Arbitrage opportunity for speculators in ventilators

The details of an extraordinary deal for the sale of ventilators to Hungary have been revealed to journalists in Malaysia and Hungary.
Under pressure of pandemic, the Malaysian businessman Vinod Sekhar sold at least 800 ventilators to the Government of Hungary for a figure close to $60m. It has been alleged that this is some ten times greater per item than the prevailing market price.
The following are the particulars of the contract. It is dated 26 March 2020, so right at the start of the pandemic, when countries were under huge pressure to raise their stock piles of equipment, among which were ventilators. These were in particularly short supply.
The parties to the contract are GR Technologies of Kuala Lumpur Malaysia, Datuk Vinod Sekhar and the Ministry of Foreign Affairs and Trade, Federal Republic of Hungary, based in Budapest, Hungary. Sekhar is described as the seller.
It is understood that the ventilators were supplied from China (with whom Hungary has formed a bridge to supply many forms of medical supplies to fight the pandemic).
Vinod Sekhar is a close ally of Anwar Ibrahim, a Malaysian opposition leader, and funds media sympathetic to Ibrahim. Vinod Sekhar was declared a bankrupt by the Malaysian High Court in 2005 but cleared of his bankruptcy status last year.
The first clause of the contract describes the ventilator as an ‘invasive medical ventilator device’ which will cost $73,500 per unit. The contract specifies a purchase number of 800. On this basis the cost of a single ventilator is $91.875. The total price given for 800 is given $58.8 million. Insurance and freight costs add a further $1,800,000.
Germany purchased almost twice as much equipment from China as Hungary (1014.3 tons) for less than a tenth of the Hungarian price (30.7 million euros), according to an article published on 27 August 2020, on the Hungarian website Direkt36.

The total weight of equipment purchased by the Netherlands was also larger (582.3 tons), but the country paid less than one-thirtieth of the Hungarian price (€13.7 million). Italy imported almost the same weight of equipment (551.8 tons) as Hungary but paid less than a tenth of the Hungarian price.

The contract gives the buyer a generous 2% discount of $1.8m. This makes the total cost to the Government of Hungary $58 million.
The widely differing price range for ventilators bought by Hungary has been noted by Vadai Agnes, an MP from the Hungarian Democratic Coalition Party. She stated that, the Ministry of Foreign Affairs and Trade had bought one ventilator unit for an average price of $67,000 while the National Healthcare Service Centre had bought one unit for an average price of $36,000.
Clause 1.2 of the contract looks forward to an additional contract for the supply of 5,200 ‘sets of equivalent ventilators’. In the new contract, ‘the detailed terms of payment and delivery schedule of the remaining 5,200 sets will be finalised.’ No further details of a second or further contracts are given in this contract.
The total cost of 6000 ventilators at an individual cost of £91,875 is $55,125,000. This figure does not include any discount (that is the 2% offered on the first instalment). Press comment has pointed to a figure of $0.5 billion for all 6000 ventilators.
The third clause of the contract specifies the requirement for an advance payment of 100% of the total CIF value. CIF refers to “Cost, Insurance, and Freight” (CIF) which means that the Seller is responsible for delivery of the goods to a ship, loading the goods onto the ship, and insuring the shipment until it reaches the port of destination. This advance payment of $58m is due before 11pm (Budapest time) on 27 March 2020.
One Malaysian source expressed surprise at the required for 100% payment upfront, given that the ventilators were being sourced elsewhere and thus there had to be an element of risk associated with their delivery.
The money was required to be sent in two tranches, and to two different bank accounts in two different banks. The first tranche of $29,060,000 is required to be sent to an account at the Bank of Communications in Hong Kong. The account number has been deleted from the contract.
The second tranche of $28,940,000 is required to be sent to RHB Bank Berhad Singapore. Again the account number has been deleted.
The reason for these strangely uneven numbers (which jointly aggregate to the $58m figure) is not clear but may indicate the seller, Sekhar, intended to differentiate the payments and or to bypass a red flag.
The signatories of the contract are given as Datok Vinok Sekhar, on behalf of GR Technologies and Dr Csaba Balogh, Minister of State, Ministry of Foreign Affairs and Trade. It is dated 26 March 2020. Sekhar’s stamp or signature is absent from the contract I have seen.
According to the Foreign Ministry, the large quantity did not bring lower prices, on the contrary: “if someone wanted to buy more, they had to pay more,” Péter András Sztáray, State Secretary of the Ministry of Foreign Affairs responded to a written question, adding that ”human life cannot depend on money.”

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