Former Finance and Prime Minister Najib Razak continues to make a complete fool of himself by showcasing how financially illiterate he really is.

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 that if the government had 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 that 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 had 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 5.99% interest rate, was trading at US$105.27 for every dollar on 31 December 2020.  On paper, this means that, to redeem US$1 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.

Thankfully, Pakatan Harapan succeeded in unseating Najib in the 2018 election. We had 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 for 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 Razak 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

MP for Damansara