KUALA LUMPUR, May 6 — The Retirement Fund Incorporated (KWAP) breached its Investment Policy and Guidelines (IPG) when it approved a loan of RM2 billion to 1Malaysia Development Berhad’s (1MDB) wholly-owned subsidiary, SRC International Sdn Bhd in 2011, the High Court was told today at Datuk Seri Najib Razak’s trial.

The prosecution’s 29th witness Amirul Imran Ahmat testified that rules under Paragraph 5 of the IPG were infringed upon when SRC International obtained a total of RM4 billion from KWAP in two separate loan agreements of RM2 billion each in 2011 and 2012 respectively.

"This is because the loan to SRC had exceeded the company’s shareholders’ equity limit as they had only RM1 million in total equity but the loan applications that have been authorised amounted to RM4 billion,” he said, referring to SRC International.

Amirul Imran previously worked as KWAP’s Fixed Income Department assistant vice-president from January 2011 to August 2013, and was involved in the approval procedures that went on to approve the eventual RM4 billion loan afforded to SRC International.

Apart from Paragraph 5, Amirul Imran also said KWAP flouted Paragraph 2 of the IPG whereby KWAP’s investment in the form of loans cannot exceed 10 per cent of its domestic fixed income investment allocations.

"Nonetheless, for the second loan of RM2 billion to SRC, exemption from members of the investment panel was not required because the KWAP’s policy and guidelines do not require exemption when such financing facility is backed by a government guarantee,” he explained.

He pointed out that based on both loan agreements signed by SRC International, the money loaned from KWAP cannot be used for other purposes except those stated in the agreement.

"An event of default will take place if such violations were to occur under the knowledge of KWAP before leading to the termination of both agreements, with KWAP claiming back the full loan amount inclusive of interest charged to the borrower,” he said.

Amirul Imran then said the two loans to SRC International totalling RM4 billion were "among the biggest” agreed by KWAP throughout his years of working with the fund.

According to Amirul Imran’s testimony, KWAP’s first RM2 billion loan to SRC International was while it was a 1MDB subsidiary, while the second RM2 billion loan was after the company’s ownership was transferred to the Finance Ministry’s Minister of Finance (MOF) Incorporated.

Today marks the 13th day of the former prime minister’s trial on seven charges of criminal breach of trust, abuse of power and laundering RM42 million funds belonging to SRC International. It is also the first day of trial after the start of the Muslim fasting month of Ramadan.