Swank UK Hotel Bid Backed by Malaysian Gov't?

Mystery tycoon Taek Jho Low, a close friend of Prime Minister Najib Tun Razak’s wife Rosmah Mansor, used backing from the Malaysian government’s sovereign fund 1Malaysia Development Bhd in a vain 2011 bid to buy three prestigious London hotels including Claridge’s, according to documents filed in the Chancery Division of the UK’s Royal Courts of Justice.

The role of 1MDB – which is chaired by Najib – in backing Low’s bid for Claridge’s and two other famed London hotels has long been rumored, and has been denied. But the 158-page judgment by Justice David Richards confirms that not only did the Malaysian government back the bid by the flamboyant, Penang-born Low, but an unnamed Malaysian bank also was behind the failed effort.

Low, 32, used the US public relations firm Edelman to adamantly deny that his privately-owned Wynton Group was backed by Malaysian government funds. In a statement to the Malaysian news portal KiniBiz, Edelman said: “Neither Low nor any company in which Low is a shareholder has ever received any compensation directly from TIA [the Terengganu Investment Authority, which morphed into 1MDB], 1MDB or the Government of Malaysia, or from any activity related to TIA.”

That is technically true. The Malaysian government fund’s promise of backing for the hotel bid didn’t actually involve funds, since the bid failed. Despite those denials, Low has long been described as the motive force behind turning the Terengganu Investment Authority, which was created out of the state’s oil wealth with the help of the Terengganu sultan, into 1MDB.

Using the nickname Jho Low, the tycoon has also made a notorious name for himself by partying with Paris Hilton and others at New York events that sometimes included Rosmah. He has been photographed buying copious amounts of Cristal Champagne, which retails for about US$200 a bottle.

The 1MDB fund has been controversial almost from the time it was established in 2009. As reported by Asia Sentinel on Feb. 26, it is believed the fund may have run up as much as RM40 billion (US$12.18 billion) in debt and has few assets to show for it beyond what are described as overpriced acquisitions of independent power producers in Malaysia.

Deloitte Malaysia belatedly filed accounts for the financial year ended March 2013 after KPMG suddenly quit earlier this year. The delayed, much-awaited accounts indicated that the fund’s RM7-billion investment in the Cayman Islands is basically out of its control, according to an analysis by the opposition business website KiniBiz. The news site described the RM877-million pretax profit for FY13 as paper gains with RM2.73 billion in property revaluation offsetting RM1.8 billion in actual losses.

Deloitte said impairment of goodwill is another cause for concern. The auditors said 1MDB overpaid by RM1.2 billion for its power assets, although Abu Dhabi entity Aabar Investments and Ananda Krishnan-linked Tanjong have options to take up a substantial part of 1MDB’s power assets. The fund has cash reserves of RM23-billion against debts of RM36 billion, according to the report.

When 1MDB began operations it was granted a vast and enormously valuable chunk of land that previously had been the Royal Malaysian Air Force’s base close to the center of Kuala Lumpur. The 196-hectare site was to be turned into a new downtown financial district.

Somehow, according to numerous reports, despite the fact that 1MDB was created to buy up domestic Malaysian investment opportunities, it soon acquired a strategic partner in the form of an obscure Saudi firm, PetroSaudi International, headed by Tarek Essam Ahmad Obaid, a member of the vast Saudi royal family. Reports indicated that PetroSaudi had signed a memorandum of understanding with Ghana National Petroleum Corp. although the MOU has apparently not resulted in a major project.

According to a statement by Azmi Khalid, the chairman of the Malaysian parliament’s Public Accounts Committee, 1MDB loaned PetroSaudi about US$1 billion, leading to additional questions over why a government fund set up to explore domestic investment was loaning money to a joint venture in Africa. Despite its royal links, PetroSaudi was unable to come up with its own cash in the joint venture but got 1MDB to accept a potential oil site in Turkmenistan. Subsequently, the loans to PetroSaudi climbed to US$1.7 billion.

The details of the bid for Claridge’s and two other hotels are found in the document, which was made available to Asia Sentinel by Clare Rewcastle Brown, editor of The Sarawak Report.

According to the judgment, in January 2011, 1MDB submitted a letter on behalf of Low and The Wynton Group to buy the Coroin Hotel Group, which also owns The Connaught and The Berkeley, together three of London’s most prestigious hostelries.

The 1MDB pledge backed Wynton in a final offer of £1.028 billion (US$1,734 billion).

The sale caught the attention of the British press as a contest for ownership of some of the UK’s most famed hostelries after a 39 percent controlling interest was put on the market by businessman Derek Quinlan, who had suffered financial reverses.

London’s Barclay Brothers beat out the Wynton Group and others to take ownership of the hotel chain. However, other shareholders questioned their methods, resulting in the legal case and the ensuing judgment.

Justice Richards reported that a number of other bids had been made, and that one of them came from Wynton Group, represented by Low, a businessman with some backing from a Malaysian sovereign wealth fund. “Through an entity called The Wynton Group, offers were made to the company and its shareholders in January and February 2011, ″ Richards wrote.

It appears, however, that the minority shareholders weren’t convinced by Low or the support of the Malaysian government. As the justice wrote: “These [offers] were not at the time taken seriously by most of the shareholders.”

Low, however, came back with a revised letter of intent on Jan. 3, 2011, proposing acquisition of all the shares on the basis of an enterprise value of £1 billion. An accompanying letter from a Malaysian Bank indicated that it intended to raise up to £950 million of debt and/or mezzanine finance and £50-£100 million of equity.

“The provision on 15 January 2011 of a letter from 1 Malaysian Berhad (sic), an investment vehicle wholly owned by the Malaysian government, confirming its support for the offer, did not allay the concerns of the majority of the shareholders,” Justice Richards wrote. “A further letter from Wynton dated 24 January 2011 stated that the financing for the offer had ‘in principle’ been fully underwritten by Malaysian government-backed investment funds.”

Despite that letter, the UK shareholders turned down the Wynton offer. As Justice Richards described it, one of the shareholders said the offer was “pure fantasy.”

In an email dated Jan. 11, 2011, that shareholder wrote that “my sense is that it is an offer that can’t really be delivered either in time or structure. The delivery of the Malaysian government bond is not guaranteed and the deal may end up in an open-ended bridging situation because it does not have the proper financing. I also sense that some Malaysian government may have a political motive and that will naturally delay execution. I am conscious that on paper the Malaysian deal is better to me personally, however, we should be looking at credibility and execution.”

The letter confirms that the offer referred to by Justice Richards had been placed on the table with the written backing of 1MDB for a bid of just over £1 billion pounds.

“The role of Jho Low as far as 1MDB is concerned is zero,” said 1MDB CEO Datuk Shahrol Halmi, denying that Low has received compensation for his previous role in the firm.

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