KUALA LUMPUR: The Federal Government bailed out SRC International Sdn Bhd with close to RM600mil on several occasions to avoid the company from going into an event of default (EOD) with the Retirement Fund Inc (KWAP), after it defaulted on its payments.
The High Court heard on Wednesday (June 19) that SRC stopped making interest payments on the RM4bil loan in March 2015, resulting in outstanding amounts owed to the pension fund.
Finance Ministry strategic investments division deputy secretary Afidah Azwa Abdul Aziz, 44, testified that according to the financing agreement between SRC and KWAP, the interest payment on the loan would begin after 30 months from the date of disbursement.
"SRC did make interest payments, but starting March 2015, there was an outstanding payment on the interest.
"This matter was relayed to the Finance Ministry through a letter from KWAP to SRC, which was forwarded to the ministry," she said here on Wednesday.
The witness was reading from her witness statement at the corruption trial of former prime minister Datuk Seri Najib Razak, who is accused of seven charges relating to misappropriation of RM42mil in SRC International funds.
Afidah said KWAP sent out a letter dated Aug 28, 2015, to SRC to ask for an immediate payment on the outstanding amount for interest on the first RM2bil loan.
"In the event of no payment, KWAP would declare an EOD as allowed by the financing agreement," she added.
An EOD meant the lender could declare a default. This would effectively end the financing agreement and the lender has the right to claim the full amount of the loan from a guarantor.
With regards to the loan from KWAP to SRC, this meant the government, which guaranteed the loan, must make the full payment of RM4bil and its interest to KWAP in 30 working days from the declaration of EOD.
To handle the situation, a meeting was held between SRC, KWAP and the ministry, chaired by former Treasury secretary-general Tan Sri Mohd Irwan Siregar in September 2015.
Afidah, who attended the meeting, said the ministry was informed that SRC failed to make the payment, due to its foreign bank account being frozen.
"The meeting asked for SRC to submit its financial standing and an explanation on why its account in Switzerland was frozen.
"Several letters had been sent and received on this, but no document or information was provided by SRC on these matters," she added.
In September 2015, KWAP again wrote another letter to SRC asking for payment on the interest for the second RM2bil loan.
"The government, through the Finance Ministry, must be responsible in ensuring SRC makes the interest payment to KWAP," she said.
However, the witness said SRC did not make the payment on the interest, but instead it asked for the ministry for a short-term loan to pay the outstanding.
In December 2015, the ministry agreed to loan SRC a sum of RM92mil to finance the interest payments for the first RM2bil and the second RM2bil.
In 2016, SRC asked for a second short-term loan to pay its outstanding in interest payment to KWAP.
"The ministry had again agreed by way of 'stand-by credit' of up to RM250mil to SRC.
"However, to my knowledge, SRC only used RM213mil from the credit amount," she said.
In 2017, SRC again asked for a loan of RM300mil from the government, this time for profit payment and principal loan.
"At this point in time, SRC's debt to the government stood at RM304,684,715.40," she said.
Despite that, Afidah said the ministry agreed to loan the amount.
SRC used about RM290mil from the RM300mil credit, making the total amount RM595mil from all three occasions.
"All three loans approved by the ministry to SRC were paid directly from the ministry to KWAP," she said.
The witness said the main consideration for all the loan applications was to avoid SRC from going into an EOD with KWAP.
The hearing before Justice Mohd Nazlan Mohd Ghazali continues on Thursday (June 20).