Bank loan

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

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

The latest came yesterday when the former Finance Minister questioned why his successors had not redeemed 1MDB bonds before the maturity date to save on interest charges.

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

Najib thinks buying bonds traded on the bond market is like paying off his home loan from a bank. Except it’s not, and that’s why it’s called a bond and not a bank loan.

If Najib kept his mouth shut and sought advice from his former bankers at Goldman Sachs first, they would have taught him that it is not normal for bonds to be redeemed early as this tends to be very expensive.

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

On paper, this means that to buy back $100 of the loan, the government will have to pay $105.27, or a premium of $5.27.

Goldman Sachs will further inform the distraught former finance minister that if the government attempts to acquire or redeem the entire bond issue, the premium to be paid will increase further.

Just like in the stock market, when the demand for a stock increases, the stock price goes up – it’s similar in the bond market.

Therefore, the government is unlikely to save interest charges through prepayments.

Najib Abdul Razak, former Minister of Finance and Prime Minister

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

So theoretically the government could try to buy back the bonds below the face value of the bonds.

However, in reality, if the market understands that the government is buying back bonds in the market, the price of the bonds will rise significantly again.

Either way, this possibility is moot, as all bonds issued by 1MDB are all trading at a premium to their face value today.

It may be because Najib is so clueless, corrupt and greedy that he was so easily tricked by Jho Low and paid Goldman Sachs a world record 10% in fees and commissions, putting Malaysia in debt with more than RM50 billion of 1MDB debt as a result.

Fortunately, Pakatan Harapan managed to overthrow Najib in the 2018 elections.

We have initiated the process to recover all funds stolen through 1MDB and its related companies with the assistance of the US Department of Justice, as well as to seek billions of ringgits in damages from unscrupulous companies such as Goldman Sachs and irresponsible auditors such as KPMG. and Deloitte Malaysia.

Despite the above, Najib can be brazen enough to try to pin the blame on subsequent governments for not repaying debts sooner with the proceeds of recovering the funds he embezzled.

Can you imagine the horror if he returned as the next Prime Minister of Malaysia?

TONY PUA is the MP for Damansara and the DAP’s National Publicity Secretary.

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