1MDB-Tanore Trial: CEO accepted 'face value' valuation on PSI assets

KUALA LUMPUR (Oct 24): 1Malaysia Development Bhd (1MDB) had agreed that the valuation of the assets to be injected by PetroSaudi International Ltd (PSI) into their 2009 joint venture (JV) would rely on the latter's representation at "face value", the High Court was told today.

This was revealed by defence counsel in the 1MDB-Tanore trial, Tan Sri Muhammad Shafee Abdullah, who produced valuer Edward L Morse's letter of appointment to estimate the worth of the oil and gas assets.

This letter included the signature of prosecution witness Datuk Shahrol Azral Ibrahim Halmi, who inked it in his capacity as 1MDB's chief executive officer at the time.

In the letter, it was underlined that Morse's valuation would ignore the ownership of the assets, and would not include an actual site visit on the assets, said Shafee in the High Court today.

"The valuer said it will rely on PSI's representation at face value. Which is what you did," said Shafee to Shahrol, referring to how the witness justified multiple times that 1MDB relied on scant information from PSI when 1MDB entered the joint venture without a proper due diligence.

To recap, 1MDB spent US$1 billion to form a 40:60 joint venture with PSI, which in turn will inject US$1.5 billion worth of assets.

Part of the agreement also entailed 1MDB diverting US$700 million of its investment to repay a debt to PSI, as the hydrocarbon assets injected were supposedly worth US$2.2 billion.

The US$700 million was instead transferred to Good Star Ltd, a purported subsidiary of PSI that actually belonged to businessman Low Taek Jho — also known as Jho Low.

Further, the assets injected by PSI were only worth US$108 million — meaning 1MDB was scammed and short-changed.

Shafee: Please answer my question: It does not matter the fact that the value has been made, it says that scope of work does not include ownership. Doesn't it alarm you?

Shahrol: It does not alarm me.

Shafee: You agree with me that the valuation could be US$10 billion, but it does not matter if it does not belong to PSI?

Shahrol: Yes.

Shahrol claimed he did not act on the lack of information, because he trusted PSI and his fellow executive Casey Tang — a 1MDB appointee of Jho Low — who worked the JV deal.

"1MDB, like fools, put in US$1 billion for 40%," responded Shafee. "They (PSI) only put in US$108 million and took 60%."

Morse was appointed on Sept 20, 2009. The JV agreement was signed between 1MDB and an impostor PSI company — PetroSaudi Holdings (Cayman Ltd) — eight days later.

Shahrol served as 1MDB CEO in 2009-2013, and remained as a director in the company until 2016.

In the 1MDB-Tanore trial, Datuk Seri Najib Abdul Razak faces 25 criminal charges for the alleged embezzlement of billions of ringgit in 1MDB funds. The trial resumes on Tuesday (Oct 29).

The Edge is reporting the proceedings of the 1MDB-Tanore trial live.

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