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1MDB CEO says there’s no possibility of a cover-up: report

Signage for 1Malaysia Development Bhd. (1MDB) is displayed at the site of the Tun Razak Exchange (TRX) project in Kuala Lumpur, Malaysia.
Goh Seng Chong | Bloomberg | Getty Images
Signage for 1Malaysia Development Bhd. (1MDB) is displayed at the site of the Tun Razak Exchange (TRX) project in Kuala Lumpur, Malaysia.

The chief executive of a troubled, deeply indebted Malaysian investment fund strongly rejected accusations of a cover-up, Channel NewsAsia reported.

"There is no possibility of a cover up, there is no concealing," Arul Kanda Kandasamy, who took the helm of 1Malaysia Development Berhad (1MDB) around a year ago, said in an interview with Channel NewsAsia.

Arul blamed Malaysia's political opposition for criticism of the fund as well as for 1MDB's struggle to get "better value" when selling its assets.

"It's a factual matter, if you have a sales process going on and you are bogged down by negativity, it impacts market sentiment," he told Channel NewsAsia. "All negative noises have reduced the pool of investors and naturally that has impacted the prices that can be achieved."

1MDB, which was launched in 2009 as one of Prime Minister Najib Razak's pet projects, has been under scrutiny for months amid allegations of financial fraud. The fund is undergoing a "rationalization" program, launched in May, to reduce its debt of more than $11 billion by selling assets.

In November, 1MDB sold its power plants for 9.83 billion ringgit ($2.3 billion) to a Chinese nuclear power supplier. It's reported to have paid around 12 billion ringgit for the assets.

At the end of December, 1MDB said it had agreed to sell a 60 percent stake in the Bandar Malaysia property development project to a Chinese-led consortium. But the Financial Times reported that the $1.7 billion valuation 1MDB put on the sale didn't match an effective $1.2 billion valuation China Railway Engineering, a consortium member, put on the deal.

On its website, 1MDB said the accusations of mis-valuation "appear to be last ditch attempts by members of the opposition to undermine the company's rationalization process." It said the figures China Railway Engineering provided to HKEx were the company's estimated share of the net equity value of the project, not the land sale valuation. The net equity value may be subject to further negotiations, 1MDB said.

That's a view Arul repeated in the interview with Channel NewsAsia.

"It's typical of the opposition when they have lost their argument and they have no more bullets left," he said. "They are scraping the bottom of the barrel to justify their existence."

Arul also told Reuters that 1MDB may redeem some outstanding debts -- particularly an expensive $3 billion overseas issue that was arranged by Goldman Sachs -- early if payment for the land sale can come through quickly.

"If we repay the bonds, in theory we can close down the company. So long as the bonds remain, the company will remain," said Arul told CNBC.

The bond, with a 4.4 percent coupon and 2023 due date, was one of the worst performers among those on the JP Morgan Asia Credit Index last year, losing a third of its price in September, Reuters said.

The fund has become what is likely Malaysia's worst-ever political scandal.

In July, the Wall Street Journal published a report alleging that nearly $700 million had flowed from 1MDB to Najib's personal bank account. Najib has repeated denied wrong-doing.

Under pressure from the WSJ report, Najib said in August that the funds were a private donation from Middle Eastern country, which he declined to name.

In December, the WSJ reported that the funds may have been channeled to politicians and projects to help his party win 2013 elections. Minutes from 1MDB meetings indicated the fund prioritized political spending even when its cash flows couldn't cover its debt payments, the WSJ reported.

The Channel NewsAsia article can be seen here