MP SPEAKS | It's called 'bond', not 'bank loan', for a reason

MP SPEAKS | Najib Razak is getting more and more adept at putting his foot in his mouth.

The latest came yesterday when the former finance and prime minister questioned why his successors did not pay off 1MDB's bonds ahead of the maturity date to save on interest costs.

Najib said if the government used the funds recovered from Goldman Sachs, the US Department of Justice, Ambank, KPMG, and Deloitte, it could have paid off the bonds.

Najib thinks redeeming bonds traded in the bond market is like paying off his housing loan with a bank. Except it isn’t, and that’s why it’s called a bond, and not a bank loan.

If Najib kept his mouth shut and sought advice first from his former bankers in Goldman Sachs, they would have schooled him that it is not normal for bonds to be redeemed early because it tends to be very costly to do so.

For example, the US$1.75 billion bond maturing in May 2022 with a 5.99 percent interest rate, was trading at US$105.27 for every dollar on Dec 31, 2020.

On paper, this means to redeem US$100 dollar of borrowing, the government will have to pay US$105.27, or a premium of US$5.27.

Goldman Sachs will further advise the clueless former finance minister that, if the government attempts to acquire or redeem the entire bond issuance, the premium to be paid will shoot up further.

Just as in the stock market when the demand for a stock rises, the share price rises – it is similar in the bond market.

Hence, there is little likelihood for the government to save interest charges via early redemptions.

Financially, the only time when it could possibly make sense for the government to redeem the bonds early is if the bonds are trading at a very significant discount in the bond market.

Then theoretically, the government could try to buy up the bonds below the face value of the bonds.

However, in reality, if the market catches on that the government is buying back bonds in the market, then the price of the bonds will shoot up significantly again.

Regardless, this possibility is moot, because all of the bonds issued by 1MDB are all trading at a premium to the face value today.

Perhaps, it is because Najib is so clueless, corrupt, and greedy that he was so easily deceived by Jho Low, and paid Goldman Sachs a world record 10 percent in fees and commissions, indebting Malaysia with more than RM50 billion of 1MDB debt as a result.

Thankfully, Pakatan Harapan succeeded in unseating Najib in the 2018 election.

We initiated the process to recover all the stolen funds via 1MDB and its related companies with the assistance of the US Department of Justice, as well as to claim billions of ringgit of damages against unscrupulous companies such as Goldman Sachs, and irresponsible auditors such as KPMG and Deloitte Malaysia.

Despite the above, Najib can be so shameless as to try to shift the blame to the subsequent governments for failing to redeem the debts early with the proceeds from the recovery of the funds which he misappropriated.

Can you imagine the horror if he were to return as the next prime minister of Malaysia?

TONY PUA is the Damansara MP and DAP national publicity secretary.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.