CEO Morning Brief

Shahrol: I Signed Off on RM1.8b SRC Investment Without Due Diligence Because Najib Already Approved the Deal

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Publish date: Thu, 18 Apr 2024, 11:06 AM
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TheEdge CEO Morning Brief

KUALA LUMPUR (April 17): Despite having doubts on a RM1.8 billion investment that SRC International Sdn Bhd was undertaking, Datuk Shahrol Azral Ibrahim Halmi, who was then a director of SRC, told the High Court here that he signed off on it without doing due diligence because then prime minister Datuk Seri Najib Razak had given his nod.

The 54-year-old was testifying as a third party in SRC’s US$1.18 billion (RM5.64 billion) civil suit against Najib and the company's former chief executive officer Nik Faisal Ariff Kamil, who is currently at large. Shahrol said that while he had his reservations about the investment, he signed off on it as he had seen instructions signed by Najib for the board to sign their approval for the investment.

Shahrol said this under questioning from Najib’s lawyer, Harvinderjit Singh, who was questioning him on the manner in which the investment was passed without any due diligence having been carried out.

Harvinderjit: Ultimately, the board of directors decided that once they see the investment [product], they will tell the board of advisers [helmed by Najib] on this matter?

Shahrol: Yes.

Harvinderjit: We went through two resolutions signed by the board. This is concerning RM1.5 billion to SRC British Virgin Islands (SRC BVI). [There was] also a RM300 million advance to Julius Baer in Hong Kong. The board signed off on this without meeting bankers on the nature of the investment?

Shahrol: Yes.

Harvinderjit: Surely, the board [should have decided] on the advance [RM1.5 billion to BVI] and what was the best advice for the company. [It was not right] to formulate and pass it without having met the bankers.

Shahrol: We were shown signed instructions by the prime minister. That’s why we signed the directors' circular resolution (DCR) to pass the funds.

The funds originated from a RM4 billion loan SRC had taken from Retirement Fund Inc (KWAP), which was given in two tranches — one in the second half of 2011 and the other in the first half of 2012.

On Nov 14, 2011, Shahrol, as part of the board of directors of SRC on the whole, had resolved to advance RM1.8 billion to SRC BVI, its foreign subsidiary incorporated in the British Virgin Islands for investment purposes, in which RM1.5 billion was to be transferred to Falcon Private Bank Ltd's Hong Kong branch, and RM300 million to Bank Julius Baer & Co Ltd Hong Kong.

These were to buy overseas companies in the energy and natural resources sector, namely PT ABM Investama and Bumi Resources Tbk PT in Indonesia, as well as Gobi Coal and Energy Ltd, and Erdenes-Tavan Tolgoi in Mongolia.

Bank Negara Malaysia (BNM) had also granted permission to SRC to transfer RM1.8 billion from the first-tranche funds to SRC BVI, on condition that the sum was to be used for the specified purposes. The RM1.8 billion was to be deposited with a licensed local bank, and the sum was only to be transferred to SRC BVI after investment negotiations with the overseas companies were concluded.

Due diligence not done because Najib had already given his approval

In his opening remarks at the start of the trial, P Gananathan, a co-counsel for SRC, said that the company had disregarded multiple conditions set by BNM on the outflow of the monies.

He said that due diligence was not carried out on the overseas companies prior to the purported investment activities being carried out, and that the purported investment activities were a departure from the nature of business and the objectives of SRC, which led to the money being siphoned off and misappropriated.

“The monies were transferred out to an overseas account before any investment negotiations were concluded,” he said.

In the trial on Wednesday, Shahrol said that due diligence was not done as Najib had already given his approval in writing for the investment.

“I took it that the prime minister had his own plans that I was not privy to, so I went along with the DCR to approve the investment,” he said.

Harvinderjit: Surely, you are not suggesting that at that time, you thought that you as a director, the ultimate shareholder (Najib) was instructing you to sign?

Shahrol: Yes.

Harvinderjit: Let’s understand this. You had not satisfied yourself that the investment product from Julius Baer or Falcon Bank was viable?

Shahrol: At that time, I wanted more information, but I didn’t think it was suspicious.

Harvinderjit: So, in effect, if I could suggest, in your mind you have abrogated to manage the affairs [of SRC] because the shareholders’ resolution [where Najib signed off on the investment] was enough to formalise this as a director?

Shahrol: I disagree with the word 'abrogate'. I felt this was my instruction. I felt this was what the prime minister wanted as the finance minister and sole shareholder at that time, and this was what Nik Faisal presented to the board. This was what Najib wanted, and it seemed to be OK, so I signed [of on the investment].

Harvinderjit: And what was the basis for you to forgo your need for a query?

Shahrol: It wasn’t only instructions. This was signed by the PM, who was also the finance minister and shareholder of 1MDB, so that carried a lot of weight. We tried to find as much info as we could, but when it came to execution, the PM [had] signed off [on the investment], so we had to do it. I felt I was under obligation from the instructions of the PM [to do so]. I would have preferred for information to be available, but I went ahead and signed it.

Harvinderjit then suggested that Shahrol’s actions were a breach of duty as a director of the company, to which Shahrol disagreed.

During the opening of the trial on March 5, Gananathan further added that Najib as the first defendant in the suit had disregarded the first permission by BNM through resolutions he had passed in SRC, as he was a shareholder through Minister of Finance Inc (MOF Inc). Najib was the finance minister at that time.

SRC claimed that out of the total KWAP loan of RM4 billion, RM3.6 billion was immediately transferred out when the funds came into SRC, of which US$120 million allegedly ended up in Najib’s bank account.

SRC is also seeking an order that Najib pay the US$1.18 billion in losses it suffered, and damages for breach of duties and trust, including an order that Najib compensate the company for the sum of US$120 million that allegedly went into his bank account.

SRC has obtained a judgement in default against Nik Faisal, who was named as Najib’s proxy, in the civil suit.

Najib, meanwhile, has been jailed since Aug 23, 2022. He was sentenced to serve a 12-year jail sentence and fined RM210 million, after being convicted of misappropriating RM42 million of SRC's funds. But his jail sentence was recently reduced to six years, while the fine was cut to RM50 million by the Pardons Board.

This civil trial is before High Court judge Datuk Ahmad Fairuz Zainol Abidin.

Source: TheEdge - 18 Apr 2024

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