PetroSaudi The Secret Story

PetroSaudi Story: Makings of the mega deal: Part Two

The arrangements for the joint venture deal between PetroSaudi and 1MDB,. the Malaysian Sovereign Wealth Fund, were made between Patrick Mahony and Jho Low (acting for Najib) and his lawyers. When 1MDB board and CEO learnt about it, they were totally surprised. No-one had told them about this massive shift in their corporate capital until it was all done – and even then not in any detail. Najib publicly sought to present with a high degree of elaboration as a state-to-state venture. He made out as if PetroSaudi were an official Saudi entity.  In fact it was just the creation of a few guys, set up on the fly and with [histherto] no substance.                                   

Because the deal was done so quickly it contained many inconsistencies. For example, the bank account of the joint venture company PetroSaudi 1MDB, at JP Morgan Suisse, was only opened five days after PetroSaudi had supposedly loaned the joint venture company money. this inaccuracy was made clear in the later US Department of Justice report.

The joint venture was wound up six months later, on 31st March 2010, the day before the end of the reporting period, at which point 1MDB’s then auditors EY [ Ernst & Young] would seek to probe into it. It was converted, again using the American firm of lawyers, White & Case, under Mahony’s instruction, into an Islamic loan agreement whereby 1MDB sold its shares in the joint venture to PetroSaudi at a notional profit. That profit was converted into a loan which PetroSaudi was not obliged to repay for ten years.

The agreement included a further ‘drawdown’ facility allowing PetroSaudi to get a further $1.2 billion ‘loan’ from 1MDB. Again there were inconsistencies. For example, the agreement was signed in June 2010, two and a half months after the company accounts record it. Subsequently Najib and 1MDB claimed it had repatriated the money with profits from PetroSaudi but could never account for its whereabouts, coming up with highly questionable explanations about where it had next been invested. 

The three musketeers of Obaid, Mahony and Justo celebrated the joint venture with the acquisition of offices on Curzon Street in London’s fashionable Mayfair district. Xavier Justo, who had gone to live in Thailand with his new wife – was brought in to work as financial director.  There were some other notable changes.

Tony Blair recruited

In mid-2010, Mahony hired Tony Blair on a retainer of $65K/week plus an 2% commission on any deals Blair obtained for PetroSaudi. Blair gave the impression, as the emails written by his staff show, that he would be able to get PetroSaudi deals with China.

Rick Haythornthwaite was recruited as   Chief operating officer on a salary of some £1 million/year for two days’ work a week.

Jho Low’s shady deal

So what did the new joint venture do?

One key deal involved Jho Low sending  a ‘loan’ of $500 million from 1MDB to PetroSaudi, in exchange for which PetroSaudi would buy out UBG, through a series of shell companies, at a hugely inflated price, thereby making up Taib’s previous loss (and profiting himself).  This had a history all of its own.

Jho Low had fallen out of favour with Allahyarham Tun Pehin Sri Haji Abdul Taib bin Mahmud, the Chief Minister of Sarawak, because he had done a deal with him in 2008 which had gone sour. Taib had given him a big chunk of his huge construction company UBG at a greatly undervalued price, in exchange for which he merged into it a couple of small construction companies which Jho Low had just acquired, on the promise of construction deals that never materialised.

Another early deal by the joint venture involved a transfer of $300 million from PetroSaudi’s account at JP Morgan Suisse to Obaid’s personal account at the same bank. $260 million of that $300 million went straight to a subsidiary (called Javace) of a company called PetroSaudi International (Seychelles).  The name falsely suggested this was part of the PetroSaudi group when in fact it was wholly owned by Obaid. Mahony had been its sole director when it was set up but later Obaid had replaced him.

Javace then got loans from local banks, against its $260 million transfer, to buy UBG for almost $500 million. Malaysian media trumpeted the deal as PetroSaudi investing the first tranche of what would be a $2 billion investment in Malaysia and it was put about that as a result of the deal Malaysian companies would get huge tranches of construction business in Saudi Arabia. The conspirators dubbed the two parts of this scam as Project Uganda and Project Unicorn.

When Ambank, the Malaysian bank, questioned the fact PetroSaudi International (Seychelles) was owned by Obaid personally, rather than part of the wider PetroSaudi group, Mahony told them they were appointing proxies for reasons of discretion and this was simply how the Kingdom of Saudi Arabia liked to do things.

He used this explanation repeatedly when compliance officers at banks asked him to explain discrepancies in beneficial ownership of companies.

Of the remaining $200 million from the $500 million ‘loan’, $81 million went back to Jho Low’s Good Star account and approx $120 million was used by PetroSaudi for their Venezuela investment.

This has a story all of its own. PetroSaudi was buying a contract  to operate a decrepit drilling ship under which [they understood] the Venezuelan state oil company PDVSA guaranteed them $500,000/day.  In fact the drilling ship had no capacity and the guarantee was far from clear-cut. PDVSA stopped paying out under the supposed contract and Mahony and Obaid took the matter to London’s high court and then appeal court. The high court rejected the case on the grounds that the contract was fraudulently obtained but the court of appeal over-ruled the lower court on the grounds of insufficient evidence of fraud.

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