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Goldman feels chill as Malaysia fund deal sours
by Jennifer Hughes and Michael Peel
Goldman Sachs has been failing to win new business in Malaysia as a furore continues to seethe around huge debts racked up by the 1MDB state investment fund that the bank helped to finance.
Since Goldman arranged a controversial $USUS3 billion bond for 1MDB in 2013 - pocketing nearly $USUS300 million for its role in the deal - its fees from work in the country have slumped, according to Financial Times analysis of data from Dealogic.
Goldman's involvement is in the spotlight once more because of the proximity of the 2013 bond issuance to alleged payments of almost $US700 million from the fund to Najib Razak, the Malaysian prime minister, just weeks before a closely fought general election.
Investigators have been probing how 1MDB, a fund set up in 2009, borrowed some $US11 billion apparently without sufficient assets to support this debt.
Goldman's subsequent struggles amid the controversy underlines the prizes and pitfalls for investment bankers striving to build relationships with governments and tycoons in Asia. One rival banker said the shunning of the investment bank was unofficial, but added: "if you're a Malaysian corporate, you're not going to use Goldman because you don't want this association."
Mr Najib has denied taking money for personal gain, and no one has produced evidence of any link between the payments and Goldman. However, the latest revelations have revived questions over the structure and costs of the 2013 bond.
For Goldman, this apparent fall from grace is a blow. Under its charismatic Southeast Asia chairman, Tim Leissner, the US bank had targeted Malaysian business - and its efforts had made it the only western investment bank in the country's top 10 fee-earners in each of the six years from 2008 to 2013.
Since that year, though, when it ranked seventh, Goldman slid to 23rd in 2014. It does not yet appear in Dealogic's fee calculations for 2015.
Not every client in Malaysia has dropped Goldman - in fact, several contacted by the FT were confident that the damage from the 1MDB scandal will blow over. "The wise thing will be to wait it out and see where any wrongdoing was - until then, its immature to end a business relationship based on hearsay," said one chief executive.
Nevertheless, the bank has not done a public deal in the stock or bond markets since 2013, and has advised Malaysian groups on just four mergers in the past two years, lowering it to eighth in the country's deals league table.
"Malaysia has and continues to be an important part of our Asian business", said a spokesman for the bank. We have a very positive dialogue with Malaysian clients and an active deal pipeline."
Central to Goldman's relationships in Malaysia has been Mr Leissner, a Singapore-based banker described by rivals as a well-connected, talented relationship builder who had particular success in Kuala Lumpur. "There was a golden period [for Goldman] under Mr Leissner," one executive recalls. "He was amazing, an Energizer bunny."
Mr Leissner met his wife Kimora Lee Simmons, the American model and entrepreneur, on a flight from Hong Kong to the Malaysian capital. They also appear to be on good terms with Mr Najib and his wife, Rosmah. In San Francisco in 2013, Ms Simmons tweeted a picture of herself with Rosmah, whom she described as "my friend".
But Goldman's business in the country suffered after the 2013 bond deal, in which it bought $US3 billion of 10-year bonds for $US2.7 billion from 1MDB. Its profit was to be the difference between the price it paid and what it could sell the bonds for.
Investors said the bank was still selling the bonds several months later. What money it made reflected the speed at which the financing was arranged as well as the risk that it could not sell the then-unrated bonds. Still, it made a lot more on the deal than the 1 or 2 per cent usually charged for arranging bonds.
"Whether they gouged the government for $US300 million doesn't matter," said another banker, who claims his institution avoided 1MDB work because of the perceived reputational risk. "Everybody thinks that they did."
Several banks were pitching for 1MDB work by this point, as the $US3 billion bond deal followed two others Goldman arranged to finance the fund's acquisition of power stations. Both deals, at $US1.75 billion each, were also private placements that Goldman bought outright, in the expectation of reselling the bonds. As a result, they also carried higher fees.
Even so, bondholders so far appear unruffled by the dispute and the risk it poses to Mr Najib, the key architect of 1MDB. "It's more a liquidity issue than a solvency one," said one investor, who along with others, pointed to the 2013 bonds' letter of support from the government. While not an actual guarantee, investors say it would be impossible to avoid paying out on the bonds without causing severe problems for the government's other financing plans.
Yesterday, Tenaga Nasional, the state-backed power group, said it had bid for 1MDB's power stations, in a sign the fund is moving to monetise its assets.
But, as debate continues over Goldman's role in the 1MDB financing, one outcome is clear: it has made life uncomfortable for all outsiders involved with the fund. "This is a toxic market," says one well-connected businessman about Malaysia. "Touch anything and who you are, and what you are, will come out."
Financial Times 
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Post time 16-7-2015 10:52 AM
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