeemable Preference Shareholder (MKD) through Ordinary Resolution has also been obtained on 16 October 2012.

9.4.5. The sale and purchase agreement between 1MDB and PKNM was signed on 17 October 2012 for the acquisition of two lots in Mukim Sungai Baru Ilir, Telok Gong,   Alor Gajah, Melaka at a total price of RM34.85 million. Land location is adjacent to Powertek and Panglima power plants as shown below:

9.4.6. JAN's review found that 1MDB had paid a non-refundable commitment fee of RM0.20 million. 1MDB also paid 10% of the total cost of RM3.49 million on 17 October 2012 while payment of 90% or RM31.36 million was paid on 18 November 2014. In addition, 1MDB also paid a land premium of RM4.45 million to the Office District and Land of Alor Gajah on 9th May 2013 as agreed in clause 8 of the Sale and Purchase Agreement.

9.5 50MW Solar Powered Power Plant Project In Kedah9.5.1. Background of the Solar Project9.5.1.1. The National Renewable Energy Policy & Action Plan approved by the Electricity and Tariff Planning and Implementation Planning and Procurement Committee (JPPPET) on November 17, 2008, among them aimed at 2020, by 10% of the nation's power generation capacity derived from renewable energy .

9.5.1.2. Fitchner's pro-feasibility study shows that Malaysia has a wide area and is well-suited for solar power generation projects because of good irradiation. However, a 1,000MW solar power plant with a capacity of 1,000MW is not suitable to be developed but more suitable to be implemented in stages with small capacity. Electric energy generated by solar power generators can not be stored and studies on the impact of the increase in energy on load flow on the national grid should be carried out.

9.5.2. Implementation of the Solar Project9.5.2.1. At 1MDB Board Meeting on August 19, 2013, 1MDB's management presented a Proposed Solar Photovoltaic Power Plant Development Proposal with 1,000MW aggregate capacity at various sites in Peninsular Malaysia implemented in collaboration with 1MDB and DuSable Capital Management, LLC (DuSable) incorporated in Washington DC, USA. The cost of the project includes the cost of land and transmission facilities estimated at USD2.7 billion and the pay back period can only be determined after financial modeling is completed.

9.5.2.2. 1MDB's Board of Directors on that date approved the appointment of consultants and approvals related fees and empowered 1MDB's management to start negotiations on this project. 1MDB Board approval is required before making any commitment and management 1MDB must ensure that the agreement document with DuSable has an exit clause if the project is unfeasible and does not proceed with the project.

9.5.2.3. On 11 November 2013, 1MDB's Management informed at 1MDB Board Meeting that the Proposed Solar Project was presented to the Economic Council and it was studying potential sites to estimate the cost of transmission.

9.5.2.4. On March 18, 2014, KeTTHA informed 1MDB that the Government has agreed in principle to approve the Proposed 500MW Solar Photovoltaic Power Generation Project by 1MDB. Approval of this principle amongst them is subject to detailed negotiation of technical and commercial parameters, delivery contribution to the nearest grid system, security and grid system expectations, submitting project finance models to KeTTHA and ST and finalizing PPA negotiations with TNB in accordance with the terms of Renewable Energy Power The existing Solar Photovoltaic Purchase Agreement .

9.5.2.5. The Government has also agreed that a 50MW Solar Photovoltaic Power Generator Power Project was developed first by 1MDB in Kedah. Among the prescribed terms are maximum energy not exceeding 76,650 MWh per annum and COD on April 1, 2016 or 2 years from PPA's effective date.

9.5.2.6. Subsequently on 26 March 2014, 1MDB Board of Directors took note and approved amongst others:

a. DuSable has experience in solar and other energy related PPA negotiations and can advise on flexible and financeable PPA negotiations .

b. 1MDB Satellite Services Sdn Bhd, a wholly-owned subsidiary of 1MDB will sign Master Joint Venture Agreement with DuSable for the implementation of the 500MW solar project. 1MDB and DuSable each hold 51% and 49% interest in the unincorporated JV .

c. According to Master JVA , the implementation of each solar project will be set by a separate Joint Venture Agreement (JVA).

d. The solar pilot project ROI is 8.3% with a repayment term of 11 years.

e. Tripartite Project Company JVA between 1MDB Satellite Services Sdn Bhd, DuSable and TNB to use 1MDB Solar Snd Bhd as Project Company.

f. PPA for solar projects is signed between 1MDB Solar Sdn Bhd and TNB.

g. 1MDB Management is authorized to consult and execute Master JVA, JVA Tripartite Project Company,PPA, consultant appointment and all related documents for that purpose. Management is also authorized to reorganize or set up special purpose vehicles (SPVs) for solar projects. However, the 1MDB management needs to obtain the approval of the 1MDB Board after completing negotiations with third parties potentially supplying solar PV module , EPC contractor and solar project site.

9.5.2.7. However, JAN's review found that the 1MDB Board of Directors in the March 26, 2014 meeting did not discuss any technology restrictions issue from other countries, the long-term costs and benefits that 1MDB will get with the unincorporated Master JVA with DuSable. In addition, 1MDB also does not compare the costs and benefits of DuSable collaboration with other companies from the solar industry or the costs and benefits

of 1MDB acquired by simply creating a JV for each solar project without the JVA Master.

9.5.2.8. On April 11, 2014, 1MDB through its subsidiary, 1MDB Synergy Sdn Bhd (formerly known as 1MDB Satellite Services) has signed the JVA Master for a solar joint venture project with Yurus Private Equity Fund I, LP (Yurus) incorporated in Washington DC, America. However, JAN can not confirm whether there is an exit clause in the JVA Master if the project is unfeasible and is not continued as the JVA Master is not submitted for JAN revision. JAN's review of the consideration paper in 1MDB Board resolution on June 2, 2015 found Master JVAit was signed with Yurus instead of DuSable as commissioned by the Board of Directors of 1MDB on March 26, 2014. Found Yurus was a general partner to DuSable

9.5.2.9. The day after signing Master JVA , on April 12, 2014, 1MDB Solar Sdn Bhd signed PPA with TNB PPA concession period is 25 years from the date of Commercial Operation Date (COD).

9.5.2.10. Two months after the signing of PPA, on 25 June 2014, the 1MDB Board Resolution has approved the shareholders structure of 1MDB Solar Sdn Bhd as follows:

9.5.2.11. 1MDB's Board Resolution dated 25 June 2014 also informed that the JVA Tripartite between 1MDB Synergy Sdn Bhd, Yurus Private Equity Fund I, LP (Yurus) and TNB have not been finalized and the consultant fees that have been / will be expended will be borne by all parties under the holding ratio shares in 1MDB Solar Sdn Bhd.

9.5.2.12. On August 18, 2014, four months after the Master JAV was signed, 1MDB Board Meeting acknowledged that Chairman 1MDB Advisory Board had no restrictions on the contents of the memo titled Final Decisions on 1MDB Energy Group IPO submitted by a 1MDB Board. The memo stated that " All of DuSable's direct / indirect economic interest and warrants / options (28% of 50MW Solar and 50% of 250MW Solar) for USD95 million based on a revised tariff rate of 47 cents, and based on Deutche Bank valuation [to sign by 15 September 2014 and complete prior to IPO] . "

9.5.2.13. In October 2014, two months after 1MDB Board Meetings on August 18, 2014, 1MDB's management had executed all Yurus interest with a consideration of USD95 million through

a Binding Term Sheet and made non-refundable deposit payment of USD19 million under the Binding Term Sheet .

9.5.2.14. On April 15, 2015, Yurus and DuSable lawyers issued a notice of claim to 1MDB for breach of the terms in the Binding Term Sheet, which does not specify the balance of the revenue consideration before or on January 15, 2015.

9.5.2.15. On 1 June 2015, a Sale and Purchase Agreement was signed between 1MDB subsidiary, Infrastructure Capital Limited (buyer) and Yurus (seller) at an aggregate price of USD69 million as all parties agreed to a reduction of USD26 million from the original USD.95 million consideration. Additionally, a total of USD19 million non-refundable deposits paid to Yurus under the Binding Term Sheet are also taken into consideration as an initial payment for the agreement and the final payment amounting to USD50 million is repayable by June 9, 2015.

9.5.2.16. On 2 June 2015, the 1MDB Board Resolution approved the management of 1MDB acquiring a Yurus interest of 49% under the Master JVA signed on April 11, 2014 with a consideration of USD69 million and the final payment amounted to USD50 million to Yurus by June 9, 2015. Between rationality to acquire 49% interest from Yurus under the JVA Master as follows:

1. JVA masters set expertise and technology for solar project development can only be obtained from the United States. The takeover of the 49% stake of Yurus allows 1MDB to undertake large-scale solar projects and acquire a more competitive EPCC without limiting US technology alone.

2. The value of solar project development rights is estimated at RM319 million. Based on Deutsche Bank's assessment, full ownership of 450MW and 80% 50MW is worth RM665 million. Therefore, the acquisition of the Yurus interest is more beneficial to 1MDB.

9.5.2.17. On 2 June 2015, the 1MDB Board Resolution also approved a total of USD50 million from USD1 billion received from IPIC as settlement arrangements between 1MDB / Minister of Finance Incorporated (MKD) and IPIC / Aabar Group, used to settle the balance of USD50 million consideration to Yurus on June 5, 2015.

9.5.2.18. JAN's analysis found that 1MDB's decision not to continue the JVA Master with Yurus / DuSable four months after the signing of the JVA Master showed less detailed planning and resulted in wastage to 1MDB for having to pay USD69 million

(RM251.66 million) to recover 49% of the Yurus and DuSable interests under the JVA Master .

9.5.3. Land Acquisition In Kuala Ketil, Kedah9.5.3.1. On 24 March 2015, 1MDB Board of Directors's Meeting approved a 260 acre land acquisition in Kuala Ketil, Kedah for the development of 50MW solar power pilot projects. The acquisition of this land was made by Edra Solar Sdn Bhd (formerly known as 1MDB Solar Sdn Bhd) from Darulaman Realty Sdn Bhd with a consideration of RM33.4 million.

9.5.3.2. On 27 August 2015, BDB Land Sdn Bhd (formerly known as Darulaman Realty Sdn Bhd) and Edra Solar Sdn Bhd entered into a 260 acre Sale and Purchase Agreement in Bandar Kuala Ketil, Baling District, Kedah for a consideration of RM65 million RM250,000 per acre. The total amount of the reply is subject to adjustments to be made against the actual land area measurements. However, the difference in the acquisition price is not presented for the approval of the 1MDB Board. As of September 6, 2015, the 1MDB Group has paid a total of RM6.50 million comprising RM1.95 million retention sum and RM4.55 million deposit for the acquisition of the land.

10. PUBLIC OFFERING OFFICE (IPO)

10.1. Public Listing Planning10.1.1. The initial proposal of 1MDB listing in initial public offering (IPO) was presented by Goldman Sachs during the Special Board Meeting on 8 February 2012. The proposed IPO is one of the post-acquisition strategic options after the acquisition of Tanjong Energy Holdings Sdn Bhd (TEHSB) company. 1MDB's Chief Executive Officer, Mr. Shahrol Azral has informed at 1MDB Board Meeting on 2 March 2012, that part of 1MDB's financing costs can be settled with IPO success later.

10.1.2. Goldman Sachs at 1MDB Board of Directors Meeting on March 19, 2012 has presented proposals on TEHSB's acquisition financing method. According to Goldman Sachs, TEHSB's share turnover of RM8.50 billion will be funded through Syndicated

Bridging Loan from Malayan Bank Bhd (Maybank) and RHB Bank Bhd (RHB) amounting to RM6.17 billion while the balance amounting to RM2.50 billion will be borne by the issuance of Notes USD amounted to USD1.75 billion. Principal of Syndicated Bridging Loanwill be repaid through the issuance of a new long-term bond or sukuk and the issuance of IPO shares in 1MDB Energy Sdn Bhd (1MESB) [now known as PIHSB]. However, the result of financing discussions with Maybank requires an undertaking provided from 1MESB if the IPO is not implemented or if the IPO sales proceeds are less than RM2 billion.

10.1.3. In this regard, Goldman Sachs has held a preliminary consultation with the Finance Ministry to provide the undertaking. However, the Ministry of Finance has informed that the issuance of an undertaking for the loan is contrary to Government policy. Therefore, Goldman Sachs has negotiated with. (UTSB) which further agrees to provide the required undertakings.

10.1.4. Based on an equity commitment agreement UTSB will purchase 1MESB shares within 24 months from the date of agreement at a lower price between IPO price or share price based on equity value after the acquisition of the company amounting to RM2.50 billion. The terms and conditions of this equity commitment are stated in the three types of agreements signed, namely the Facility Agreement, the Subscription Agreement and the Warrants Agreement . This equity commitment is also known as the Tanjong Commitment. As a return to the undertaking, 1MESB has issued warrants 214.28 million which will enable TEHSB to own a 30% equity share of RM750 million from its equity value after the company's acquisition of RM2.50 billion.

10.1.5. Based on the Facility Agreement dated May 17, 2012 signed by Maybank, RHB and 1MESB, a loan amounting to RM6.17 billion has a maturity period of 18 months after the date of loan disbursement which will expire on 23 November 2013. However, under the terms of the loan, should be done if the IPO public listing plan is implemented earlier than maturity date.

10.1.6. In addition to UTSB's pledge, Goldman Sachs at a meeting on March 19, 2012 also proposed 1MESB to issue an option to

Aabar Investments PJS Ltd (Aabar Ltd), in return for granting guarantee for USD1.75 billion Notes. This option will enable the company to buy the company's shares at a price of RM1.225 billion which is calculated based on 49% of the equity value after the acquisition of the company amounting to RM2.50 billion. The option period is for 10 years. Tanjong's share acquisition financing involving Tanjong Commitments and Option Aabar is summarized as follows:

10.1.7. Goldman Sachs was once again invited to present the proposed 1MDB Group's capital structure and financing during the 1MDB Board Special Meeting on June 21, 2012. Goldman Sachs has been appointed as a consultant to propose a financing plan for the entire 1MDB Group in view of its 1MDB capital structure. Goldman Sachs has suggested that the energy sector be expanded through the acquisition of companies with power stations / plants before starting the IPO stock listing action. This action will enhance the value of the company prior to the planned IPO listing in 2013.

10.1.8. On October 15, 2012, during a 1MDB Board meeting, Mr Vincent Koh announced that the IPO is expected in the first quarter of 2013 after the acquisition of Powertek and Kuala Langat power stations. However, at the 1MDB Board meeting on January 22, 2013, Mr Shahrol Azral announced that the IPO was postponed until the end of 2013, after successfully acquiring and expanding the acquisition of another greenfield energy projectin collaboration with Mitsui & Co Ltd (Project 3B). In addition, the postponement of the IPO implementation was also made to avoid listing at the same time with the Malakoff Group. Next at 1MDB Board of Directors on July 15, 2013, Mr Hazem informed that it is imperative to acquire a 3B Project to be implemented in collaboration with Mitsui & Co Ltd to meet the listing criteria of IPO. Since bidding results will only be known in January 2014, the IPO listing plan will be suspended again.

10.1.9. Based on Minutes of 1MDB Board Meeting dated 19 August 2013, 1MDB Chairman has instructed management to work together to rationalize and rationalize the operations of the three IPP companies in preparation for the planned listing of 1MDB's planned energy division in 2014. Among the steps taken on this directive are by creating 1MDB Energy Group Bhd which is responsible for coordinating planned IPO listing activities. The company was later renamed Edra Global Energy Bhd (Edra) after the approval of the Companies Commission of Malaysia (SSM) on 1 December 2014, the energy sector holding company, acting as the key management of all energy related companies under the 1MDB group.

10.1.10. Mr Hazem has informed at the Board Meeting on 26 March 2014, based on the preliminary assessment of the investment bank, 1MDB will earn between RM15 billion and RM25 billion if the IPO is implemented which is significantly higher than the cost of the three energy assets of between RM11 billion RM12 billion. According to him, various loans have been obtained to finance the acquisition of energy assets. Therefore, the outcome of IPO implementation will be used to pay for the majority of the loan. Details of management's decision to postpone the IPO listing plan are as follows:

10.1.11. JAN's review found that the management had delayed the IPO listing plan while the maturity period of the Syndicated Bridging Loan loan from Maybank and RHB ended on November 23, 2014. The initial recommendation by Goldman Sachs to settle the principal of the loan through an IPO as agreed by the Board can not be complied with. Effect of this, 1MDB has failed to settle the loan within the stipulated period. Therefore, management's intention to use capital raising from the IPO to settle the current loan has failed.

10.2. Consultant Appointment10.2.1. Based on Minutes of 1MDB Board Meetings dated 19 August 2013, the Board has downgraded the Managing Director / Chief Executive to issue a Request for Proposal (RFP) , to discuss and negotiate the appointment of a consultant to conduct an IPO. The Chairman of the Board reminds the management of 1MDB to manage the appointment in a transparent manner and to avoid unreasonable fees.

10.2.2. A detailed discussion on the appointment of consultants was held at the Special Board Meeting on 14 April 2014 after the

proposal was obtained from the number of investment banks. Appointment of consultants for IPO listing purposes was made through the result of discussion of how many Board meetings.

10.2.3. However, in the 1MDB Board of Directors on February 23, 2015, the Chairman has informed that he has received a letter from AmInvestment Bank Berhad dated 12 February 2015 regarding the bank's withdrawal as Joint Principal Advisor, Lead Manager, Book Runner and Underwriter . Based on the Minutes of the Edra Global Energy Berhad Board of Directors' Special Meeting (Edra) dated 24 March 2015, the Board has been informed that Maybank will act as the sole Principal Advisor for the Proposed IPO Listing Proposal process. In addition, in the 1MDB Board of Messrship on April 23, 2015, approval has been granted to appoint Credit Suisse as Joint Global Coordinators .

10.3. IPO Listing Requirements to the Securities Commission10.3.1. 1MDB Board of Directors' meeting on 20 October 2014 has approved the submission of proposals pertaining to IPO disbursement proposals to the Securities Commission (SC), Ministry of International Trade and Industry (MITI) and Bursa Malaysia on 14 November 2014. The submission of this application will be made by the appointed Joint Principal Advisor . In the same manner, the Board has been briefed on the IPO Bid Structure. However, during the Special Board Meeting of 1MDB on 13 November 2014, which is the day before the submission of IPO application, the Board has approved the new IPO Bid Structure. The difference between the IPO offer structure on October 20, 2014 as opposed to November 13, 2014 is as follows:

10.3.2. The Securities Commission (SC) has reviewed the Prospectus and Group Financial Statements submitted during the IPO application on 14 November 2014.   Among the matters raised by the SC from November 19, 2014 and December 1, 2014 are regarding the payment status of RM2 billion loan to Maybank matured on November 30, 2014 and the construction and payment commitment of Project 3B. The management of 1MDB has responded to the SC in December 2014.

10.3.3. However, through the Resolution of the Board dated 27 February 2015, the Board has approved the Joint Advisor to withdraw an IPO listing application filed with the SC and other relevant authorities on 14 November 2014 in view of significant developments within 1MDB and Edra. Among the significant developments are as follows:

10.3.3.1. Updated Maybank Transche 2 Loan Repayment of RM2 Billiona. Through Subscription Agreement dated 7 August 2014 between Powertek Investment Holding Sdn. Bhd. (PIHSB) [formerly known as 1MESB] and Tanjong Public Limited Company (Tanjong), Tanjong are in demand to extend its commitment to equity equity

in PIHSB up to RM2 billion from 22 May 2014 to 30 November 2014. However, until 30 November 2014 The IPO was not realized where a loan of RM2 billion under Tranche 2 had also matured on the same date.

b. Bank Negara Malaysia (BNM) has instructed Maybank to diminish the full amount of the loan amount of RM2 blillion if PIHSB does not repay at the designated time. Mr. Hazem explains that if this happens, it will be a default cross over all   other Kumplit loans and subsequently give negative messages to the public. Based on Board Resolution dated 10 February 2015, the Board of Directors of 1MDB has agreed to receive financing from Tanjong through its subsidiary Marstan Investment NV (Marstan) to settle the Maybank loan.

10.3.3.2. Dropped Project 3B From Application Dated 14 November 2014a. The IPO Listing Application dated 14 November 2014 also involves Project 3B assets after 1MDB-Mitsui consortium was announced to win bids on February 28, 2014. However, the 1MDB Board acknowledged that the 1MDB Group had serious financial difficulties in financing the 3B Project. This happened because 1MDB subsidiary, Jimah East Power, was unable to issue such sukuk as planned due to the failure to settle the outstanding payment of RM455 million to the EPC contractor for Project 3B. Chairman of the 1MDB Board of Directors notified in Special Messrs on 12 January 2015 that Mitsui, who is a 3B Project partner will act to call an event of defaultbecause of 1MDB's inability to fulfill its equity contribution obligations. As of February 23, 2015, 1MDB is required to pay RM126 million to Mitsui which has been in arrears since December 2014.

b. Mr Arul Kanda has informed on the Special Meeting on 4 February 2015 that, among other reasons, the delay in Project 3B is the problem of 1MDB / Edra   Global Energy Berhad to obtain financing for project construction and supply of sand for marine fishing activities. In addition, Kerajaa Negeri Sembilan has yet to approve sand dredging and jetty land lease and Project site 3B. There are 3 options to overcome the financial problem of Project 3B, ie whether to continue, terminate or submit Project 3B

to a third party. Subsequently, the Board of Directors of 1MDB has approved the decision of the Board of Edra to negotiate with TNB or a third party to take over the Project 3B.

c. On February 25, 2015, 1MDB applied ST's rights to sell its 70% equity stake in Jimah East Power to strategic investors. Next Cabinet Meeting on May 29, 2015 has agreed TNB take over 70% of 1MDB interest in Jimah East Power. On June 29, 2015, ST informed the approval of 1MDB, Mitsui and TNB.

10.4. Re-application to the Securities Commission10.4.1. The 1MDB Board of Directors' meeting on March 24, 2015 approved Maybank Investment Bank Berhad to submit re-submissions on the proposed listing proposals to the SC, Ministry of International Trade and Industry (MITI) and Bursa Malaysia on 27 March 2015. At the same meeting, the Board of Directors approve the IPO Bid Structure as in the following table:

10.4.2. However, the JAN can not confirm whether the resubmission of IPO listings is made or not. JAN interviews with Securities Commission officials found that until August 24, 2015, no resubmission of applications was made by 1MDB. As of October 31, 2015, the IPO listing has not been achieved as there is no cash inflow source to the 1MDB Group. If the IPO can be implemented, 1MDB will only be able to settle part of its debt.

According to 1MDB's feedback, the success of the IPO listing also depends on external factors beyond the control of the company. 1MDB has started planning and started preparatory work for the IPO in 2013, which is before a lot of negative statements and wild allegations by the media and various political parties especially in 2014-2015. Among them, on March 15, 2015, Rafizi Ramli of PKR party, has threatened that its party will apply for a court injunction to prevent Government agencies such as EPF from participating in the 1MDB IPO. In addition, various non-based

claims have led to negative investor sentiment. Non-based media reports as well as negative investor sentiments have affected the IPO marketability.

10.4.3. Overall, significant events that have taken place during the IPO listing proposal are summarized as follows:

11. SALES SALES GLOBAL ENERGY BERHAD11.1. On November 23, 2015, 1MDB Group announced a successful bid was China General Nuclear Power Corporation (CGN Group) to acquire 100% stake in the Edra Group. The agreed purchase price amounted to RM9.83 billion and took over cash and all related debt amounting to RM7.43 billion based on valuation date on March 31, 2015. This transaction is expected to be completed by February 2016 after fulfilling certain conditions.

11.2. According to a 1MDB media statement dated 29 November 2015, 1MDB received a cash dividend of RM2 billion from its investment in the energy sector. With regard to these receipts, 1MDB is of the view that the company has recovered its investment cost from the sale of the Edra Group. However, the review of the JAN on the 1MDB Group's financial statements for the years ended 31 March 2013 and 31 March 2014 found only the Mastika Lagenda Sdn. Bhd. (MLSB) has announced a dividend of

RM165 million on August 21, 2013. In addition, the terms of the Syndicated Bridging LoanRM6.17 billion and RM5.50 billion also did not allow PIHSB to declare a dividend of up to RM2 billion in loans to be amortized. Therefore, JAN can not confirm the receipt of the RM2 billion dividend specified as the documents on the dividend and the financial statements of 1MDB Group for the year ended March 31, 2015 were not submitted for auditing.

11.3. JAN analysis found that from 2012 to October 31, 2015, the 1MDB Group has spent more than RM18.25 billion on the acquisition of plant, land and borrowing / financing costs as well as other energy-related investment costs. However, an estimate of RM18.25 billion does not include the development cost of the solar project and Alor Gajah project paid by the 1MDB Group and Project 3B that was disposed of in July 2015. Hence, the calculation of the net return on the sale of the Edra Group should take into account the Group's selling price Edra amounted to RM9.83 billion with the total investment cost of 1MDB Group's investment in the energy sector. Details of the cost involved are as follows:

11.4. According to the table above, the proceeds of financing for

overseas borrowings include borrowing costs that are incurred for a security deposit and transaction costs of USD note notes.

11.5. The issuance of two notes of USD1.75 billion amounting to RM10.92 billion and a loan amounting to RM7.47 billion and not disposed of together with Edra Group's assets as the bonds are borne by 1MDB. With the disposal of assets under the Edra Group, the 1MDB Group will lose 94.3% of its revenue source which is a major contributor to 1MDB Group's earnings. The loss of income will affect the ability of the 1MDB Group to cover the loan commitment and the USD notes issue under the energy sector.

11.6. In addition, the status of 1MDB Group operating as a going concern entity is doubtful. JAN also can not confirm whether the 1MDB Group actually earns or loses revenue from the disposal of the energy sector later because the disposal process has not been resolved and no documents are submitted for review.

-TAMAT-

CHAPTER 6 1MDB GROUP FINANCIAL CONFERENCE

30 July 2016

 

 

1. LOAN AND FINANCING GROUP 1MALAYSIA DEVELOPMENT BERHAD

1.1. 1MDB Group Loan And Funding Position As at 31 March 20141.1.1. 1MDB was established to drive Malaysia's long-term sustainable economic development and growth and received RM1 million equity injection from the Government in 2009. To finance investment activity, property assets and energy sector both domestically and abroad, 1MDB generated funds through lending sources, sukuk and notes USD in and outside the country. As of March 31, 2014, the entire Group 1MDB loan amounted to RM41.86 billion as follows:

1.1.2. 1MDB Group's internal and external borrowing does not include inherited loans until the financial year ending March 31, 2014 amounting to RM33.71 billion as follows:

1.1.3. Based on the USD Information Memorandum dated May 21, 2012, USD1.75 billion notes financing issued by 1MDB Group through 1MDB Energy Limited (1MEL) is jointly covered by 1MDB and International Petroleum Investment Company (IPIC). JAN's revision finds that both sureties have signed an Interguarantor Agreement dated 21 May 2012. According to Clause 2 (d) of the Interguarantor Agreement , "...all amounts falling due and payable under the Notes are fully underwritten by 1MDB Guarantor including all costs, expenses, damages, liabilities incurred or suffered by IPIC Guarantor including but not limited to such legal fees and any other costs deemed appropriately incurred by IPIC Guarantor at the full discretion of IPIC acting reasonably and in the event 1MDB Guarantor is unable to meet such underwriting obligations, 1MDB will procure Ministry of Finance Inc. to provide the necessary funding and support to repay IPIC in full for such amount demanded . "Hence, indirectly the Minister of Finance Incorporated (MKD) is bound to settle all principals and related costs that have been advanced by IPIC if 1MDB fails to execute its obligations as a guarantor .

1.1.4. 1MDB Group through 1MDB Energy (Langat) Limited (1MELL) has issued the second USD1.75 billion Note on 19 October 2012 which is also jointly secured by 1MDB and IPIC as set out in the 1MDB Group financial statements for the year ended 31 March 2013 and 31 March 2014.

1.1.5. During the turnover of Powertek Energy Sdn. Bhd. (Powertek) and Jimah O & M Sdn. Bhd. and Jimah Teknik Sdn. Bhd. (Jimah), 1MDB also took over the existing inherited loans amounting to RM8.15 billion for the purpose of operating the power plant. Detailed details are as follows:

1.2. New Loan Acquired and Added Drawdown After Date of Financial Statement March 31, 2014 Up to October 31, 20151.2.1. 1MDB has secured seven loans, one cash payment from IPIC and an additional drawdown of Sukuk Murabahah amounting to RM17.92 billion after the date of the financial statements ending March 31, 2014, ie between September 2014 and October 2015. The   new loans obtained are intended for to cancel the opioun Aabar Investments PJS Limited (Aabar Ltd.), principal and loan refinancing lending costs and working capital

requirements. An additional RM900 million Sukuk Murabahah drawdown was used for the purpose of financing the PUKL resettlement cost. More details are as follows:

1.2.2. Syndicated Bridging Loan RM5.50 Billion

On May 22, 2014, a loan of RM5.50 billion was taken by Powertek Investment Holdings Sdn. Bhd. (PIHSB) [formerly known as 1MESB] to refinance some Syndicated Bridging Loans amounting to RM6.17 billion. Syndicated Bridging Loan of RM5.50 billion is financed by a consortium of banks as follows:

1. Malayan Banking Berhad

2. RHB Bank

3. Affin Hwang Investment Berhad

4. Malaysia Building Society Berhad

1.2.3. Sukuk Murabahah RM2.40 billionThe Murabahah Sukuk with a nominal value of RM2.40 billion has been issued in two tranches . The first tranche with a nominal value of RM1.50 billion (net receipt of RM920.31 million) was issued on February 20, 2014, in the financial year ended 31 March 2014. The second tranche with a nominal value of RM900 million (net receipt of RM583.47 million) published after March 31, 2014, on December 29, 2014. The total Sukuk Murabahah issue amounting to RM2.40 billion will mature between 2021 and 2024.

1.2.4. Standby Credit RM950 Million1.2.4.1. 1MDB Board meeting on 23 February 2015 agreed to receive the Federal Government short term loan facility of RM3 billion through its subsidiary, Plenitude Mentari Sdn. Bhd. (PMSB). However, an offer letter from the Ministry of Finance of Malaysia (MOF) dated 26 February 2015 only offers a total of RM950 million loan at interest rate of 3.4% per annum and matures on 31 December 2015. This loan is intended for partial payment of interest and bond / sukuk / loans, project financing related to power and property assets. On February 27, 2015, a loan agreement was signed between the Federal Government and PMSB.

1.2.4.2. Based on the Notice from PMSB to MOF, the loan usage instructions amounting to RM950 million are as follows:

1.2.4.3. JAN analysis found that the 1MDB Standby Credit Production Notice amounting to RM950.07 million was more than the amount offered by the Federal Government. This difference is due to the USD exchange rate.

1.2.5. Revolving Credit  RM229.50 MillionOn August 12, 2015, 1MDB's subsidiary, KLIFD Sdn. Bhd. (KLIFD) has obtained revolving credit financing from Affin Bank Berhad amounting to RM229.50 million for the purpose of working capital requirements or other requirements to be determined. As of September 11, 2015, Revolving Credit has been used to settle Islamic Revolving Credit financing funded by Affin Islamic Bank Berhad amounting to RM37 million, principal payment of 1MDB Energy (Langat) Sdn. Bhd. amounting to RM120 million, deposits in Escrow Account Affin Bank Berhad amounting to RM8 million and the balance of RM64.50 million has been transferred to 1MDB as an advance.

1.2.6. Term Loan USD250 MillionOn May 26, 2014, 1MDB through its subsidiary 1MDB Energy Holdings Limited (1MEHL) has obtained a term loan of USD250

million with Deutsche Bank AG, Singapore mature in February 2015. This loan is for corporate purpose of the 1MEHL Group as per 1MDB Board resolution at 22 May 2014.

1.2.7. Term Loan USD975 MillionOn 1 September 2014, 1MDB through its subsidiary 1MEHL has again obtained a term loan of USD975 million with Deutsche Bank AG, Singapore   mature on September 30, 2015. The loan is for the following purposes:

1. Refinance the original RM250 million loan made on 26 May 2014;

2. Funding turnover and call option termination is provided by 1MELL to Aabar Ltd. of shares in 1MDB Energy (Langat) Sdn. Bhd .;

3. Funding the acquisition and termination of call option is provided by 1MEL to Aabar Ltd. for shares in Powertek Group; and

4. Pay the fees and expenses of the 1MEHL Group.

1.2.8. Term Loan USD555.02 Million ( Capped at RM2 Billion)1.2.8.1. The 1MDB Board of Directors through a resolution dated 10 February 2015 approved the proposal for a term loan facility not exceeding RM2 billion for the purpose of a full repayment of Tranche 2 Syndicated Bridging Loan of RM5.50 billion. On the same date, the Minister of Finance has granted 1MDB to obtain a RM2 billion unsecured loan facility.

1.2.8.2. Subsequently, on 11 February 2015, Bank Negara Malaysia (BNM) has granted approval to 1MDB for a term loan of USD555.02 million (capped at RM2 billion) from Marstan Investments NV, Netherlands (Marstan). On 12 February 2015, 1MDB has entered into an agreement with Marstan for this loan facility through RHB Bank Berhad. On February 13, 2015, this loan was issued for the settlement of Tranche 2 Syndicated Bridging Loan of RM5.50 billion.

1.2.9. Term Loan USD150 Million1.2.9.1. On March 9, 2015, the 1MDB Board of Directors through its resolution agreed to accept the USD150 million Islamic Term Loan facility from Timeline Zone Sdn Bhd, Export-Import Bank of Malaysia Berhad (EXIM Bank). Bhd. (TZSB), a wholly-owned

subsidiary of the 1MDB Group. On March 20, 2015, TZSB has signed a loan agreement with EXIM Bank at the rate of Cost of Fund-Islamic + 2.5% per annum and mature within 15 months from the date of first withdrawal. This loan is made for the following purposes:

1. Funding general working capital requirements;

2. Future capital expenditure;

3. Equity injection for the expansion of the 1MDB Group's energy sector; and

4. Payment of fees, expenses and funds of the Financial Service Reserve Account (FSRA) for this loan facility.

1.2.9.2. Based on the notices issued by TZSB dated March 23, 2015, a USD150 million loan usage instruction was granted to EXIM Bank as follows:

1. A total of USD0.75 million was paid to EXIM Bank for the convenience of the facility;

2. A sum of USD7.23 million is deposited into the FSRA (cash collateral) account at EXIM Bank;

3. A total of RM0.37 million for legal and production fees; and

4. The balance of this loan facility is used for 1MDB working capital purposes.

1.2.9.3. 1MDB's Chief Executive Officer informed at 1MDB Board of Directors on 24 March 2015 that the loan was received and will be used as follows:

1. Interest payments for a period of 12 months;

2. A total of USD64 million will be used to repay existing loans Tadmax Resources Berhad (TRB); and

3. The RM250 million balance will be used to pay part of AmBank (M) Berhad amounting to RM600 million ( term loan 1MDB Energy (Jimah) Sdn. Bhd.) Which will mature on 9 April 2015.

1.2.10. Cash Payment IPIC USD1 BillionIn line with the implementation of the Binding Term Sheet signed between 1MDB Group and MKD with Aabar and IPIC, IPIC has paid USD1 billion (RM3.78 billion) to 1MDB on 5 June 2015. The 1MDB Group has used this money to settle the term loan from Deutsche Bank AG, Singapore amounted to USD975 million.

1.3. Loan Repayment After Financial Statement Date March 31, 2014 Up to October 31, 2015Upon the date of the financial statements for the period ended 31 March 2014 to 31 October 2015, the 1MDB Group has amended

the loan principal including inherited loans amounting to RM14.84 billion as follows:

1.3.1. Payment of Syndicated Bridging Loan RM6.17 BillionOn May 22, 2012, Powertek Investment Holding Sdn. Bhd. (PIHSB) [formerly known as 1MESB] has earned a Syndicated Bridging Loan of RM6.17 billion. This loan is governed by Maybank Investment Bank Berhad and RHB Investment Bank Berhad. Upon the date of the 2014 financial statements, a   sum of RM500 million was paid on 22 May 2014 and a total of RM170 million was paid on 14 August 2014. The balance of this loan amounting to RM5.50 billion was refinanced through Syndicated Bridging Loan on 22 May 2014.

1.3.2. Payment of Syndicated Bridging Loan RM5.50 Billion1.3.2.1. On May 22, 2014, PIHSB signed a RM5.50 billion Syndicated Bridging Loan agreement with a bank consortium for refinancing the original financing amounting to RM6.17 billion. The repayment method is divided into two tranches as follows:

1. Tranche 1 (T1) - RM3.50 billion will be paid twice a year each amounting to RM175 million with 20 installments commencing November 2014; and

2. Tranche 2 (T2) - RM2 billion will be paid through proceeds from the Proposed Initial Public Offering (IPO) or proceeds from Tanjong's Commitment (Tanjong Commitment) not less than 30 November2014. TanjongCommitment refers to a contingent obligation to subscribe to PIHSB's equity as a borrower based on the terms and conditions of the Subscription Agreement and the Supplemental Subscription Agreement .

1.3.2.2. Tranche 2 Syndicated Bridging Loan RM5.50 billion has been repaid after getting an extension until 13 February 2015 involving a principal payment amounting to RM2 billion and interest amounting to RM6.14 million. As of October 31, 2015, two installment payments have been made amounting to RM350 million which makes Tranche 1 Syndicated Bridging Loan of RM5.50 billion worth RM3.15 billion.

1.3.3. Repayment of Term Loan of RM550 Million1MDB Real Estate Sdn. Bhd. (1MDB RE) [now known as TRX City Sdn. Bhd.] Has entered into a term loanagreement of RM550 million with Ambank (M)) Berhad on 27 December 2013 to finance part of the resettlement cost of Bandar Malaysia, part of the initial spending and mobilization expenses of the TRX project. In January 2015, term loan in was fully amortized through the issuance of Murabahah sukuk amounting to RM2.40 billion by 1MDB RE.

1.3.4. Term Loan Repayment of USD250 MillionNote 41 (ii) (d) to Group 1MDB's Financial Statements for the year ended 31 March 2014 stated 1MEHL received a USD250 million loan facility for termination purposes granted to Aabar. The USD250   million Term Loan has been repaid on 1

September 2014, which is earlier than the original due date on 26 February 2015 through a new term loan of USD975 million.

1.3.5. Repayment of Inherited LoansAt the end of financial year 31 March 2015, Edra Group has fully paid the principal of four inherited loanstotaling RM193.53 million and part of the principal for six inherited loans amounted to 596.14 million. The details are as follows:

1.3.6. Repayment of Term Loan RM600 Million

Term Loan amounting to RM600 million from Ambank (M) Berhad was taken by 1MDB Energy (Jimah) Sdn. Bhd. for the purpose of acquiring the Jimah Group. This Term Loan is by the interest method of COF + 1.75% maturing on April 10, 2015. This Term Loan has been amortized via Standby Credit amounting to RM350 million and Term Loan EXIM Bank of RM250 million.

1.3.7. Repayment of Islamic Revolving Credit RM37 MillionIn 2009, 1MDB took the RM7 million Islamic Revolving Credit facility from Affin Islamic Bank Berhad for the purpose of working capital and company operations. This financing was amortized through a new revolving credit facility of RM229.50 million from Affin Islamic Bank. 

1.3.8. Amortization Term Loan USD975 MillionTerm loan USD975 million from Deutsche Bank AG, Singapore is taken to refinance the USD250 million Term Loan and cancel the option Aabar Ltd. Based on a resolution of the Board of Directors dated June 2, 2015 and information by Mr Karul Kanda (President and Chief Executive 1MDB) at PAC meeting on December 1, 2015, this term loan has been repaid after receiving a USD1 billion IPIC cash payment on June 5, 2015. However, , the JAN has not yet received the deed of discharge of Deutsche Bank AG, Singapore from 1MDB management to confirm the settlement of this loan has been made.

1.3.9. Repayment of Syndicated Bridgig Loan RM700 MillionThe RM700 million Syndicated Bridging Loan is taken by 1MDB Energy (Langat) Sdn. Bhd. from the consortium of Affin Bank Berhad and Ambank (M) Berhad. The Syndicated Bridging Loan aims to partially finance the acquisition cost of power plant and land from Genting Group. The Principal Syndicated Loan is to be repaid through seven payments from February 2013 until February 2016. As at 31 March 2014, the fair value of the Syndicated Bridging Loan amounted to RM451.84 million. Subsequently, as of 31 October 2015, a sum of RM340

million has been amortized and the fair value of Syndicated Bridging Loan is RM111.84 million.

1.4. Group Borrowing Balance 1MDB Group After Financial Statement Date March 31, 2014 Up to October 31, 20151.4.1. Based on JAN's calculation, the entire 1MDB Group's outstanding balance as at 31 October 2015 amounted to RM46.18 billion. The total balance of the loan comprises domestic loans, overseas loans, inherited loans from Powertek and Jimah Group and loans obtained after the financial statements ending 31 March 2014. Details are as follows:

1.4.2. JAN's review found that the Group's 1MDB loan balance as at 31st October 2015 amounted to RM46.18 billion after taking into account new loans and additional drawdowns of Sukuk Murabahah amounting to RM17.92 billion, principal repayments amounting to RM14.84 billion and accretion effects (discounts and transaction costs) and currency exchange rates amounted to RM1.24 billion. Taking into account the USD currency exchange

rate in October 2015, the Group's 1MDB Group loan principal balance has increased by RM8.82 billion to RM55 billion.

1.4.3. JAN analysis of the loan principal balances as at and after the date of the financial statements of 31 March 2014 is as follows:

1.4.4. JAN's revised findings from new loans amounted to RM17.92 billion, a total of RM14.05 billion (excluding inherited loansamounting to RM789.67 million) was used to settle the existing loan principal. However, 1MDB has only received a surplus of RM185.60 million after paying a loan amount of RM3.68 billion for April 2014 until October 2015. This indicates that new loans are not capable of assisting 1MDB to strengthen its financial position as it can not generate enough income. The matter was also acknowledged by Mr. Arul Kanda at the PAC meeting on 1 December 2015 that the 1MDB Group relied entirely on new loans to meet its obligations obligations. Details of the borrowing costs for April 2014 to October 2015 are as follows:

1.5. Group Loan Commitments1.5.1. Commitment On October 31, 20151.5.1.1. As at 31 October 2015, the principal balance for 13 domestic and foreign borrowings / financing amounting to RM47.58 billion remains unpaid. More details are as follows:

1.5.1.2. The JAN analysis found that from November 2015 to 2039, 1MDB Group's commitment to 13 domestic and foreign loans / financing and inheritance loans amounted to RM74.62 billion comprising principal balance of loan / financing of RM55.00 billion and borrowing / financing cost of RM19. 62 billion. The loan cost of RM19.62 billion does not take into account inherited loans as there is no information about it.

1.5.2. Group 1MDB Commitment After Rationalization Plan1.5.2.1. Edra Group Sales

1. According to a 1MDB media statement dated November 23, 2015, China General Nuclear Power Corporation (CGN Group) signed a Share Purchase and Selling Agreement (SSPA) with 1MDB to take over the Group's overall interests. CGN Group will pay equity in cash amounting to RM9.83 billion and take over all Edra Group's related and cash debt based on the valuation date on March 31, 2015. Foreclosed Edra Group debt includes inherited loans totaling RM7.43 billion. This transaction is expected to be completed by February 2016.

2. However, the 1MDB Group still has to bear the principal loan balance as at 31st October 2015 amounting to RM21.93 billion taken during the acquisition of energy sector companies. The details are as follows:

1.5.2.2. Ekuiti Bandar Malaysia Sdn. Bhd.1. Based on 1MDB media statement on December 31, 2015, 1MDB has signed a Sale and Purchase Agreement for

the sale of 60% equity in Bandar Malaysia Sdn. Bhd. (BMSB) to the Consortium of Iskandar Waterfront Holdings Sdn. Bhd. (IWH) and China Railway Engineering Corporation (M) Sdn. Bhd. (CREC). This consortium is a joint venture between IWH and CREC with a 60:40 interest rate. The IWH-CREC Consortium has valued 100% of Bandar Malaysia's land at RM12.35 billion where the value of 60% of the land is RM7.41 billion.

2. Based on 1MDB's press statement on January 6, 2016, the consideration of the Share Sale and Purchase Agreement is the acquisition of Sukuk Murabahah debt amounting to RM1.63 billion by the IWH-CREC Consortium. The sale price for 60% equity amounting to RM7.41 billion does not take into account the transfer costs of PUKL and Sukuk Murabahah. If the cost is taken into account, the selling price will decrease to RM5.30 billion.

3. JAN's review found that Sukuk Murabah's acquisition status with a nominal value of RM2.40 billion has not been finalized since it has yet to reach agreement among the parties involved. Given that the agreement has not yet been reached, the Sukuk Murabahah debt will remain the responsibility of 1MDB. However, 1MDB did not submit any sales-related documents for auditing.

1.5.2.3. The Binding Term Sheeta. On May 28, 2015, Term Sheet For Settlement Arrangement (Binding Term Sheet) was signed between 1MDB Group and MKD with Aabar and IPIC. Binding Term Sheet is an overall solution method for releasing obligations and liabilities between the 1MDB Group and the IPIC Group including the Aabar Group. Under this agreement, IPIC / Aabar will assume the 1MDB Group liability and in return, the assets of the 1MDB Group will be transferred to IPIC / Aabar as an exchange. Implementation of this Binding Term Sheet is known as debt-asset swap .

b. This Binding Term Sheet is an extension of the IPIC guarantee to pay the principal and loan costs for two Notes of USD1.75 billion each issued in May 2012 and October 2012 respectively.

c. Through the debt-asset swap , IPIC agrees with the following:1. Paid 1MDB of USD1 billion which was received on 5 June 2015;

2. Paying the borrowing costs against both USD1.75 billion Notes up to the date of settlement or termination of the obligations on behalf of 1MDB;

3. All debts between the IPIC Group and the 1MDB Group will be calculated as a result; and

4. Take over the obligation to pay the principal and the cost of the loan for both Notes USD.75 billion starting on the settlement date.

d. In consideration of the IPIC agreement, 1MDB and MKD are responsible for implementing the following:

1. Transfer of assets with fair value mutually agreed between 1MDB, MKD and IPIC by June 30, 2016; and

2. The value of the assets to be transferred is not less than the IPIC contribution equivalent to the USD1 billion payment, the borrowing costs paid and the principal for both Notes USD1.75 billion and the debts between the two parties.

e. With the implementation of this Binding Term Sheet , at least a sum of RM19.37 billion (USD4.50 billion) including two issues of USD1.75 billion Notes and a USD1 billion Cash Payment IPIC will be repaid on June 30, 2016.

1.5.2.4. Commitment After Rationalization Plan1. According to JAN's calculations and assumptions, the Group's 1MDB loan balance after taking into account the

rationalization plan involves the sale of Edra Group's equity, equity sale of Bandar Malaysia Sdn. Bhd. and the

implementation of the Binding term Sheet with IPIC and Aabar which is expected to be completed in February 2016 until June 2016, the remaining loan is as follows:

TABLE 6.121MDB BANK PRINCIPAL BALANCE AFTER RASIONALIZATION PLAN

NO

TYPE PRINCIPAL

BALANCE IS NOT

GONE ON 31.10.2015 (RM

MILLION)

BORROWINGS TO BE REMOVED

(RM MILLION)

LOAN PRINCIPAL BALANCE

AFTER RASIONALIZATION PLAN (RM

MILLION)

1. Islamic Medium Term Notes (RM5 billion)

5,000.00 - 5,000.00

2. Syndicated Bridging Loan (RM700 million)

120.00 - 120.00

3. Term Loan (RM800 million)

800.00 - 800.00

4. Murabahah Sukuk (RM2.40 billion)

2,400.00 - 2,400.00

5. Syndicated Bridging Loan (RM5.50 billion)

3,150.00 - 3,150.00

6. Credit Standby (RM950 billion)

950,00 - 950,00

7. Revolving Credit (RM229.50million)

229.50 - 229.50

8. Note USD1.75 billion

7,532.00 (7,532.00) -

9. Note USD1.75 7,532.00 (7,532.00) -

billion10.

Note USD3 billion

12,912.00 - 12,912.00

11.

Term Loan (USD555.02 million)

2,000.00 - 2,000.00

12.

Term Loan (USD150 million)

645.60 - 645.60

13.

Cash Payment IPIC (USD1 biion)

4,304.00 (4,304.00) -

14.

Inherited Loans 7,426.80 (7,426.80) -

Amount 55,001.90 (26,794.80) 28,207.10

Source: Group 1MDB Document Note: BNM Rate In October 2015 USD1: RM4.304

b. JAN's analysis of 1MDB's loan commitments found that a total of RM42.26 billion was required to pay principal and borrowing costs mature between November 2015 and May 2039. This is based on the assumption that no new loans will be made after October 2015 and rationalization plans will be implemented. Details of the 1MDB Group's commitment are as follows:

 

http://www.sarawakreport.org/images/2016/07/Screenshot-2016-07-30-12.40.58.png

http://www.sarawakreport.org/images/2016/07/Screenshot-2016-07-30-12.41.24.png

c. The subsequent JAN analysis of the 1MDB Group loan commitments found:

1. 1MDB needs to provide a substantial amount of funds to pay off its high commitment payment in 2016 amounting to RM4.88 billion, in 2023 totaling RM14.74 billion and in 2039 totaling RM5.14   billion.

2. Revolving Credit loan amounting to RM229.50 million is amortized after the TRX plot of land purchase agreement C7.9 (1,246 acres). This amount was due on 23 November 2015 based on documents received from 1MDB.

3. 1MDB also requires at least RM1.52 billion annually from November 2015 to May 2024.

4. From 2016 to 2023, the cost of borrowing to be borne by the 1MDB Group amounted to RM9.08 billion.

5. The IMTN Sukuk issued in 2009 is expected to mature in 2039 (30 years) with a financing fee of RM287.50 million a year. The 1MDB Group's commitment from November 2015 to 2039 amounted to RM11.90 billion comprising RM5 billion principal and RM6.90 billion financing costs.

6. Group 1MDB's loan commitments do not include other related financial costs such as trustee fees and professional fees because they can not be determined accurately.

d. Should the 1MDB Group not be able to generate sufficient income to cover the principal's commitment and the cost of borrowing, the Government is obliged to bear its debt burden.

1.6. Federal Government Guarantee And Assistance

1.6.1. The Federal Government Guarantee is granted in accordance with the provisions of the Federal Constitution and the Loan Guarantee Act (Organization of the Corporation) 1965. This guarantee is given to facilitate Government companies to obtain financing and loans at a more competitive cost. Section 6 of the Loan Guarantee Act (Organization of the Corporation) 1965 states that Government companies that have obtained Government Guarantee must obtain prior approval from the Minister of Finance before making any other loan. Section 7 stipulates through this Government Guarantee, the Government is responsible for fulfilling obligations of loan agreements, bonds, promissory notes or other instruments made by Government companies in the event that the company fails to meet its obligations. Guarantee granted under this Act shall be approved by the Cabinet.

1.6.2. Since 2009, three Government Guarantees have been granted to 1MDB for financing as follows:

a. Islamic Medium Term Notes (IMTN) RM5 Billion

1. On 1 April 2009, the Federal Government has approved a guarantee to TIA to borrow up to RM5 billion from domestic and overseas markets through IMTN for investment in accordance with the Loan Guarantee Act (Body Corporation) Act 1965 for a period of up to 30 years. Government guarantees cover principal repayments and borrowing costs. When the Federal Government took over the TIA and changed its name to 1MDB, the Federal Government agreed to continue to maintain its guarantee on the financing after the TIA acquisition process by the MKD was completed on 31 July 2009.

2. On May 15, 20009, the Federal Government represented by YB Minister of Finance II signed the Federal Government Guarantee for IMTN amounting to RM5 billion. Among the purposes of the IMTN is for general investment and working capital.

b. Loans of RM800 Million1. On 11 November 2011, the Cabinet has agreed to grant the Government a loan guarantee for 1MDB Real Estate

Sdn. Bhd. (1MDB RE),   a wholly-owned subsidiary of 1MDB up to RM800 million from domestic market or domestic financial institutions Tenure of up to 10 years is aimed at financing the relocation costs of military installations operating at Sungai Besi Air Base, Kuala Lumpur. This resettlement is required to enable the implementation of the Bandar Malaysia development project in the area.

2. The Federal Government represented by YB Minister of Finance II has signed the Federal Government Guarantee amounting to RM800 million to 28 September 20009.

c. RM2 Billion Loan To SRC International Sdn. Bhd.On August 17, 2011, the Cabinet agreed to grant the Government a guarantee to SRC International Sdn. Bhd., A wholly owned

subsidiary of 1MDB to acquire a loan of up to RM2 billion from market sources or Retirement Fund (Incorporated) (KWAP). Loan period of up to 10 years is intended to finance investment activities within the natural resources sector. Government guarantees include principal repayments and borrowing costs. Due to the ownership of SRC International Sdn. Bhd. to the MKD on 15 February 2012, the Government Guarantee on this loan will be borne by the Government and not 1MDB in the event of failure of SRC International Sdn. Bhd. settle the loan.

1.6.3. The government also issued a guarantee in the form of a letter of support (letter of support). Through the issuance of this support letter and in the event of default , the Government will only be liable to settle the obligation after the company uses all internal funds in advance for repayment of its debt. Two supporting letters were given to 1MDB for financing as follows:

a. Issuance of USD3 Billion Notes1. On March 13, 2013, the Cabinet Meeting approved the following:

2. Memo Ministry of Finance on February 18, 2013 states that bond issuance purpose is to finance investments in real estate, energy and other strategic sectors as well as working capital.

3. 1MDB through a letter dated 15th January 2013 to the YAB Minister of Finance has applied for the MKD to issue LOS for investment purposes of USD6 billion worth of joint venture projects with a ratio of 50:50 with Aabar.

4. Goldman Sachs appointed by the Government of Abu Dhabi as an arranger for the issuance of USD3 billion Note in the form of private placement has applied for the Letter of Support (LOS) to be issued by MKD and IPIC for the purpose of attracting investors. This is because 1MDB and Aabar (IPIC subsidiaries) have no international rating. The LOS should be issued to issue a USD3 billion Note by a special purpose vehicle(SPV) company, 1MDB BVICO to be fully subscribed.

The Federal Government through the Ministry of Finance issued LOS on the issuance of USD3 billion Note by 1MDB BVICO.

1. Financial support covers principal payments totaling USD3 billion and borrowing costs.

2. On March 8, 2013, 1MDB has set up 1MDB Global Investments Ltd. (1MDB GIL) in the British Virgin Islands for the issuance of the USD3 billion Notes.

1. On 14 March 2013, the YAB Minister of Finance signed the LOS and the Federal Government will be responsible for providing financial assistance to 1MDB GIL based on the following situations:

If 1MDB GIL is unable to repay the debts over the lack of repayment, 1MDB must first inject capital to ensure 1MDB GIL is able to repay the debt; and

If 1MDB, as a 1MDB GIL shareholder fails to provide the above funds requirements, the Federal Government should take over to provide the funds.

1. JAN's revision finds that LOS for the issuance of USD3 billion Notes is for capital injection to a joint venture company to carry out its investment. However, there are no detailed details regarding the project or investment to be implemented. The next JAN revision of the 1MDB GIS Information Memorandum (Memo) 1MDB GIL found on 19 March 2013, the net receipts from the issuance of this USD Note only amounted to USD2.72 billion. This

memo stated that the receipt will be used either as a loan or investment in Abu Dhabi Malaysia Investment Company Limited (ADMIC), a joint venture company of 1MDB and Aabar.

1. The 1MDB Group's financial statements for the year ended 31 March 2014 recorded a total of USD1.56 billion of net receipts issued by the USD Notes were invested in fund manager portfolio BSI Lugano, Switzerland. JAN's review found that 1MDB did not inform the MKD of the change in the issue of derivative funds to be invested in investment funds until the investment by ADMIC was finalized as announced by Encik Azmi at the 1MDB Board meeting on March 18, 2013.

1. Exim Bank USD150 Million loan

The Cabinet agreed to issue LOS for a loan to Timeline Zone Sdn. Bhd., A wholly-owned subsidiary of 1MDB amounting to USD150 million with EXIM Bank Berhad on March 13, 2015. This loan is for financing general corporate requirements but is not limited to working capital requirements, future capital expenditure and energy business infusion equity within 1MDB Group.

1.6.4. Standby Credit is a financial aid issued by the Federal Government in the form of short-term loans and drawdown when there is a need. Standby credit granted to 1MDB is as follows:

Standby Credit RM950 Million1. On 18 February 2015, 1MDB has applied for a short-term loan from the Federal Government amounting to RM3

billion in financial support in the expansion of the company's energy and property sector. To support the role of 1MDB in implementing this development project, the Federal Government on the same date agreed to provide a short-term loan of up to RM3 billion to 1MDB for the purpose of financing Tun Razak Exchange (TRX) development cash flow by 1MDB RE. However, on February 25, 2015, the Cabinet revoked the decision to grant RM3 billion to 1MDB and only approved standby creditup to RM950 million with interest of 3.40% per annum and repayable by December 31, 2015. This loan is required for cash flow financing for loan repayments including interest by 1MDB and its subsidiaries and corporate corporate income needs. The remaining funds required by 1MDB will be sourced from other sources, particularly through the monetization of 1MDB assets and accelerate the implementation of the TRX and Bandar Malaysia projects.

1. The loan was channeled to a 1MDB wholly owned SPV, namely Plenitude Mentari Sdn. Bhd. The loan terms and conditions set by the Government are as follows:

1MDB as the holding company gives Letter of Comfort over the loan and in the event of default, 1MDB will have to repay the loan on 31 December 2015;

Negative pledge on the sale of shares in KLIFD Sdn. Bhd. (1MDB wholly owned subsidiary) who is the landowner of TRX; and

Prepare cash flow statement and project progress reports for each drawdown during the loan period.

1. Loan disbursement was made in seven stages to Plenitude Mentari Sdn. Bhd. as in the following table:

 

 

1.7. Federal Government Risk Disclosure1.7.1. In total, up to October 2015, Federal Government risk exposures if 1MDB fails to repay the loan, it is estimated to amount to RM20.31 billion excluding interest payments. Detailed details are as follows:

1.7.2. JAN analysis on Government Guarantee, LOS and Standby Credit Group 1MDB on October 31, 2015 is as follows:

2. GROUP 1MALAYSIA DEVELOPMENT BERHAD GROUP

2.1 Group Asset Ranking 1MDB As of March 31, 20142.1.1. As of March 31, 2014, the assets of the Group amounted to RM51.41 billion 1MDB include assets which are investments Available for sale ( Available For Sale Investment ), Intangible assets ( Intangible Assets ), Investment Property ( Investment Properties ), Property, Plant and Equipment ( Property , Plant and Equipment ), Concession Services and Lease and Service Concession Receiveables . Detailed details are as follows:

2.1.2. Based on the financial statements of 1MDB Group as at 31 March 2014, assets owned can be divided into four categories, namely energy-linked assets amounting to RM24.29 billion, assets in fund portfolio investment and SPC amounting to RM13.39 billion, assets in real estate investment amounting to RM8.19 billion and various other assets amounting to RM5.54 billion as follows:

2.1.3. Further information on investment assets in the Segregated Portfolio Company (SPC), property investment assets and energy-linked assets can be referred to in Chapter 3, Chapter 4 and Chapter 5. Investment Portfolio Fund Manager is another investment that has been made abroad other than investment in SPC and power plants abroad. This investment was made by 1MDB Group through 1MDB GIL.

2.2. Investment In Portfolio Fund Managers By 1MDB Global Investments Ltd.2.2.1. 1MDB Global Investment Ltd. (1MDB GIL) was set up as a special purpose vehicle for the issuance of USD3 billion Note. It was incorporated on March 8, 2013 in the British Virgin Islands. The issuance of this Note was approved by a resolution of the Board of 1MDB and a major shareholder dated 12 March 2013.

2.2.2. According to the Notes to the 1MDB GIL Financial Statements for the financial period 8 March 2013 to 31 March 2014, a total of USD 1.72 billion of the USD3 billion notes issued on 19 March 2013 has been invested in various investment portfolios and the rest are used for working capital requirements and repayment of loans. This USD note has been issued for the purpose of an initial capital investment in Abu Dhabi Malaysia Inverstment Company Ltd. (ADMIC), a joint venture company between 1MDB and Aabar Investments PJS (Aabar) for the development of the TRX project. However, it has been used for other purposes since the 1MDB joint venture with Aabar was finalized at that time.

2.2.3. 1MDB GIL has invested USD1.72 billion in five portfolio managers in March 2013. The JAN review found that the 1MDB Board was informed on 18 March 2013 that the receipt of the USD3 billion Notes will be invested in the fund portfolio until the investment by ADMIC is finalized. However, the specific approval of the 1MDB Board is not obtained before the investment is made.

2.2.4. On 9 December 2013, Mr Hazem (Chief Executive Officer 1MDB) then informed the 1MDB Board that there was no expansion in investment by ADMIC. Subsequently at a meeting of 26 March 2014, the Board of Directors of 1MDB was informed that a total of RM1 billion of the proceeds issued by the USD Notes were used to purchase land in Air Itam, Penang and a sum of RM2 billion for the reimbursement of Syndicated Term Loans. The 1MDB Board has been informed of the use of the issuance of USD Notes to invest in the fund manager's portfolio on 22 April 2014, after more than one year of this investment was made in March 2013. While for the reimbursement of Syndicated Term Loan which was completed in September 2013, the 1MDB Board

was only informed about it six months after the loan repayment was settled.

2.2.5. Based on the 1MDB GIL financial statement for the period ended 31 March 2014, the value of investments equivalent to 1.36 billion units in five types of fund manager portfolio is USD1.56 billion (RM5.18 billion) as follows:

2.2.6. JAN found that investment in three fund managerial portfolios was reinvested to different fund managers portfolio based on instruction letter on March 12, 2014 and March 19, 2014 after being discharged from previous fund manager portfolio. Details like the following table:

2.2.7. Asset investment directives on 20 March 2013 and original redemption to be invested in the new fund manager portfolio on March 12, 2014 and March 19, 2014 were signed by Encik Terence and Encik Azmi Tahir. JAN's revision of the List of Authorized Signatures documents found them to be a signatory to BSI Lugano's investment account. However, there is no special approval of the 1MDB Board to empower the management of such investments.

2.2.8. During the first financial year of its establishment, 1MDB GIL recorded revenues of USD8.57 million while borrowing costs amounted to USD155.20 million and operating expenses amounted to USD54.41 million. This has caused 1MDB GIL to record a loss of USD201.04 million and capital deficiencyamounting to USD147.85 million. Messrs Deloitte has issued Emphasis of Matter Audit Certificate regarding material uncertainty regarding the 1MDB GIL position as a going cencern entity . However, the financial statements have been prepared on a going concern accounting basison 1MDB GIL assumption will continue to receive financial support and support from its parent company, namely

1MDB. Since the joint venture project could not continue, 1MDB GIL should not issue USD3 billion Note because the resulting returns are insufficient to cover the company's financial and operating costs. As the TRX project is being developed, this asset should be diluted and used to finance the development costs of the TRX project in accordance with the original objective of the USD3 billion Notes.

2.3. Asset Ranking of 1MDB Group For Financial Period 2010 to 20142.3.1. JAN's analysis of the asset position of 1MDB Group for five years found that the set increased annually with the most significant increase in 2013. The increase of 363% from RM9.53 billion in 2012 to RM44.14 billion in 2013 was due to the acquisition of two plant power of independent energy, revaluation of real estate investment, bank balance and cash, deposit to Aabar Investments PJS Ltd. (Aabar Ltd.) and concession services as well as lease receivables.

2.3.2. In 2014, assets increased by RM7.27 billion (16%) from RM44.14 billion in 2013 to RM51.41 billion. The main reason for the increase is due to the acquisition of a free energy plant and investment in portfolio fund managers. Details of the assets by financial year are as follows:

2.4. Liquidity Assets2.4.1. According to accounting standards, current assets are assets that are expected to be cashed, sold, used or traded within 12 months after the end of the financial year. While non-current assets are assets that are not included in the definition. The 1MDB Group's asset position by category of current assets and non-current assets as at March 31, 2014 are as follows and charts:

http://www.sarawakreport.org/images/2016/07/Screenshot-2016-07-30-12.53.29.png

2.4.2. Of the total assets of the 1MDB Group amounting to RM51.41 billion, a total of RM19.53 billion (38%) was current assets and RM31.88 billion (62%) was non-current assets. Of the current assets, the liquidity level of assets is as follows:

1. Bank balances and cash amounted to RM3.84 billion. However, a sum of RM1.01 billion was deposited into a special account at the financial institution for the purpose of repayment of the loan and the remaining RM2.83 billion could not be used for any other purpose;

2. Inventories, receivables and other receivables amounted to RM2.81 billion;

3. Investment in overseas portfolio fund managers amounted to RM5.17 billion;

4. Investments in Segregated Portfolio Company (SPC) amounted to RM7.71 billion.

2.4.3. Note 18 (ii) to Group 1MDB's Financial Statements for the year ended 31 March 2014 states that 1MDB's Board instructed to liquidate available-for-sale investments of RM7.71 billion (USD2.33 billion) from RM12.88 billion (USD3.90 billion) late on December 31, 2014. However, as of November 5, 2014, only part of the investment amounted to RM4.03 billion (USD1.22 billion) (52.3%) has been discharged and is used to compensate for termination of options to Aabar. As of November 2014, the

remaining investment in SPC amounting to RM4.07 billion (USD1.23 billion) is still in the form of unquoted and unpaid market units .

2.4.4. For non-current asset categories, these include:1. Intangible assets amounting to RM8.56 billion arising from the acquisition of shares of three independent energy

producers and concession service agreements which can only be realized if 1MDB sells interest in the energy company.

2. Of the RM4.52 billion other debtors, collateral and prepayments, a total of RM4.47 billion (98.9%) was a security deposit paid to Aabar Investmets PJS Ltd. (Aabar Ltd.) as collateral to the guarantee provided by International Petroleum Investments PJS Company (IPIC) against USD Notes issued by 1MDB Energy (Langat) Ltd. and 1MDB Energy Ltd. totaling USD3.50 billion. According to the terms of the Collaboration Agreement For Credit Enhancement , this security deposit will only be returned after the IPO implementation is subject to Customs Aabar Ltd.

2.5. Group Asset Ranking 1MDB After 31 March 20142.5.1. Addition and Disposal of Group 1MDB Assets Up to October 31, 20152.5.1.1. The 1MDB Group's financial statements for the year ended March 31, 2015 have not been made available to the JAN. However, based on a review of the 1MDB Board Minutes Meeting, the acquisition and disposal of assets after the financial year 2014 has been implemented as follows:

A. Land Acquisition in Alor Gajah, Melaka

Two hundred acres of land in Sungai Baru Ilir Mukim, Telok Gong, Alor Gajah, Melaka were purchased by 1MDB from Melaka State Development Corporation through an agreement signed on 17 October 2012 for the proposed construction of a new power plant. As of 18 November 2014, a total of RM39.50 million has been paid for land acquisition amounting to RM34.85 million, land premium of RM4.45 million and non-refundable comitment fee of RM0.20 million.

B. Land Acquisition in Kuala Ketil, Kedah

A 260 acres land was purchased by Edra Solar Sdn. Bhd. with a total cost of RM65 million for the development of 50MW solar energy project from BDB Land Sdn. Bhd. As of September 6, 2015, the 1MDB Group has paid a total of RM6.50 million.

C. Sales of SPC Portfolio Funds

A total of USD1.392 billion fund SPC has been satisfied ( redeem ) on 5 November 2014 (USD1.22 billion) and 24 November (USD0.17 billion) makes the balance of the fund's investments amounted to USD939.87 million SPC. JAN analysis found that the diluted investment value amounted to USD1.392 billion equivalent to RM4.689 billion (USD1: RM3.3685).

D. Land Acquisition in Pulau Indah, Selangor

As of June 2015, a total of RM344.24 million was paid for 318.4 acres of land acquisition at Pulau Indah by Ivory Merge Sdn. Bhd. According to the initial proposal the land will be used as a new power plant construction site.

E. Sales of TRX Land Plots

1MDB has sold five plots of land at TRX of 25.71 acres between April 2015 and September 2015. Based on the financial statements for the year ended 31 March 2014, TRX land cost of 70.5 acres was RM2.70 billion. JAN analysis found that the cost of land that has been sold pro-rated is RM984.64 million. The sale value of the land amounted to RM3.08 billion.

F. Payment to Aabar Ltd. for Option Termination

1MDB has made payments to Aabar Ltd. for the purpose of termination of the option ( extinguish rights for option). This payment is a 1MDB asset held by Aabar Ltd. as a deposit. JAN's analysis found that this payment was in progress in May 2014 amounting to USD250 million, in September 2014 amounting to USD725 million and in November 2014 amounted to USD993 million. This made the total payment amounting to USD1.968 billion equivalent to RM6.648 billion.

2.5.1.2. In summary, the addition and disposal of 1MDB Group's assets after March 31, 2014, is based on JAN's assumption which excludes project development costs, cash flow movements and debtors as there is no information about them. As the 1MDB Group's financial statements for the year ended March 31, 2015 have not been prepared, according to the calculations and

assumptions of the Group's 1MDB Group asset position on October 31, 2015 amounted to RM52.774 billion. After taking into account the exchange rate in October 2015 (USD1: RM4.304), the asset is worth RM58.602 billion. More details like the following table:

2.5.2. 1MDB Group Assets Position After Rationalization PlanAs of 31 December 2015, the 1MDB Group has implemented a rationalization plan announced by the Government of Malaysia on May 29, 2015 as a solution to its financial position, namely the sale of Edra Group's equity, equity sale of Bandar Malaysia Sdn. Bhd. (BMSB) and implementation of Binding Term Sheet with IPIC and Aabar.

2.5.2.1. Edra Group Equity Sales1. One of the announced rationalization plans is the sale of the entire equity of Edra Group. This action is expected

to enable the 1MDB Group to settle debt-related debt related to the energy sector from RM16 billion to RM18 billion.

2. On November 23, 2015, 1MDB Group announced a successful bid was China General Nuclear Power Corporation (CGN Group) to acquire 100% stake in the Edra Group. The agreed purchase price amounted to RM9.83 billion and took over cash and all related debt amounting to RM7.43 billion based on valuation date on March 31, 2015.

This transaction is expected to be completed by February 2016 after fulfilling certain conditions. However, 1MDB does not provide any information on this matter for auditing.

3. With Edra Group's equity sale, Group 1MDB's Energy-Related Assets are expected to decline by RM24.34 billion and various other assets, namely Bank Balances and Cash Balances will increase by RM9.83 billion.

2.5.2.2. Ekuiti Bandar Malaysia Sdn. Bhd.1. Apart from the Group's total equity sale of the Edra Group, the 1MDB Group has also implemented the sale of

assets in real estate investments, namely the Bandar Malaysia project in a rationalization plan. Based on 1MDB media statement on December 31, 2015, 1MDB has signed a Share Sale and Purchase Agreement for the sale of 60% equity of BMSB to the Consortium of Iskandar Waterfront Holdings Sdn. Bhd. (IWH) and China Railway Engineering Corporation (M) Sdn. Bhd. (CREC). This consortium is a joint venture between IWH and CREC with a 60:40 interest rate. The IWH-CREC Consortium has valued 100% of Bandar Malaysia's land at RM12.35 billion where the value of 60% of the land is RM7.41 billion. 1MDB will receive a 10% deposit of RM741 million when the Share Sale and Purchase Agreement is implemented. This transaction is expected to be completed by June 2016.

2. With BMSB's equity sale of Sungai Besi Air Base, the value of assets in property investment that has been recorded in the financial statements will decrease by RM4.29 billion equivalent to the total land value being disposed of. After the sale of 60% BMSB equity, the 1MDB Group still has a 40% equity interest of RM4.94 billion. As a result, the Group's 1MDB assets will increase by RM0.65 billion after taking into account the disposal of land worth RM4.29 billion and increase in equity in joint venture amounting to RM4.94 billion. 

2.5.2.3. Implementation of Binding Term Sheet With IPIC and Aabar

1. 1MDB has also negotiated solutions to the obligations / liabilities existing between 1MDB Group and IPIC Group including Aabar. Accordingly, a Term Sheet For Settlement Arrangement (Binding Term Sheet) was signed on May 28, 2015.

2. Among the terms in the Binding Term Sheet , IPIC will notify in writing 1MDB and MKD on 31 December 2015, the amount paid by IPIC on behalf of 1MDB and the interim value of assets to be acquired. Amount paid by IPIC on behalf of 1MDB refers to USD1 billion paid on June 5, 2015 and payment of borrowing costs for both Notes USD1.75 billion as of December 31, 2015. However, the interim value of assets to be acquired is not specified in the binding term sheet .

3. Based on 1MDB Board Meeting on June 14, 2015, President and Chief Executive Officer, Mr Arul Kanda has informed that the liability to be acquired by the IPIC Group is both a USD1.75 billion Note issued by 1MEL and 1MELL. In consideration of the acquisition of the liability, the assets that have been identified for debt-swap assets are as follows:

4. JAN's revision finds that the amount of termination granted by Mr Arul Kanda amounting to USD993 million is different from the amount of JAN amounting to USD1.968 billion. The difference of USD975 million was due to the JAN's consideration of USD250 million and USD725 million as an option termination payment. This is based on the note in Note 41 (ii) (e) to Group 1MDB's Financial Statements for the year ended 31 March 2014, Facility Agreement for Term Loan USD975 million with Deutsche Bank AG, Singapore dated 1 September 2014 and 1MDB Board resolution dated May 22 2014. Accordingly, the total value of 1MDB assets that can be used for debt-asset swap amounting to RM25.139 billion (USD5.841 billion) comprising four identified assets amounting to RM20.943 billion (USD4.866 billion) and difference of termination payment options based on JAN's total amount of RM4.196 billion (USD975 million).

5. At the 1MDB Board meeting on August 17, 2015, Mr Arul Kanda informed besides the 1MDB assets that were previously abroad proposed, other assets that could be granted as debt-asset swap were land in Air Itam and Pulau Indah. If it is still inadequate, the MKD will have to bear the deficiency as set forth in the Binding Term Sheet .

2.5.2.4. JAN's review found that two of the four assets proposed as debt-asset swap to be transferred to IPIC / Aabar are 1MDB assets overseas paid by 1MDB Group to IPIC and Aabar Group. The two assets are security deposit payments amounting to RM5.88 billion (USD1.367 billion) and termination of options amounting to R8.47 billion (USD1.968 billion) by Group 1MDB to Aabar Ltd. However, for the termination of options in March 2014 (USD250 million), September 2014 (USD725 million) and November 2014 (USD993 million), the JAN could not confirm the 1MDB subsidiary who made the payment while the company receiving the payment was Aabar Ltd . This is because there is no document submitted for the purpose of this verification.

2.5.2.5. In addition to the USD1 billion cash payment IPIC as well as principal and borrowing costs for both USD1.75 billion Notes, 1MDB's liability to be transferred to IPIC will be charged at 2% late in the event of a lack of assets submitted by the 1MDB Group as opposed to 1MDB's commitment. The benefits will increase 1MDB's liability. Therefore, the real value of the assets to be transferred depends on the final value of 1MDB's liabilities to be transferred to IPIC and Aabar. However, assets transferred under debt-asset swap are subject to the following approvals:

1. IPIC Board of Directors;

2. Board of Directors of Aabar;

3. Abu Dhabi Executive Council;

4. 1MDB Board of Directors;

5. Minister of Finance of Malaysia; and

6. Other relevant parties.

2.5.2.6. For the purposes of the JAN analysis, it is assumed that all assets proposed as debt-asset swap aresufficient to cover such

liabilities. The value of 1MDB Group's assets after the rationalization plan is expected to amount to RM27.01 billion. Based on information from 1MDB Board meetings and PAC meetings, projected asset position of 1MDB Group after taking into account the rationalization plan involving the sale of Edra Group's equity, the sale of equity of Bandar Malaysia Sdn. Bhd. and the implementation of Binding Term Sheet with IPIC and Aabar which is expected to be completed in February 2016 until June 2016 is as follows:

2.5.3. Liquidity Assets After Rationalization Plan2.5.3.1. The 1MDB Group's asset position by current set of categories and non-current assets as at 30 June 2016 after taking into account the implementation of the rationalization plan are as follows and charts:

http://www.sarawakreport.org/images/2016/07/Screenshot-2016-07-30-12.57.08.png

2.5.3.2. In the current asset category, of the Group's 1MDB assets totaled RM27.01 billion, a total of RM18.25 billion (68%) was current assets and RM8.76 billion (32%) was non-current assets. Of the current assets, the liquidity level of   assets is as follows:

1. Bank balances and cash amounted to RM17.85 billion including a total of RM9.83 billion arising from the sale of the Edra Group and RM7.41 billion arising from the sale of Bandar Malaysia land;

2. Debtors and other assets amounted to RM0.40 billion.

2.5.3.3. For non-current asset categories, these include:1. Of the RM8.75 billion non-current assets, a sum of RM4.94 billion (64.4%) is a joint-venture asset with the IWH

Consortium and CREC.

2. Investment properties amounting to RM3.25 billion comprise TRX's property value of RM1.80 billion, Air Itam's property totaling RM1.11 billion and Pulau Indah property amounting to RM344.24 million.

2.5.4. Asset Position Against Loan After Rationalization Plan

2.5.4.1. The asset position of the 1MDB Group compared to the loan balance before and after the implementation of the rationalization plan is as follows:

2.5.4.2. As at 31 March 2014, 1MDB's total assets exceeded the loan balance of RM9.55 billion (22.8%). This financial position remained on Oct 31, 2015 where the total assets still exceeded the loan balance of RM3.60 billion. This financial condition is not strong as the quantum of the loan balance increase of RM13.14 billion (31.4%) is higher than the quantum of asset increase amounting to RM7.20 billion (14%). JAN analysis found that new loans acquired during the period were used to repay the principal and borrowing costs that mature and not to generate income.

2.5.4.3. With the implementation of the rationalization plan, the 1MDB Group reduced RM26.79 billion (48.7%) and its total assets decreased by RM31.57 billion (53.9%). However, after the rationalization plan, the balance of loan balance amounted to

RM28.21 billion has changed where the balance is now higher with a total of RM1.20 billion of its assets amounting to RM27.01 billion.

2.6. Analysis of Revenue Returns From Asset Investment for the Financial Period Ended 31 March 2010 As at 31 March 20142.6.1. Overall, the 1MDB Group recorded a return of RM14.22 billion for investments made during the first six years of its business from 2009 to 2014. The details of the return are as follows:

.6.2. JAN's revision of the 1MDB Group's Comprehensive Income Statement found that returns were generated by four out of 13 1MDB asset holdings totaling RM14.22 billion. Details are as follows:

1. Cash receipts amounting to RM6.67 billion consist of returns from the energy sector, the profit of the Murabahah Note, dividend and SPC capital distributions and dividends from investments in portfolio fund managers;

2. The expected returns have yet to be paid in cash amounting to RM1.29 billion comprising the Murabahah Notes profit from 1MDB PetroSaudi Ltd. amounting to RM589.5 million and returns from the energy sector amounted to RM702.2 million; and

3. Return unrealized ( unrealized gain ) amounted to RM6.26 billion, comprising the revaluation of land and the proposed investment which will only be cashed after the sale of land or investment.

3. FINANCING AND FUNDING USE3.1 Cash Flows of Group 1MDB Funding and Utilization for Financial Period 20010 to 20143.1.1. An Analysis of 1MDB Group Cash Flow Statement found that for the period February 27, 2009 to March 31, 2014, the 1MDB Group received a cash flow of RM41.41 billion. Of these, a total of RM38.54 billion (93.1%) has been utilized. As of March 31, 2014, cash balances at banks amounted to RM2.83 billion while RM34.91 million was a loss in foreign exchange.

3.1.2. A total of 94.6% of the cash flow source amounted to RM41.41 billion comprising loan / financing issues amounting to RM39.17 billion. The remaining 5.4% comprises investment returns from abroad amounting to RM1 billion (2.4%), domestic investment returns of M393.60 million (1%) and other receipts of RM836.72 million (2%). Incoming cash flow composition for February 2009 to March 2014 is as follows:

3.1.3. Information about the detailed composition of cash inflows is as follows:

3.1.4. The JAN analysis found that the issuance of 1MDB share capital in cash was only RM1 million. The issue of this small capital stock shows the instability of the company as it needs to borrow to finance its activities. During the five year period, 1MDB issued 17 non- inherited loans ( nominal value) of RM42.88 billion, 14 long-term issues totaling RM39.06 billion and three short term loans / financing of RM114 million. However, real cash flows from these 17 loans / financing amounted to only RM39.17

billion. Details of cash inflows from loan / financing issues and their purpose for the period are as follows:

http://www.sarawakreport.org/images/2016/07/Screenshot-2016-07-30-13.03.21.png

http://www.sarawakreport.org/images/2016/07/Screenshot-2016-07-30-13.03.36.png

3.1.5. The JAN analysis found that the 1MDB Group received only RM1 billion (2.4%) from foreign investment and a total of RM835.06 million (2%) from its operating activities over a five-year period compared to receipts from loans / financing amounting to RM39.17 billion (94.6%) in the same period. This shows that borrowing / financing earned did not generate a corresponding cash flow from its activities.

3.1.6. During the same period, the 1MDB Group used a total of RM38.54 billion (93.1%) of the cash flow received amounting to

RM41.41 billion. Among the main uses of cash flow were foreign investment of RM11.59 billion, domestic investment of RM10.83 billion, principal loan / financing repayments of RM4.54 billion, security deposits to Aabar Investments PJS Ltd. a total of RM4.24 billion, a loan / financing cost of RM4.18 billion, cash amounting to RM1.78 billion in its subsidiary SRC International Sdn. Bhd. at the time of disposal, restricted deposits & placement with licensed banka total of RM1.01 billion and others amounting to RM371.63 million. Outflow cash flow composition for February 2009 to March 2014 is as follows:

http://www.sarawakreport.org/images/2016/07/Screenshot-2016-07-30-13.04.24.png

3.1.7. JAN's review found that the returns received from domestic and foreign investments and the net operating volume of the 1MDB Group amounting to RM2.22 billion was very low and insufficient to repay the loan (principal and interest) amounting to RM8.72 billion as at 31 March 2014. The Group 1MDB had to use 22.3% of the RM39.17 billion receipts from the loan / financing over the five-year period to settle the principal and borrowing / financing costs besides to finance working capital. This financial

position is unsustainable and the 1MDB Group can face liquidity problems and affect on going concern.

3.2. Cash Flow In Equity Investment, Murabahah Notes And SPC Portfolio Funds Financial Year 2010 Until 20153.2.1. Financial Year 2010 Until 20143.2.1.1. JAN's analysis of cash flow and investment returns found that the 1MDB Group experienced a cumulative net outflow of RM6.81 billion in financial year 2010 to 2014 as follows:

3.2.1.2. An analysis of the cost of investment of RM6.08 billion paid between September 2009 and October 2011 found that the source of the original investment was RM5 billion IMTN acquired in May 2009, Syndicated Term Loan of RM2.50 billion obtained in October 2010 and Syndicated Term Loan of RM1.08 billion (additional) in June 2011. As much as 80% of the net receipt of RM5 billion IMTN is used for equity investments in joint venture amounting to RM3.49 billion. Meanwhile, a Syndicated Term Loan of RM2.50 billion and Syndicated Term LoanRM1.08 billion (additional) is used for investments in Murabahah notes amounting to RM2.59 billion. JAN's revision found that in March 2011, a total

of RM895.72 million loan principal for Sydicated Term Loan Rm2.50 billion was amortized over Term Loan USD300 million. Further review found that the principal balance amounted to RM1.61 billion for Syndicated Term Loan of RM2.50 billion, principal of Syndicated Term Loan Rm1.08 billion (additional) and term loan principalUSD300 million was amortized in financial year 2014 through 34.2% of the receipts of USD 3 billion Notes issued by 1MDB Global Investments Limited (1MDB GIL) for joint venture capital of ADMIC for the TRX Project. Information about the types and uses of the loan as in the following table:

3.2.1.3. Of the total investments amounting to RM6.08 billion (USD1.83 billion) since the investments were made in the financial year 2010 to 2014, cash returns amounted to RM907.84 million (14.9%). It comprises the profit of Murabahah Note amounting to RM245.84 million in financial year 2011 and a cash return of RM662 million in financial year 2014. JAN's analysis found a total of RM445.93 million from RM662 million received in financial year 2014 was a cash dividend from Segregated Portfolio investment Company(SPC). The balance amounting to RM216.07 million from RM662 million is actually a return on capital from SPC investments. JAN analysis also earned only RM691.77 million (30.6%) of the total investment revenue of

RM2.26 billion actually received for a period of five years. As at the end of the financial year 2014, a total of RM1.56 billion (69%) of the RM2.26 billion of the revenue, which was an unrealized gain has yet to be received from the investments that have been made. Costs and proceeds from investments such as the following table:

3.2.1.4. During the same period, the total cost of the loan should be charged for the year amounting to RM1.54 billion. From which, a total of RM1.46 billion (94.9%) of the borrowing costs have been settled in cash. JAN's review found that the 1MDB Group had obtained another loan to settle the borrowing costs over the designated period. Although the principal of the three loans, the Syndicated Term Loan of RM2.50 billion, the Syndicated Term Loan of RM1.08 billion (additional) and term loanUSD300 million has been repaid, the 1MDB Group still has to bear the cost of the loan for USD3 billion notes used to settle the three loans. Breakdown of borrowing costs according to loan sources for 2010 to 2014 as follows:

3.2.1.5. JAN's review found that a sum of RM178 million was paid for the cost of the borrowing and handling operations. From that amount, 1MDB pays a total of RM26.98 million of the cost of borrowing-related expenses. Identified loan handling costs include agency fee, trustee fee and professional fees related to the loan. Whereas, the cost of investment handling of RM151.02 million comprises investment-related professional fees, accommodation costs, flight tickets and Brazen Sky Limited's operating costs. Brazen Sky Limited's operating costs are taken into account as it acts as a Special Purpose Vehicle(SPV) to control

SPC. Details of the cost of borrowing and investment handling are as follows:

3.2.1.6. The JAN analysis found that for five years, cash flow outflows for investment cost (RM6.08 billion) and related expenses (RM1.64 billion) amounting to RM7.72 billion were higher than that of cash inflows amounting to RM907.84 million. Cash received is small and does not match investment costs and is insufficient to cover borrowing costs and related expenses annually over a period of five years.

3.2.1.7. Overall, the 1MDB Group experienced a net cash outflow of RM6.81 billion at the end of the fifth year. In view of time value for money at 2.36%, net present value (NPV) net cash outflow to RM6.54 billion.

3.2.1.8. JAN's review found that investment costs amounting to RM6.08 billion (USD1.83 billion) financed by four loans since financial year 2010 to 2014 did not bring in cash returns that were justifiable, which only acquired cash inflow amounting to RM907.84 million from capital returns and overall revenue amounted to RM2.25 billion which should be received. The 1MDB Group's decision to convert equity investments in joint venture to the Murabahah Note, then to equity in PSOSL and subsequently to

the SPC in a short period of time indicates that the 1MDB Group did not make any careful planning before investing.

3.2.2. Financial Year After 31 March 20143.2.2.1. The JAN analysis is made on the invested investment taking into consideration the subsequent events on the financial statements ending March 31, 2014 and 1MDB statements during the National Accounts Committee Meeting (PAC) on 18 December 2015. The projected cash return on investment after March 31, 2014 is as follows: :

3.2.2.2. In accordance with Note 18 (ii) the Investment in Segregated Portfolio Company (SPC) financial statements for the year ended 31 March 2014, the 1MDB Board of Directors on 1 August 2014 has instructed the 1MDB management to redeem all investments in SPC no later than December 2014. On 5 November 2014, the date the financial statements were issued, Note 18 (ii)

recorded a total of RM4.03 billion (USD1.22 billion) of investments in the SPC redeemed. Most of the ransom proceeds were used to pay borrowing costs, working capital and refundable deposits to Aabar to terminate the Option Agreement. The remaining investment in SPC amounting to RM4.07 billion (USD1.23 billion) will be redeemed before the end of November 2014 such as a fund manager's proposal.

3.2.2.3. As of November 24, 2014, redemption of portfolio funds amounted to RM6.08 billion (USD1.39 billion) and dividends received amounted to RM574.97 million (USD131.70 million). After ransom amounting to RM6.08 billion (USD1.39 billion), the Group 1MBD still has an investment balance in SPC of RM3.79 billion (USD939.87 million) as at March 31, 2015.

3.2.2.4. As explained by 1MDB to the PAC meeting on 18 December 2015 that the remaining investment from SPC amounting to RM3.79 billion (USD939.87 million) will be taken over by the IPIC Group under the binding term sheet which is expected to be completed by June 30, 2016. If cash flows this is projected to be until the financial year 2017, the overall cash return from 2009 to 2017 amounted to RM11.35 billion.

3.2.2.5. Loan costs for IMTN and USD3 billion notes to be amortized in financial year 2015 amounted to RM376.47 million and for financial year 2016 and 2017 respectively amounting to RM418.63 million annually. While operating costs relating to loans and investments annually for fiscal year 2015 to 2017 are calculated as in the financial year 2014. This assumption is made because the documents are not submitted by 1MDB. Loan-related costs involving IMTN are agency fees and trustee fees payable annually by the 1MDB Group to maturity. Investment-linked costs are the operating costs of Brazen Sky Limited which act as SPVs for this investment. The cost is detailed as follows:

3.2.2.6. JAN's analysis of the return on investment found in financial year 2015, the 1MDB Group earned net current cash inflow of RM6.19 billion. However, the cumulative net amount for a six-year period showed net cash outflow of RM620.26 million. This is because the cash outflow of RM8.18 is higher than the cumulative cashflow of RM7.56 billion. In view of time value for money at 2.36% inflation, net present value (NPV) net outflow of cash outflows for a period of six years is RM1.16 billion.

3.2.2.7. JAN's analysis found that the 1MDB Group acquired a net outflow of cash flow projections of RM519.61 million for the financial year 2016. This indicates that the cost of borrowing in 2016 was not recoverable as no cash returns were received during the year. In the financial year 2017, the 1MDB Group is estimated to earn a net cash inflow of RM3.27 billion. Cumulatively for an eight-year period, the 1MDB Group receives a net cash inflow of RM2.13 billion. In view of time value for money at 2.36% inflation, the net present value (NPV) of net cash inflows for the eight years is RM1.11 billion.

3.2.2.8. 1MDB Group still has to bear the principal and cost of the loan for IMTN RM5 billion and Note USD3 billion until the maturity date of the loan. In addition, the 1MDB Group still has to bear the Brazen Sky Limited operating costs as investment-linked costs until all the investments in the SPC are redeemed. However, as at the date of this report, the 1MDB Group's financial

statements for the year ended March 31, 2015 have not been prepared by 11MDB for auditing.

3.2.2.9. JAN's review found that although the 1MDB Group received redemption proceeds from SPC and dividends in fiscal year 2015, its financial position remains weak. The expected disposal of the entire SPC balance amounted to USD939.87 million in the financial year 2017 still could not secure the RM5 billion IMTN principal and USD3 billion notes that were used to finance this investment.

3.3. Loans / Financing Not Used In Purposes PurposeThe revised JAN on 17 existing loans / financing and eight new loans received by the 1MDB Group after 31 March 2014 found that eight loans / financing were not used according to the purposes set out in the loan / financing agreement. The eight loans / financing involved are as follows:

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3.4. Continuous Business Concept ( Going Concern)3.4.1. The comparison between current assets and current liabilities known as the Current Ratio reflects the position of a company as a going concern entity. The current 1MDB Group's ratios from the year ended 31 March 2010 to 31 March 2014 have shown that the current ratio is greater than 1. This indicator

presents the current set of 1MDB Group to accommodate current liabilities in each financial year as follows:

3.4.2. The level of liquidity can be measured through the Quick Ratio. Quick ratio measures the capabilities of the 1MDB Group to pay off debt using cash and cash equivalents compared to current liabilities. JAN analysis found that the 1MDB Group faced difficulty in meeting its current liabilities beginning in the year ended 31 March 2012 to 31 March 2014 where the 1MDB Group cash position is less than current liabilities as in the following table:

3.4.3. On the other hand, an entity is considered to be an ongoing effort when the company is able to settle its liabilities within a year through current income. If only refers to the liquidity aspect and the ability to settle the debt obligations, the 1MDB Group is in a weak financial position.

3.4.4. Although 1MDB is a continuing entity, it does not have enough liquid to pay its debts. The gains recorded in the financial statements are unrealized gains arising from the revaluation of assets acquired at their nominal values. This follows a term loan of RM2.5 billion and USD300 million maturing in the financial year ended 2014   was repaid on a USD3 billion loan obtained for the purpose of the TRX Project development. The project has yet to begin but most of the funds have been spent for other purposes except for USD1.5 billion.

3.4.5. The financial statements for the financial year ending 31 March 2014 clearly show that the 1MDB Group is unable to repay its debt because it does not have enough liquidity. It can be supported with the following ratios:

3.4.6. JAN's revision found that after taking into account the rationale of the 1MDB Group rationalization plan, the 100% Group Edra sales, the 60% equity sale of Bandar Malaysia Sdn. Bhd. as well as the implementation of the Binding Term Sheet with IPIC / Aabar, the Group's 1MDB loan principal balance amounted to RM28.21 billion, while the 1MDB Group's asset position was RM27.01 billion. This shows that the ratio of debt to assets of the 1MDB Group is 1.04: 1 which translates into the total assets that are unable to cover the repayment of Group 1MDB's loan principal.

4. SUBMISSION OF FINANCIAL STATEMENTS AND REVIEW OF FINANCIAL STATEMENTS 1MDB AND GROUP FOR THE YEAR 2010 UNTIL 2014

4.1. Financial Statement4.1.1. Submission of Section 143 (1), Companies Act 1965, Annual General Meeting (AGM) shall be held on each calendar year to tabulate the financial statements, declare the dividends agreed by the directors, appoint new directors and decide the appointment of the company's auditors. The Company is also required to present its first financial statement within the first AGM not later than 18

months from the date of incorporation of the company and for the next financial year's statement should be presented within 15 months from the date of the previous AGM.

4.1.2. Section 169 (1) of the Companies Act 1965 clarifies that the director is obliged to present the profit and loss account at the AGM on each calendar year not later than 18 months after the date of incorporation of the company and thereafter at least in each calendar year at a distance not exceeding from 15 months since the previous account is presented. However, the company may apply for permission from the Companies Commission of Malaysia (SSM) to extend this period as set out under Section 143 (2) and Section 169 (2) of the Companies Act 1965.

4.1.3. The audited financial statements of the company are to be presented within six months after the financial year and submitted to SSM within one month after the general meeting as set out under Section 160 (1) of the Companies Act 1965. Whereas Section 169 (4) of the Companies Act 1965 also emphasize that the profit and loss account and the company's balance sheet shall be audited before it is set out in the Company's AGM.

4.1.4. JAN's review found that 1MDB had submitted audited financial statements to SSM within the prescribed time period as outlined in Section 160 (1) of the Companies Act 1965. However, 1MDB failed to present its financial statements within six months after the financial year ended for 2010, 2012, 2013 and 2014 where the delay is within 36 days to 181 days. 1MDB also failed to comply with Section 143 (1) and Section 169 (1) of the Companies Act 1965 for the financial year ended 31 March 2014 in which the company failed to present its financial statements at an annual general meeting in the calendar year and failed to present its financial statements within 15 months from the date AGM before. The relevant dates are as follows:

4.1.5. However, the 1MDB Financial Statements for the year ended March 31, 2015 have not yet been signed. On July 24, 2015, 1MDB has applied for an extension of the presentation of the financial statements and SSM has approved extension by 31 March 2016 via letter dated August 21, 2015.

4.2. Review of Financial Statements For The Period Ended 31 March 20104.2.1. Equity interest in a joint venture company acquired on 28 September 2009 was disposed of on 31 March 2010. To identify

the profit on the disposal, it should be on March 31, 2010, 1MDB undertakes an assessment of the equity / assets of the joint venture company. Since documents are not available to the company's auditors, Messrs Ernst & Young (EY) and discrepancies in ownership of the assets, then Messrs. EY has been terminated. However, Messrs. KPMG was appointed as the new auditor to sign auditor's report for the financial statements ended 31 March 2010 with reference to the following documents:

1. Letter of Share Sale Agreement dated 31 March 2010;

2. Position Paper dated 18 September 2009;

3. Joint Venture Agreement dated 28 September 2009;

4. Evaluation Report Edward L.Morse Energy Advisory Services dated September 29, 2009; and

5. Deloitte & Touche Financial Advisory Services Pte. Ltd. dated October 1, 2010.

4.2.2. In addition, Messrs. KPMG did not confirm that the USD1 billion investment cost was made into the joint venture company account in accordance with the Board's decision of 1MDB.

4.2.3. JAN's review found Murabahah Financing Agreement approved by 1MDB PetroSaudi Ltd. shareholders on 14 June 2010   despite the 1MDB financial statements ending 31 March 2010 stating that this agreement was signed on March 31, 2010. Messrs KPMG confirmed that they were not granted a resolution of 1MDB PetroSaudi Ltd. dated June 14, 2010.

4.2.4. The change in recognition of the date of the agreement from 14 June 2010 to 31 March 2010 resulted in 1MDB over-profit of RM651.80 million in the financial statements for the period ended 31 March 2010, in which the profit of RM651.80 million should have been recorded in the financial statements for the year ended 31 March 2011. Without such profits, 1MDB should record a loss of RM227.19 million as follows:

.2.5. KPMG's MIS Report on the 1MDB financial statements and the Group was issued on 4 October 2010. However Messrs. KPMG did not raise the disclosure requirements of events after the end of the financial period in the notes to the financial statements on additional investments in Murabahah Notes amounting to USD500 million (RM1.57 billion) 2010.

4.3. Review of Financial Statements For The Year Ended 31 March 20114.3.1. 1MDB has used funds from Syndicated Term Loan of RM2.50 billion with a maturity of three years to subscribe for additional investments in Murabahah Notes with longer maturity maturities in March 2015, and March 2021. This practice is contrary to the concept of prudence. However, this loan was paid in the financial year ended March 31, 2014 through the issuance of USD3 billion Note for the development of ADMIC joint venture project.

4.3.2. Messrs. KPMG confirms that based on accounting standards, the use of short term borrowings for long-term investment purposes should not be disclosed in the notes to the financial statements. He also does not point out 1MDB's going concern problem .

4.4. Review of Financial Statements For The Year Ended 31 March 2012

4.4.1. the 1MDB Group has issued USD3.50 billion Note through two Notes with nominal value of USD1.75 billion for 10 years each on May 18, 2012 and October 17, 2012. Both the   USD1.75 billion Notes secured by 1MDB and International Petroleum Investment Company PJSC (IPIC) has been approved for issue through 1MDB Board of Directors resolution dated April 30, 2012 and October 9, 2012.

4.4.2. JAN's review found that a total of RM4.24 billion (USD1.367 billion) of the USD3.50 billion notes was paid to Aabar Investment PJS Ltd. (Aabar Ltd.) as a security deposit on May 22, 2012 (USD576.94 million) and October 19, 2012 (USD790.35 million). The security deposit payment was made without the approval of the 1MDB Board. In addition, the financial statements for the year ended 31 March 2012 also did not disclose the events after the financial statements date as still in the IPO listing process as follows:

1. IPIC guarantees of USD1.75 billion notes issued on October 17, 2012;

2. Security deposit paid to Aabar Ltd. amounting to RM4.24 billion (USD1.367 billion);

3. Call option for 10 years which entitles Aabar Ltd. to acquire up to 49% of shares owned by 1MDB Energy Ltd. in 1MDB Energy Sdn. Bhd. with a maximum price of RM1.225 billion;

4. Call option for 10 years which entitles Aabar Ltd. to acquire up to 49% of shares owned by 1MDB Energy Langat Ltd. in 1MDB Energy (Langat) Sdn. Bhd. with a maximum price of RM862.40 million; and

5. In Interguarantor Agreement signed between 1MDB and IPIC dated May 21, 2012,   1MDB must obtain Minitry of Finance Inc . to settle all the principals and related costs that have been advanced by IPIC if 1MDB fails to perform its obligations as a guarantor. The JAN also can not confirm whether this Interguarantor Agreement is also provided for the issuance of the second USD1.75 billion Note on 17 October 2012. In addition, the terms of the Interguarantor Agreement are contrary to the approval letter from the Minister of Finance dated 26 March 2012 and 3 August 2012 stating that the issuance of both USD Notes was approved by the Government.

4.4.3. Further review finds that the above matters are not stated in the 1MDB Representative Letter regarding the auditing of the 1MDB Group financial statements for the year ended 31 March 2012 to Messrs KPMG dated 27 December 2012.

4.5. Review of Financial Statements For The Year Ended 31 March 20134.5.1. The 49% stake in PSOSL was acquired on 1 June 2012 and subsequently disposed off on 12 September 2012 whereby capital gains of USD95.37 million (RM316.22 million), were obtained at the date of disposal. JAN did not obtain any documents supporting this capital gains. However, Messrs Deloitte also did not confirm

this because PSOSL's financial statements and ratings reports were not submitted to them.

4.5.2. Messrs Deloitte should confirm the basis of profit recording. However, during an interview with Messrs Deloitte, they argued that no authentication required because 1MDB had disposed of shares before the financial year ended on 31 March 2012, and that amount was below the prescribed materiality level.

4.5.3. According to the 2.6 in the Murabahah Notes Financing Agreement, the redemption can only be exercised as follows:

1. Redeem the balance of the Murabahah Note to cash: or

2. Converts the Murabahah Notes balance to ordinary shares in 1MDB PetroSaudi Ltd.

4.5.4. However, on 1 June 2012, 1MDB changed the balance of the Murabahah Note to 49% equity stake in PSOSL as opposed to the above terms as PSOSL is not a subsidiary of 1MDB PetroSaudi Ltd. No document is submitted which indicates the above conditions have been amended by an additional agreement or such terms have been agreed to be amended. According to an interview with Messrs Deloitte, such additional agreements were not submitted to them during the audit.

4.5.5. Additionally, the JAN review also found that a total of RM4.24 billion (USD1.367 billion) of the proceeds of the two notes of USD1.75 billion was paid on 22 May 2012 and 19 October 2012 to Aabar Ltd. as a security deposit without the special approval of the 1MDB Board. However, Messrs Deloitte can not confirm whether the Board's approval has been obtained for the payment of the deposit.

4.6. Review of Financial Statements For The Year Ended 31 March 20144.6.1. On September 1, 2014, 1MDB Energy Holdings Ltd. has signed the Facility Agreement for a short term loan of USD975 million arranged by Deutsche Ban AG Singapore. The purpose of the loan is to refinance Deutsche Bank AG 's existing loan amounting to USD250 million and to finance the acquisition and cancellation of call option on shares of 1MDB Energy Langat

Sdn. Bhd. and shares of Powertek Investment Holdings Sdn. Bhd. given to Aabar Investments PJS Ltd.

4.6.2. Documents obtained by JAN indicate a binding term sheet was signed on 2 October 2014 between 1MDB Synergy Sdn. Bhd. and Yurus Private Equity Fund I, LP (Yurus) to acquire all Yurus interests in the solar project under the Master Joint Venture Agreement signed between 1MDB Synergy Sdn. Bhd. and Yurus on April 11, 2014, with a consideration of USD95 million.

4.6.3. However, JAN's review finds that these two items are not disclosed as Events After the Financial Statements in notes to the financial statements. JAN's review found that both matters were not disclosed in the 1MDB Representative Letter dated 5 November 2014   to Messrs Deloitte in the auditing of the 1MDB Group financial statements for the year ended March 31, 2014.

5. APPOINTMENT AND TERMINATION OF AUDITORS

5.1. Messrs Ernst & Young (EY)5.1.1. Messrs EY was the first auditor appointed on 25 March 2009 by 1MDB which was later terminated on 15 September 2010 before 1MDB filed the first financial statement for the period ended 31 March 2010.

5.1.2. Revision of the 2010 Audit Plan Memorandum dated 26 March 2010 provided by Messrs EY found the following:

1. To determine the fair value of the joint venture assets and liabilities at the date of acquisition, Messrs. EY has applied for review of due diligence reports prepared by 1MDB's management and reports on the status of ownership of the PSI assets in the joint venture company. Messrs. EY also applies the status of PSI's property rights in a joint venture. Messrs EY also sought the financial statements of the joint venture company on 30 September 2009 to exercise a fair value assessment of the shares, assets, liabilities and contingent liabilities of the joint venture. This step is necessary to determine the value of goodwill at the time of the joint venture. Messrs EY has conducted preliminary assessment and requested additional information to assess the reasonableness of the key assumptions to determine the expected value of PSI assets.

2. At 1MDB Board Meeting on 5 April 2010, Messrs. EY has raised the need for this document.

5.1.3. This indicates Messrs EY is not satisfied with the reports and supporting documents submitted. This caused Messrs. EY to raise various questions and request management to submit more relevant information. Messrs EY did not find documents relating to

actual ownership status, tilma and risks associated with assets invested by collaborators.

5.1.4. Messrs EY has also raised the need to re-verify the value of the asset for the purpose of reviewing the appropriate accounting method against the change of equity to the Murabahah Note in the financial year ended March 31, 2010. However, on 1MDB, there was not enough document to prove ownership of the asset by a joint venture company.

5.1.5. This is supported by an announcement at the Board meeting on 4 October 2010 that 1MDB PetroSaudi Ltd. has not yet prepared its financial statements and the Chief Executive Officer has convinced the Board of 1MDB that this matter will be discussed at the next Board meeting upon receipt of the company's financial statements. However, no evidence indicates that the discussion paper on the matter was previously tabled at any 1MDB Board meeting.

5.1.6. Messrs. EY failed to obtain relevant information resulting in a delay in confirming the financial statements that were only signed on October 4, 2010.

5.1.7. The EY's Moodle's stand has created an unpleasant situation in the management of 1MDB and subsequently the shareholders and the Board have decided to terminate the services of Messrs. EY.

5.2. Messrs KPMG5.2.1. Messrs. KPMG was appointed on 15 September 210 after the termination of Messrs. EY. However, on 31 December 2013, the appointment of Messrs KPMG was terminated before 1MDB filed the financial statements for the year ended 31 March 2013.

5.2.2. Based on the 1MDB Board meeting minutes on November 11, 2013, to confirm the 1MDB Group's fair value of investment in Bridge Global SPC through Braze Sky Ltd. (BSL), Messrs. KPMG has requested several documents as follows:

1. Verification of Bridge Global SPC investment property via BSL by Bank BSI;

2. Legal due diligence documents to certify Bridge Global SPC was actually legally established, and determined its legal structure for accounting purposes;

3. Legal view of the lawyer regarding the Global Bridge SPC structure to determine BSL's property rights for accounting purposes;

4. Net asset value (NAV) report within Bridge Global SPC on March 31, 2013 and supporting documents show how the NAV is derived; and

5. Bridge Global SPC financial statement on March 31, 2013.

5.2.3. Based on the minutes of the meeting held between 1MDB and Messrs KPMG on 29 November 2013, Mr. Hazem is trying to convince Messrs KPMG on the investment. However, Messrs KPMG is dissatisfied with the absence of written evidence.

5.2.4. At 1MDB Board meeting on 9 December 2013, Mr Hazem informed that Messrs. KPMG was not satisfied and would hold a meeting to determine whether the information submitted by 1MDB's management was acceptable and sufficient for the purpose of the audit or they would issue a report of a confrontation. Messrs. KPMG decides to issue a report of a confrontation.

5.2.5. Following the increasingly significant difference between 1MDB and Messrs. KPMG, 1MDB via letter dated 30 December 2013 states Messrs KPMG need to obtain further information from the fund managers concerned. However, on 31 December 2013 1MDB shareholders have terminated the contract of Messrs. KPMG and appointed Messrs Deloitte as the new 1MDB auditor.

5.2.6. Messrs KPMG through a letter dated 6 January 2014 to 1MDB's management raised the 1MDB approach which only tried to convince them verbally without submitting required documents. Among the matters raised in the letter are as follows:

1. Messrs. KPMG is not capable of carrying out the audit procedures required to ensure the suitability of the classification and evaluate the hedge / hybrid fund investment through the Segregated Portfolio Company , BSL's Global Bridge Absolute Return Fund SPC;

2. Although Vistra Fund Services Asia Ltd. has calculated computation against the NAV, Messrs. KPMG is still unable to determine whether the valuation bases are based on International Financial Reporting Standards(IFRS) and Malaysian Financial Reporting Standards (MFRS); and

3. BSL as the holder of the fund, has the right to receive the Bridge Global Absolute Return Fund SPC not yet audited but until the date of the letter the statement has not yet been received.

5.2.7. In addition, some other factors stated in the letter dated 6 January 2014 also show Messrs. KPMG is not able to confirm the assessment of SPC funds without additional information.

5.2.8. Similar situation was also faced by Messrs. KPMG after two years of being 1MDB auditor when valuation on the exchange of investment Murabahah Notes to Segregated Portoflio Company was to be made. This situation is the second time in four years, the auditor's service is terminated before the expiration of the contract due to differences in opinion regarding the valuation of an investment.

5.3. Messrs Deloitte1MDB's Board of Directors has appointed Messrs Deloitte through a resolution dated 31 December 2013 as the company's auditor after terminating the services of Messrs KPMG. The termination of Messrs. KPMG and the appointment of Messrs. Deloitte were made on the basis of the recommendations of the 1MDB Risk Management Committee and Audit. The JAN revision until 31 October 2015 found that Messrs Deloitte is still an auditor of 1MDB.

-TAMAT-

CHAPTER 7 CORPORATE GOVERNANCE AND INTERNAL CONTROL

30 July 2016

 

 

1. INTRODUCTION1.1. The best corporate governance will help the company improve efficiency, transparency and accountability in achieving its objectives and enable the company's operations to be organized properly. Between the importance of establishing good corporate governance and internal control is to ensure that companies are properly managed in accordance with the law and business ethical values. A good control element can strengthen the roles and responsibilities of the Board in ensuring that the company has a competitive advantage as well as effective risk management.

1.2. The Companies Act 1965 stipulates the responsibilities that the company must comply with to ensure good practice in corporate governance and finance. In addition, the guide issued by the Putrajaya Commitee on High Performance GLC through Green Book: Enhancing Board Effectiveness ( Blue Book ) and Blue Book: Intensifying Performance Management Practice (Blue Book) and Malaysian Code on Corporate Governance2012 (MCCG 2012) issued by the Securities Commission has detailed the fundamental principles and recommendations of good management-related action in corporate governance. As such, these guidelines can be used as the best source of referrals for important matters in the business and culture of a business. Failure to comply with these principles of corporate governance may expose the company to the risk of loss and inefficiency of the company's goals and objectives.

1.3. 1MDB is a Government owned company of the Minister of Finance Incorporated (MKD). However, as a MKD company, 1MDB has been given the privilege and flexibility compared to other government companies under the MKD. Among them are as follows:

1. There is no representative of the shareholders on the Board of 1MDB.

2. Corporate tax exemption on all income for the company and its subsidiaries for a period of 10 years from 23 November 2010.

3. Exemption of several Government regulations in the management of procurement, remuneration and bonus payments to Board members and 1MDB management.

4. Get some Government guarantees and support letter and standby credit to finance company operations. For example, the 30-year guarantee for the issuance of Islamic Medium Term Notes (IMTN) with a nominal value of RM5 billion.

Therefore, the operation and investment of this company is not regulated by the MKD.

2. IMPLEMENTATION OF 1MDB GROUP MANAGEMENTJAN's review found that overall, the aspects of 1MDB's corporate governance and internal control are not satisfactory. It is found part of the 1MDB management's actions and decisions by the 1MDB Board are not in line with the best practices of corporate governance as described in the following paragraphs.

2.1. IMPORTANT INVESTMENT RESULTS ONLY THROUGH WRITING RESOLUTIONS2.1.1. Green Book suggests that the Board meets on a regular basis with a frequency of six to eight times a year based on the business requirements of a company. The Board of Directors is responsible for ensuring that corporate governance is established in managing the company's operations efficiently and in order, including meeting regularly to monitor achievements based on strategic goals and financial performance in line with key performance indicators (KPIs). Through Board meetings, each Board member can provide professional advice, advice and clarification and full access to specific matters on the agenda of the meeting.

2.1.2. JAN's review found that the 1MDB Board met more than the average frequency recommended by the Green Book, with the number of meetings held eight to 16 times a year for the period of 2009   to August 2015. While the JAN analysis found that the 1MDB Board approved 425 written resolutions for the period The same. More details are as follows:

YEAR NUMBER OF MEETINGS

NUMBER OF RESOLUTIONS

2009 11 60

2010 16 53

2011 13 58

2012 10 76

2013 8 73

2014 14 62

2015 8 43

TOTAL 80 425

NUMBER OF MEETINGS AND RESOLUTIONS BOARD OF DIRECTORS   1MDB FOR THE PERIOD OF AUGUST 2009 HUNDRED AUGUST 2015

Source: Minutes of 1MDB Board Meeting and Resolution

2.1.3. While the Board meeting is in place, JAN's review finds that most of the key decisions regarding an investment are only approved by a written resolution of the Board such as making new investments, terminating investments or extending investment periods involving investments between USD1 billion and USD2.22 billion. Further details on investment decisions made through resolutions of the 1MDB Board approved for the period 2009 to 2012 include the following schedule:

2.1.4. This shows constructive discussion between the Board and a detailed assessment of an investment is not implemented before an important decision is made. However, the Chairman of the 1MDB Board has informed at the National Money Balance Committee (PAC) Meeting on 19 January 2016 that discussions are made on an investment before approval is granted through resolution.

2.2. INVESTMENT MADE MONEY WITHOUT GREAT TIMES2.2.1. Section 132 of   the Companies Act 1965 states that the Board of Directors shall at all times exercise its powers to make the best decision in the interest of the company. In addition, the Green Book also states that the Board is responsible for managing risks by ensuring the management undertakes all the necessary research before any investment is finalized to reduce the risk of such investment failure and protect the value of their company.

2.2.2. The JAN interview with 1MDB's former Chief Executive and several 1MDB Boards found that they considered the Investment Committee not to be created because of the small number of 1MDB Board memberships and all investments made discussed at Board meetings or through Board resolutions. The absence of the Investment Committee has contributed to the investment decision made without going through a thorough due diligence process. In the four years since the inception of 1MDB in 2009 to 2012, 1MDB's investment using initial funds through 1MTN issues amounting to RM5 billion has changed form four times from equity investments in joint venture with PetroSaudi Holdings (Cayman) Ltd., a subsidiary of PetroSaudi International Ltd. to portfolio funds in the Cayman Islands. The change in investment decision over a short period involves a substantial amount of funds indicating that investment decisions are not carried out in good governance practices.

2.2.3. The JAN analysis found some considerations regarding investment decisions made without going through a thorough assessment process. Among them are as follows:

2.2.3.1. The IMTN was short-lived due to the TIA's special advisory sessions at the time to hasten the issuance of IMTN with the aim of developing the Bidong Island through the cooperation of Mubadala's company in 2009. In addition, the IMTN was issued without taking action on matters raised by the TIA Board of Directors first. IMTN issuance with a discount rate at 12.08% making every RM100 nominal value equal to RM87.92 and generates net receipts of RM4.385 billion as opposed to a nominal value of RM5 billion. In addition, the profit rate given to investors is 5.75% per annum (effective return rate of 6.68% per annum) for a period of 30 years.

2.2.3.2. The joint venture investment agreement with PetroSaudi was made within eight days where the Board of Directors was only informed on 18 September 2009 of the date of the joint venture agreement to be signed on 28 September 2009. 1MDB investment amounting to USD1 billion in this joint venture is made without due diligence process; no detailed details regarding the project are specified in the proposal paper provided by the management; and there is no feasible study on investment projects to be implemented. Project aspects not examined in detail prior to investment approval are background review partners, total project costs and investment periods to be implemented. There are four different companies registered under the name of PetroSaudi but the proposed approval papers submitted to the Board do not state these important information. In addition, the joint venture agreement contains several clauses that do not care for the interests of 1MDB.

2.2.3.3. The decision to convert equity in a joint venture to the Murabahah Notes subscription was made without a detailed discussion between the 1MDB Board and without considering the capability of PetroSaudi International Ltd. as a corporate guarantor for the issuance of the Murabahah Note in 2010 and 2011 by 1MDB PetroSaudi Ltd. There is no justification for 1MDB to make additional subscriptions of Murabahah Notes while funds for financing such investments are also obtained through loans from financial institutions.

2.2.3.4. The conversion of Murabahah Notes to equity investments in PetroSaudi Oil Services Limited (PSOSL) was made without due diligence review to identify liabilities, past fund-raising capabilities and financial performance. This investment consideration does not take into account the importance of 1MDB as the management continues to invest in PSOSL despite knowing PSOSL operating in Venezuelan sanctions imposed by the United States. 1MDB Board's directive to ensure that PSOSL obtains extension of drilling contracts in Venezuela is also not implemented by the management before the investment is made.

2.2.3.5. For investment in the Segregated Portfolio Company (SPC), 1MDB took a high risk in deciding investment of USD2.318 billion. This investment was made through Bridge Global Absolute Return Fund SPC (Bridge Global SPC), a new one-month company established, no license as fund manager and no experience managing large funds.

2.2.3.6. Coal projects in Gobi, Mongolia amounted to USD45.50 million approved by the Board of Directors of SRC International Ltd. through resolution dated 21 October 2011 has been implemented without feasibility study. Due diligence should also be done in detail to examine the complete information regarding the investment selection background and the expected return on investment.

2.2.3.7. Earnings of Tanjong Energy Holdings Sdn. Bhd. with a bid price of RM10.60 billion on February 8, 2012 was made without any detailed consideration of the financing methods, borrowing costs and commitments to be incurred by 1MDB for the acquisition.

2.2.3.8. For the acquisition of shares of Mastika Lagenda Sdn. Bhd. passed through a resolution dated 10 August 2012 at a price of up to RM2.75 billion, the proposal paper prepared by 1MDB's management was found to contain no management assumptions that should have been taken into account in making decisions. Among these are the bases and components of procurement / enterprise value componentsup to RM2.75 billion; the target return on investment and the ability to pay the principal and borrowing costs within the expected period; detailed description of the use of excess cash receipts from borrowings and issuance of USD1.75 billion Notes against acquisition price; and "10-years call and swap option" implication to SPV Aabar (IPIC subsidiary) on the IPO and the overall financial performance of 1MDB Group.

2.2.3.9. For the solar project, the 1MDB Board of Directors at its meeting on March 26, 2014 approved the unincorporated Master Joint Venture Agreement with DuSable without any detailed consideration of the technology restrictions issue from other countries, the long-term costs and benefits to be obtained by 1MDB.

2.2.4. Additionally, JAN's analysis found that several loans-related / financing decisions for investments were made without detailed planning. Among them are as follows:

2.2.4.1. The implications of the guarantee provided by IPIC against the issuance of USD1.75 billion Notes (first one) include call and swap options and security deposit are not detailed in detail on their impact on the IPO and the financial position of the 1MDB Group.

2.2.4.2. The 1MDB Group has acquired 10 short term loans / financing between 15 to 48 months to finance the acquisition of long term nature

energy assets. This resulted in the 1MDB Group being forced to take new loans / financing to repay the maturity of short-term loans / financing.

2.2.4.3. Implementation of the IPO is delayed as it seeks to acquire new projects to increase IPO value without making a real projection of the company's ability to repay the principal and borrowing costs mature in the near term and the restrictions imposed by the financier.

2.3. BOARD OF DIRECTORS WITHOUT THE APPROVAL OF THE BOARDThe management is responsible for implementing decisions made by the Board as good as possible. The Board members are also responsible for monitoring the actions taken by management. However, JAN found that most 1MDB management actions were justified by the general approval which should be given special approval by the 1MDB Board of Directors for each investment. JAN's analysis of the 1MDB documents found that some of the management's actions were made without specific approval or detailed discussion with the 1MDB Board. Among them are as follows:

2.3.1. 1MDB's management did not inform the Board of 1MDB regarding a joint-venture letter from Encik Tarek Obaid dated 28 August 2009 and the proposed term on joint venture projects to be agreed between 1MDB and PetroSaudi International Ltd. Among the terms of the proposal are the setting of the ratio of holdings, cash flow of USD1 billion, asset value, goodwill and expected profit in the proposed joint venture.

2.3.2. The 1MDB Board of Directors is not clearly described in terms of joint venture and related project partners between the three companies, namely PetroSaudi International Ltd. (Saudi), PetroSaudi Holdings (Cayman) Ltd., and PetroSaudi International (Cayman). 1MDB's Board of Directors has granted conditional approval to 1MDB's management to implement a joint venture with PetoSaudi International Ltd. but the actual agreement was signed with PetroSaudi Holdings (Cayman) Ltd., without being informed of the 1MDB Board on this exchange of partners. PetroSaudi Holdings (Cayman) Ltd. is a new company established by PetroSaudi International Ltd. for the purpose of the joint venture.

2.3.3. Penubuhan 1MDB PetroSaudi Ltd. yang kemudiannya dijadikan syarikat usaha sama telah didaftarkan lebih awal oleh PetroSaudi Holdings (Cayman) Ltd. pada 18 September 2009, iaitu lapan hari sebelum kelulusan

Lembaga Pengarah 1MDB diperoleh secara bersyarat pada 26 September 2009. Lembaga Pengarah 1MDB tidak dimaklumkan syarikat tersebut (1MDB PetroSaudi Ltd.) telah ditubuhkan pada 18 September 2009, iaitu pada tarikh cadangan pertama dibentangkan kepada Lembaga Pengarah. Ini menunjukkan pengurusan 1MDB telah memutuskan untuk menjalinkan kerjasama dengan PetroSaudi International Ltd. lebih awal tanpa makluman Lembaga Pengarah.

2.3.4. The 1MDB Board of Directors has not been notified of a clause in a joint venture agreement that a joint venture company (1MDB PetroSaudi Ltd.) has to pay a USD700 million loan taken from its holding company, PetroSaudi Holdings (Cayman) Ltd. on or before 30 September 2009, two days after the agreement is signed. The JAN's interview with 1MDB's former Board of Directors in June 2015 found that this advance in advance was never disclosed or discussed by 1MDB's management before the joint venture project was finalized.

2.3.5. Board approval of 1MDB was also not available to make a USD700 million payment from USD1 billion of investments to be channeled directly into the accounts of other companies to pay the advance. Correspondance emails between the lawyers of both companies on September 30, 2009 questioned the letter requesting a USD700 million advance repayment letterhead using PetroSaudi International Ltd., while the advance was PetroSaudi Holdings (Cayman) Ltd.

2.3.6. 1MDB's Board of Directors is not informed about the selection of Edward L. Morse as a valuer to implement independent assessments of PetroSaudi International Ltd.'s hydrocarbon assets and its subsidiaries even though 1MDB's management has commenced the terms of reference for the appointment of the valuer. This is evidenced by the letter of term of appointment from the valuer dated 20 September 2009 although the 1MDB Board directed only the appointment of independent professional valuers to evaluate the joint venture companies' assets during the meeting on 26 September 2009 as one of the conditions of approval to proceed with the joint venture project. The appraisal report by Edward L. Mrse was issued on September 29, 2009 and the terms of reference for the appointment of the assessor were also signed by Mr. Shahrol Azral on the same date, ie one day after the joint venture agreement was signed. 1MDB's management did not inform the appointment of Edward L. Morse to the 1MDB Board during the meeting. In addition, taking into account the complexity of assets being

assessed, the assessment report can be made available within eight days from the date of the terms of the consultative terms.

2.3.7. The approval of the Board and 1MDB shareholders to convert the Murabahah Note to PSOSL equity was only signed on 20 June 2012 but Mr Shahrol Azral has signed five documents relating to the proceeds on June 1, 2012. This shows the decision to dispose of Murabahah Notes and acquire 49% equity holdings in PSOSL has been implemented earlier by the 1MDB Chief Executive Officer prior to the approval of the 1MDB Board.

2.3.8. Application for postponement of syndicated bridging loan payment of RM6.17 billion from Maybank Investment Bank Bhd. on the loan for the acquisition of shares of Tanjong Energy Holdings Sdn. Bhd. (TEHSB) was made on 22 November 2013 while the 1MDB Board approval was only available on 13 December 2013.

2.3.9. Credit enhancement (security deposit) amounted to USD1.367 billion (RM4.468 billion) for the issuance of two USD1.75 billion Notes to finance the acquisition of the 1MDB Group's energy sector was paid to Aabar Ltd. on May 22, 2012 and October 19, 2012 without the special approval of the 1MDB Board.

2.3.10. The Settlement Agreement for termination of the said refundable deposit amounting to USD300 million is payable to Aabar Ltd. on September 30, 2014 and the remainder need to be settled after 45 days of IPO being implemented. However, in November 2014, the management has informed the 1MDB Board that a total of USD993 million has been paid, exceeding the amount set out in the agreement without the prior approval of the 1MDB Board.

2.3.11. The SPC portfolio management and redemption process is comprised of several instances where the 1MDB Board is not informed of accurate information or non-transparent management in providing information to the Board. Among them, the management of 1MDB did not disclose that the redemption proceeds of SPC's portfolio investment held by Brazen Sky Limited have been pledged to Deutsche Bank; The 1MDB Board is not informed of the actual payment for the Aabar option made using the proceeds of redemption of the SPC portfolio investment; and the 1MDB Board is only informed of the actual amount paid for the option Aabar after payment is made. Asset Sale Agreementsigned on 2 January 2015 whereby Aabar Investments PJS Limited agreed to purchase the remaining SPC portfolio

investment amounting to USD939.87 million from Brazen Sky Ltd. nor is it laid out for the approval of the Board and 1MDB shareholders. This shows that the management has acted out the direction of the 1MDB Board which requires the remaining balance of the SPC portfolio to be redeemed before the end of December 2014 and the result is brought back to Malaysia.

2.3.12. The decision to pledge the entire portfolio of SPC portfolio amounting to USD2.318 billion to Deutsche Bank as a guarantee for a loan of USD975 million was only informed by Mr Azmi at the 1MDB Board meeting on December 20, 2014, showing the decision was made without specific approval from the Board. The 1MDB Board also believes that the pledging of the entire SPC portfolio investment is unreasonable as the total loan amount is only USD975 million against the USD2.318 billion collateral.

2.4. MANAGEMENT ACTIVITIES RESOLVED BY THE DECISION OF THE BOARD OF DIRECTORS / SHAREHOLDINGS2.4.1. The Blue Book: Intensifying Performance Management Practice suggests that among the best practices for safeguarding the company's interests is the management of action based on the decisions made by the company's Board of Directors. Whereas Section 131B of the Companies Act 1965 states that all affairs of the company should be managed under the directives of the Board. All decisions that have been decided by the Board should be clearly recorded within minutes covering the rationale for each decision, the clear action to take within the agreed timeframe and the individual responsible for its implementation. This is prescribed to ensure that the company's management understands and applies the Board's decision.

2.4.2. JAN's review finds that 1MDB's management has not implemented or has acted in accordance with the decision of the 1MDB Board in several events such as the following table:

TABLE 7.3INSURED MANAGEMENT OF MANAGEMENT WITH DIRECTORS / SHAREHOLDER INSTRUCTIONS

ACTIVITIES BOARD OF DIRECTORS / SHAREHOLDERS

MANAGEMENT ACTIVITIES

RESULTS

IMTN issue suspension

TIA's Board Resolution dated 22 May 2009 terminates and suspends all matters relating to the issuance of IMTN, and suspends the powers of the Chief Executive Officer on IMTN.

The IMTN issue continued, where Mr Shahrol Azral signed an IMTN Subscription Agreement with Ambank on May 25, 2009 (ie three days after the suspension order), and signed the Aqad Agreement and Sale & Purchase Agreement on 26 May 2009.

Abortion of Mr Shahrol Azral as director of TIA

The TIA shareholders' resolution dated 27 May 2009 signed by Terengganu Menteri Besar has dropped Mr Sharol Azral as a director of the company.

Datuk Ismee and Encik Shahrol Azral as the Board of Directors of TIA have acted to cancel the shareholders 'directors' resolutions by a resolution of the Board of Directors on the same date, 27 May 2009.

Three directors are appointed as 1MDB's representatives in a joint venture company, 1MDB PetroSaudi Ltd.

1MDb Board Meetings on 18 September 2009 and 26 September 2009 have decided that three directors are appointed and two of them have professional qualifications or experience in the appropriate sector as a 1MDB representative in a joint venture with PetroSaudi.

A joint venture agreement dated 28 September 2009 states that 1MDB is eligible to appoint two directors in the composition of the Board of Directors of the joint venture. This shows that

1MDB's management does not comply with the directives of the Board to appoint three representatives in a joint venture.

Contribution form in a joint venture company, 1MDB PetroSaudi Ltd.

1MDB Board of Directors Meeting on 18 September 2009 decided that PetroSaudi contributed 50% in cash in the form of cash (or at least USD1 billion) and 50% in assets to joint venture companies.

1MDB's management does not follow the directives of the Board, otherwise agrees with the proposal as in the letter Tarek Obaid dated 28th August 2009, the contribution of the PetroSaudi division in the form of 100% assets rather than cash.

Transfer of USD1 billion to a joint venture company bank account

The 1MDB Board of Directors at a meeting dated 26 September 2009 approved a transfer of USD1 billion to the bank account of a joint venture company for the subscription of 1 billion shares in 1MDB PetroSaudi Ltd.

As at 30 September 2009, a total of USD300 million was transferred to the 7619400 account at JP Morgan (Suisse) SA, namely 1MDB PetroSaudi Ltd. but the balance of USD700 million was transferred on the same date to the 1116073 account at RBS Coutts Bank Ltd.,

belonging to another company not involved with this joint venture project.

Opening of bank account for joint venture company, 1MDB PetroSaudi Ltd.

Resolution of the Board of Directors of 1MDB dated 25 September 2009 approved the opening of BSI SA account, Geneva.

The decision to change bank account from BSI SA, Geneva account to JP Morgan (Suisse) Geneva was made through a resolution dated September 30, 2009.

The 1MDB Board of Directors raised this matter without their knowledge at the meeting on 3 October 2009.

JAN interviews with some former 1MDB Boarders found they were unaware of the existence of this resolution despite their signature on the document.

Status of ownership of the joint venture company, 1MDB PetroSaudi Ltd.

1MDB Board's directive on 26 September 2009 to appoint independent professional valuers to evaluate the assets of a joint venture company.

The joint venture agreement dated September 28, 2009 states that the assets of a joint venture are assets transferred from PetroSaudi International Cayman to 1MDB

PetroSaudi Ltd.

But the asset valuation report by Edward L. Morse dated September 29, 2009 is on PetroSaudi International Ltd.'s assets

These companies are different entities.

The assessment report also can not verify the assets owned by PetroSaudi Turmenistan 1 Ltd. (Jersey company) and PetroSaudi Ltd. Inc. (Panama company).

This poses a question of the true ownership of the 1MDB joint venture company PetroSaudi Ltd.

The second assessment of joint venture assets.

1MDB Board of Directors' Meeting on 3 October 2009 and on 10 October 2009 instruct the management to appoint independent consultants / valuers to make a second assessment of the assets of a joint venture company.

Mr Shahrol Azral informed that the Chairman of the Advisory Board disagreed with this proposal and directed the 1MDB Board to appoint a consultant to assess the ownership of a

joint venture company. However, no document proving the second assessment or appointment of consultants as instructed by the Board of Directors / 1MDB shareholders has been implemented.

Murabahah Financing Agreement between 1MDB and 1MDB PetroSaudi Ltd.

Board resolution 1MDB No.17/2011 shows the pull-out of the agreement is on June 14, 2010.

Board Resolution 1MDB No. 25A / 2012 states the date of the Murabahah Financing Agreement as June 14, 2010.

Notice of Drawing dated 12 May 2011 issued by 1MDB PetroSaudi Ltd. to 1MDB signed by Mr Tarek Obaid showing a Murabahah Financing Agreement dated 14 June 2010.

Shareholders Resolution 1MDB PetroSaudi Ltd. of shares held by 1MDB also dated 14 June 2010.

The Management Representative Letter issued by 1MDB on October 4, 2010 signed by Encik Shahrol Azral stated that theShare Sale Agreement was signed on March 31, 2010.

A copy of the Murabahah Financing Agreement dated March 31, 2010.

Equity Acquisition The 1MDB Board of Directors There is no record of the

Mastika Lagenda Sdn.Bhd. (MLSB)

through a resolution dated 25 July 2012 requires that the report / result of asset valuation, due diligence andred flags provided by the consultants be tabled at the Board Meetings.

presentation of all the reports as required by the 1MDB Board of Directors at the next meeting.

Procurement Tanjong Energy Holdings Sdn.Bhd. (TEHSB).

1MDB Board of Directors meeting on 8 February 2012 which approved the acquisition of TEHSB requires 1MDB's management to provide sensitivity analysis if the value of overseas assets is 50% off and provides a comparison of the terms of thePower Purchase Asset Agreement in Malaysia and abroad.

TEHSB's share sale and purchase agreement was signed on 2 March 2012 without ensuring that the 1MDB Board's directive on 8 February 2012 was implemented.

Redeemed SPC portfolio funds and brought back to Malaysia.

The 1MDB Board of Directors met almost every time from May 2013 to May 2015 has instructed 1MDB management to redeem portfolio investment in SPC and brought back to Malaysia.

There is no serious action taken by 1MDB management for the period of May 2013 to August 2014 to implement the 1MDB Board's directive to redeem the entire investment portfolio of SPC.

Remittance redemption money from SPC portfolio from Brazen Sky to 1MDB BIL does not comply with the 1MDB Board directives for the redemption

proceeds of the SPC portfolio to be brought back to Malaysia. The transfer of money is also not set aside for the specific approval of the 1MDB Board.

The actual status of portfolio funds in SPC.

During the Special Board Meeting of 1MDB on 12 January 2015, Mr Arul Kanda informed the remaining SPC portfolio of USD939.87   million was redeemed and held in cash since 31 December 2014.

Some facts and statements during the 1MDB Board meeting, press releases and explanations to the JAN which raised questions about the redemption of the remaining balance of the SPC portfolio amounted to USD939.87 million.

Use of Government allowances for PUKL resettlement cost.

The government has agreed to cover some development costs for relocation of RM1.117 billion while 1MDB will bear a total of RM1.60 billion under the Sungai Besi Air Base, Kuala Lumpur (PUKL) Resettlement Agreement dated 15 June 2011.

As of May 2015, the Government has fully channeled an allocation of RM1.117 billion.However, a total of RM288 million has been advanced to 1MDB and is not fully utilized to cover the cost of relocation of PUKL as the real purpose of the provision is given by the Government.

The use of term loan from Ambank (M) Berhad amounted to RM550 million.

Resolution 1MDb Board of Directors dated 3 December 2013 has granted 1MDB RE to receive a term loan facility from Ambank (M) Berhad amounting to RM550

The 1MDB RE bank statements for January 2014 show a total of RM550 million of term loans were deposited into 1MDB RE accounts on 7 January 2014. However, on the same

million with an annual interest rate of 5.09%.

The purpose of this loan is to finance part of the construction cost of replacement of PUKL to resettlement site, as well as some initial expenses and mobilization of TRX project infrastructure costs.

date, all of the amounts have been transferred to 1MDB.However, the loan should be fully utilized for the PUKL relocation cost for the Bandar Malaysia project and the TRX project.

Note of USD3 billion notes for TRX development project.

1MDB through its subsidiary, 1MDB Global Investments Ltd.(1MDB GIL) has issued USD3 billion Note on March 19, 2013 with a letter from the Ministry of Finance.

This note is published for the purpose of initial capital investment in Abu Dhabi Malaysia Investments Company Ltd. (ADMIC), a joint venture company between 1MDB and Aabar Investments PJS, as well as for general corporate purposes.

The 1MDB GIL financial statement for 2014 states that ADMIC is a joint venture company established to develop the TRX project.

The USD3 billion Notes Issue is not directly channeled to TRX project development, but is used for the following expenses:

Details USD Million

Transfer to 1MDB 1,007.04

Transfer to 1MDB Energy Ltd. 24.85

Transfer to Brazen Sky Ltd. 1.50

Investment abroad 1,581.43

Donation to the 1Malaysia People Foundation 35.00

2,649.82

Full details of proposals and

1MDB's Board of Directors at the meeting on 20th

1MDB Board of Directors Meeting on 23

payment options Aabar.

December 2014 requesting full details of the Aabar option termination is presented at the next meeting.

February 2015, the 1MDB Board of Directors raised questions regarding the termination payment of Aabar's options which were only informed to the Board of 1MDB upon payment.

Cancellation of acquisition of Tadmax Power equity.

The 1MDB Board of Directors on 20 October 2014 agreed not to proceed with the acquisition of equity in Tadmax Power following the due diligence report on Pulau Indah, Selangor, which found the land unsuitable for development as a coal-fired power plant.

Ivory Merge (a subsidiary of 1MDB) does not take action as decided by the 1MDB Board.

A total of RM34.44 million was paid in four payouts to Tadmax Resources before the due diligence assessment report wastabled to the Board of 1MDB on 20 October 2014.

Kuala Ketil Kedah Acquisition.

1MDB Board of Directors' meeting on March 24, 2015 approved a 260 acre land acquisition in Kuala Ketil Kedah for the development of 50MW solar energy with a consideration of RM33.40 million.

The purchase agreement was signed on 27 August 2015 for the acquisition of the land with a consideration of RM65 million. No document showing the difference in turnover price of RM31.60 million was approved by the Board of Directors of 1MDB.

2.5. MANAGEMENT PARTY PROVIDES INFORMATION INCLUDING IN THE BOARD OF

DIRECTORS / AUDITORS / CONSUMERS OF THE FINANCIAL STATEMENTS2.5.1. 1MDB's Board of Directors makes a decision to support and approve an investment based on information submitted by the company's management. However, JAN's revision of minutes of meetings and JAN interviews with former Board and Board members and other sources found that there were differences in information reported by management to the 1MDB Board. More information is like the following table:

TABLE7.4FALSE OF INFORMATION OR INFORMATION IMMEDIATELY GIVEN TO 1MDB BOARD OF DIRECTORS

INFORMATION GIVEN TO THE BOARD OF DIRECTORS

REPEAT JAN

The 1MDB Board has been given the impression that a joint venture with PetroSaudi is a Government to Government(G2G) business in a meeting on September 18, 2009.

Mr Casey Tang informed the 1MDB Board that PetroSaudi International Ltd. owned by Raja Abdullah and the Kingdom of Saudi Arabia and has been in existence since 2000.

The acknowledgment by Mr Casey Tang is acknowledged by several Board members and former 1MDB Boarders during a JAN interview with them in June 2015.

PetroSaudi International Ltd. website shows that it was only established in 2005, privately owned and no information indicates ownership link with the Kingdom of Saudi Arabia.

Mr. Tarek Obaid's Letter dated 28 August 2009   to YAB Prime Minister contained a proposal to set the ratio of holdings, cash flow of USD1 billion, asset value

At 1MDB Board of Directors' Meeting dated 18 September 2009, the Chairman of the Board of

and goodwillin a joint venture company.

Directors stated that the cash asset ratio of the joint venture company has not yet been finalized.

The management should provide a detailed explanation to the 1MDB Board on the proposal in Mr Tarek Obaid's letter regarding this project during the September 18, 2009 meeting.

In a joint venture agreement dated September 28, 2009, PetroSaudi Holdings (Cayman) Ltd. referred to in the acronym 'PSI' while the Written Resolution of the Sole Director of the Company signed by Mr. Tarek Obaid, referring to PetroSaudi Holdings (Cayman) Ltd. as 'PSH'.

1MDB media statement dated 30 September 2009 announced the signing of a joint venture between 1MDB and PetroSaudi International Ltd. referred to as 'PSI'.

Four different companies have been registered under the name 'PetroSaudi', namely:

1. PetroSaudi International Ltd. established in Saudi Arabia.

2. PetroSaudi International was established in the Cayman Islands

3. PetroSaudi Holdings (Cayman) Ltd.established in the Cayman Islands.

4. PetroSaudi International Ltd. established in Seychelles.

Joint venture agreement dated September 28, 2009 signed with PetroSaudi Hodings

(Cayman) Ltd. 1MDB's Board of Directors is not aware that the 'PSI' in the joint venture agreement refers to PetroSaudi Holdings (Cayman) Ltd.

In most cases, the abbreviation 'PSI' name is always referred to as PetroSaudi  International Ltd. (Saudi Arabia). This suggests that the acronym name PSI used in the joint venture seems to imply that PetroSaudi Holdingss (Cayman) Ltd. is the same entity as PetroSaudi International Ltd.(Saudi Arabia).

During the 1MDB Board meeting held on 24 July 2010, Mr Shahrol Azral informed that the Chairman of the Advisory Board has agreed to support the Board's decision to invest in the GDF Suez SA Project.

The 1MDB Board is not informed of the conditions given by the Chairman of the Advisory Board during a meeting between Encik Shahrol Azral and Chairman of the Advisory Board on 21 July 2010 so that the management must conduct such investment-related risk analysis including legal and financial due diligence.

During the meeting on June 21, 2012, the 1MDB Board of Directors was informed of receipts from the issuance of the USD1.75 billion (first one) Notes used for the purpose of obtaining Tanjong, interest payment andconsent fee to OCBC as a condition of financing the Transche 2 Syndicated Bridging Loan . The balance after the use amounted to USD300 million.

At 1MDB Board meeting on January 12, 2015, Mr Arul Kanda informed that cash balance of USD939.87 million was redeemed and held in cash since 31 December 2014.

During the 1MDB Board meeting on March 3, 2015, Mr. Arul Kanda informed that although he had instructed Encik Azmi to pay Deutshce Bank's total loan amounting to USD975 million using SPC's redemption proceeds, Encik Azmi informed BSI Bank to reject the use of the redemption proceeds through the method until receiving The appropriate indemnity of Deutsche Bank releases BSI Bank from any liability related to the use of funds in such manner.

During the 1MDB Board meeting on March 24, 2015, Encik Arul Kanda informed that Encik Azmi had explained that the full redemption of SPC's portfolio investment had taken place in early January 2015 by Aabar agreeing to buy the remaining balance of USD939.87 million from Brazen Sky to facilitate the redemption process portfolio investment ahead of original planning.

The 1MDB Board of Directors is not informed of the actual use of receipts of USD1.75 billion Notes (the first) to pay arranger fee , commissions to Goldman Sachs, security deposit and Tanjong acquisition. Tanjong Earnings are paid in the amount of USD785.67 million compared to the USD900 million notified. A sum of USD576.94 million has been paid as a security deposit to Aabar Ltd. The remaining after use amounted to USD194.89 million.

Several statements given by 1MDB's management from January 12, 2015 to May 2015 provide an overview of the varied information according to the situation where the balance of the SPC portfolio amounted to USD939.87 million which was originally said to have been redeemed in cash but is now reportedly still held as a unit.

The last development on May 25, 2015 is

During the 1MDB Board meeting on April 23, 2015, Encik Azmi informed that the balance of USD939.87 million which was supposed to be received from Aabar was still in the SPC portfolio fund structure as Aabar had not yet confirmed that the payment could be made.

During the meeting on May 11, 2015, the 1MDB Board of Directors was informed that the payment for the acquisition of Brazen Sky by Aabar has not yet been received.

During a meeting on May 25, 2015, the 1MDB Board of Directors informed that negotiations are underway for Aabar to acquire a portion of the assets of the 1MDB Group together with two note notes of USD amounting to USD3.50 billion. The Binding Term Sheet with an advance payment of USD1 billion will be finalized at the end of May 2015.

the third time the redemption of the remaining balance of the SPC portfolio has changed.

2.5.2. Paragraph 290.167, Part 1 of the MIA Handbook states that management is responsible for preparing fair financial statements in accordance with financial reporting standards including providing original origins of documents / data in electronic form or manual as a transaction support. Section 167A of the Companies Act 1965 stipulates that the Board of Directors is also responsible for the internal controls that the management has to designate to enable the preparation of financial statements that are free of material misstatement whether due to fraud or error. An example of the difference in information provided to auditors / users of the financial statements is as follows:

TABLE7.5FALSE OF INFORMATION OR INFORMATION IMMEDIATE GIVEN TO THE AUDITORS / USE OF THE FINANCIAL STATEMENTS

INFORMATION CONTINUED TO

EXTERNAL / CONSUMER AUDITORS

REPEAT JAN

Messrs KPMG is given a Share Sale Agreement dated 31 March 2010 showing the sale of all 1MDB equity holdings in 1MDB PetroSaudi Ltd. through the subscription method of the Murabahah Note issued by 1MDB PetroSaudi Ltd. However, Messrs. KPMG was not awarded 1MDB shareholder PetroSaudi Ltd. dated 14 June 2010 in relation to the Murabahah Financing Agreement.

Murabahah Financing Agreement approved by 1MDB PetroSaudi Ltd. shareholders on 14 June 2010 despite the financial statements ending 31 March 2010 stating that this agreement was signed on 31 March 2010.

Messrs. KPMG was not provided with Call Option information to Aabar Investments PJS Ltd. (Aabar Ltd.) which took effect after the date of the 2012 financial statements.

Important information is not disclosed in the Notes After the Financial Statement Date in the financial statements of the 1MDB Group for the year ended 31 March 2012 as follows:

Call Option given to Aabar Ltd. through the Option Agreement dated 18 May 2012 to acquire 49% equity in Powertek Investment Holdings Sdn. Bhd. (PIHSB).

Call option granted to Aabar Ltd., through Option Agreement dated 17 October 2012 to acquire 49% equity in 1MDB Energy (Langat) Sdn. Bhd.

Corporate guarantee granted by IPIC to the second issue of USD1.75 billion Note by 1MDB Energy (Langat) Ltd. (1MELL).

The 1MDB management informed JAN on 9 September 2015 that physical payment was made through a bank account of Brazen SKY Ltd. at BSI Bank on behalf ofterminating company to Aabar as 1MDB does not have a bank account abroad.

Aabar's termination payment was found to have not been effected through the bank account of Brazen Sky Ltd. The proceeds from the redemption of the SPC portfolio fund amounting to USD1.392 billion have been deposited into the Brazen Sky Ltd. bank account. between September 11, 2014 and November 24, 2014.

In the near-term (September 12 to December 8, 2014), a total of USD1.417 billion has been transferred to 1MDB Global Investments Ltd. (1MDB GIL).

2.6. FILM MAINTENANCE AND SYSTEMATIC RECORDS2.6.1. Section 167 of the Companies Act 1965 states that the Board of Directors and the management of the company must keep a good record of accounting that details the company's financial transactions and financial position and should ensure that account transactions are properly recorded.

2.6.2. JAN's review found some serious weaknesses in file management and 1MDB records. Since March until November 2015, Jan has applied for a bank statement of the 1MDB Group and documents related to joint venture including bank statements, Board meeting minutes, cash flow statements, management accounts and investment decisions. However, until the audit

expires, important documents, especially foreign bank statements, can not be submitted by 1MDB to the JAN.

2.6.3. Additionally, it is found that all relevant document files for each project are kept and managed individually by only 1MDB officers involved. Therefore, many project-related documents requested by JAN can not be submitted by 1MDB on the grounds of an exchange of officers.

2.6.4. For some other important documents such as the TIA Shareholders' Resolution dated 27 May 2009 on IMTN's postponement order and the abolition of Encik Shahrol Azral as the TIA Chief Executive Officer, the JAN has obtained the relevant documents from the Ministry of Finance file, not from 1MDB. This is because the document is not in the 1MDB savings file as opposed to other documents on the same date, in the company's deposit.

2.6.5. JAN received two Collaboration Agreement for Credit Enhancemant dated 21 May 2012 and 19 October 2012 for the issuance of two USD1.75 billion Notes for the 1MDB Group's energy sector acquisition. The first agreement was made between 1MDB Energy (Langat) Sdn. Bhd. (1MEL) and Aabar Ltd. while the second agreement between 1MDB Energy Holdings Ltd. (1MEHL) and Aabar Ltd. However, the copy of the two agreements submitted to JAN was found to be incomplete.

2.6.6. Overall, the maintenance of records and documents in 1MDB was unsatisfactory. 1MDB's failure to keep company records properly, complete and systematically should not have been due to the fact that as a wholly-owned company, 1MDB operates at least should be equivalent to other GLC governance practices such as Khazanah. The decisions of making an investment in a short period without detailed assessment indicate that the Board and management of 1MDB have compromised with check and balance elements which are fundamental controls to protect the interests of a company.

-TAMAT-

CHAPTER 8

SUMMARY 30 July 2016

 

 

Overall, the 1MDB Group's performance is not satisfactory. After operating for six years, 1MDB faces debt and cash flow problems. The company is forced to sell strategic assets such as energy and property assets to settle its debt. This is despite the fact that the Government has provided assistance through guarantees, support letters and standby credit.

In terms of governance, as a 1MDB government company managing so much funds should adopt good governance principles such as guidance issued by the Putrajaya Commitee on High Performance GLC through Green Book: Enhancing Board Effectiveness and Blue Book: Intensifying Performance Management Practices. However, many practices by 1MDB's management point to weaknesses in governance such as not complying with the 1MDB Board's decisions and instructions, actions taken by the management prior to the special approval of the 1MDB Board and significant investments were made without detailed assessment.

To date, the objective of the establishment of 1MDB as a strategic development catalyst and promoting inflow of foreign investment into the country has not yet been fully achieved. For example, investment made in the energy sector to strengthen national energy security and long-term strategic investment is not achieved as it has been sold to foreign investors. This is because the company is forced to give priority to managing loans which have risen dramatically during the period of operations from RM5 billion in May 2009 to RM55 billion in October 2015.

1MDB's business capital is too dependent on loans and this is extremely burdensome and insufficient as companies do not have enough income to finance their loans and operating costs. Although the rationalization plan can reduce the debt burden, the Government still needs to help pay off the company's debt in the future if it can not borrow from financial institutions or other parties.

Indeed, the experience experienced by 1MDB has gained broad public and international attention should be a lesson to all of the country's GLCs about the importance of efficient governance and integrity. In terms of best practices in corporate governance, Malaysia has had guidelines and guidelines that are always complied with by all GLCs.

-TAMAT-