The Case Of Malaysia's Missing Money

The near collapse of a state-owned company has rocked the government, rattled investors, and stirred public outrage.

-  Yoolim Lee & Elffie Chew, photo illustration by Damien Vignaux

In the spring of 2013, Song Dal Sun, head of securities investment at Seoul-based Hanwha Life Insurance, sat down to a presentation by a Goldman Sachs banker. The young Goldman salesman, who had flown in from Hong Kong, made a pitch for bonds to be issued by 1Malaysia Development Bhd., a state-owned company closely tied to Malaysian Prime Minister Najib Razak.

It was enticing. The 10-year, dollar denominated bonds offered an interest rate of 4.4 percent, about 100 basis points higher than other A-minus-rated bonds were yielding at the time, he recalls. But Song, a veteran of 25 years in finance, sensed something was amiss. With such an attractive yield, 1MDB could easily sell the notes directly to institutional investors through a global offering. Instead, Goldman Sachs was privately selling 1MDB notes worth $3 billion backed by the Malaysian government. “Does it mean ‘explicit guarantee’?” he recalls asking the Goldman salesman, whom he declined to name. “I didn’t get a straight answer,” Song says. “I decided not to buy them.”