Putrajaya's issuance of a RM5 billion bond in 2009 for the Terengganu Investment Authority (TIA) - 1MDB's predecessor - was allegedly done against the wishes of the company itself, the Terengganu government and possibly even the sultan of Terengganu.

According to a highly-placed source, then Terengganu menteri besar Ahmad Said had written to Finance Minister and Prime Minister Najib Abdul Razak to protest the bond issuance.

Ahmad had argued that the issuance of the bond, which comes with a guarantee from Putrajaya, was not agreed by TIA's owner Menteri Besar Incorporated (MBI), and violated the terms of a 'letter of comfort' by MBI to the Finance Ministry.

"Ahmad had also argued that the issuance of the bond was against the stipulations in the memorandum and articles of association for TIA," said the source.

On Aug 14, Ahmad told the Kemaman Umno division delegates meeting that Sultan Mizan Zainal Abidin, who was then the Yang di-Pertuan Agong, had also objected to the bond issuance.

"Tuanku told me, 'Dato, I told Najib one week before the RM5 billion bond was issued, to postpone it. Hold it first.'

"But Najib issued (the bonds anyway)," said Ahmad.

Ahmad's claim at the meeting corroborates what former premier Dr Mahathir Mohamad said on June 5 during his short speech at the #Nothing2Hide dialogue.

Palace wrote to Najib

It is understood that Ahmad had written a 'letter of comfort' addressed to Najib as finance minister in early May 2009 on the issuance of the Islamic medium term notes (IMNT), which mature in 30 years, by Putrajaya for TIA.

The 'letter of comfort' outlined the Terengganu government's obligations towards TIA during the 30-year bond period, in view of the fact that TIA was designed to be the state's sovereign wealth fund.

By May 22, 2009 the TIA board had resolved to suspend the bond issuance.

Following this, Sultan Mizan's private secretary on May 28 wrote to Najib on the suspension of the bond issuance, said the source.

"Najib was granted an audience with the Agong the day before and he was told that the suspension was needed in order for the oversight committee to conduct a review first," said the source.

But according to Bank Negara records, the RM5 billion sukuk was issued on May 29, 2009. The coupon rate was stated as 5.7 percent.

Pulled out of TIA

According to the source, on the same date as the issuance of the bond, Ahmad, as the head of MBI, wrote in protest to both AmInvestment Bank Bhd and Najib as finance minister.

"Ahmad told Najib that the issuance of the bond was done without MBI or TIA representation and hoped that the bond issuance would be suspended," said the source.

This plea went unheeded and thus led to the Terengganu government pulling out of TIA, which was eventually federalised in July 2009 and turned into 1MDB in September 2009 on Najib's initiative.

1MDB is currently mired in controversy due to burgeoning debts and allegations that its funds had been mismanaged.

During his speech in Kemaman, Ahmad claimed that after the issuance of the bond, he held further discussions with the sultan on the need to withdraw from 1MDB.

"Thus I wrote to the finance minister, (informing him that) the Terengganu government is pulling out from TIA and asked for our RM1 million capital to be returned," he said.

TIA vehicle for oil royalties?

It is understood that Sultan Mizan had played a role in the genesis of TIA as he had written to Najib when the latter was still deputy prime minister in March 2009, informing him of the establishment of the company.

The source said Sultan Mizan had said that TIA would be funded through a RM5 billion bond and RM6 billion in oil royalties.

During the 2013 general election, BN had promised to increase oil royalties for Terengganu, Sabah, Sarawak, Kelantan and Pahang from the existing five percent to a minimum of 20 percent.

It is uncertain if these conditions have been met. But what is certain is that Terengganu BN lost more seats during the 2013 polls.

The Prime Minister's Office, the Finance Ministry, the premier's national communications team and Ahmad have been contacted for a response to this story. None has replied.