1MDB confirms $2.37b bond default

1MDB says it had defaulted on a US$1.75 billion (S$2.37 billion) bond issue, triggering cross-defaults on locally issued Islamic bonds totalling RM7.4 billion (S$2.6 billion).
1MDB says it had defaulted on a US$1.75 billion (S$2.37 billion) bond issue, triggering cross-defaults on locally issued Islamic bonds totalling RM7.4 billion (S$2.6 billion).PHOTO: AGENCE FRANCE-PRESSE

State investor 1Malaysia Development Berhad (1MDB) confirmed it had defaulted on a US$1.75 billion (S$2.37 billion) bond issue, triggering cross-defaults on locally issued Islamic bonds totalling RM7.4 billion (S$2.6 billion).

But it said there were no cross-defaults on a second US$1.75 billion bond and a US$3 billion bond.

Yesterday's default announcement saw the ringgit fall for a fourth day and Malaysian stocks retreating to a six-week low.

1MDB was declared in default on Monday following its failure to make a US$50.3 million interest payment. The non-payment arose from its dispute with International Petroleum Investment Company (IPIC), an Abu Dhabi state-owned sovereign wealth fund, which had guaranteed 1MDB's two US$1.75 billion bonds due in 2022.

 

"Notwithstanding the dispute with IPIC, 1MDB reiterates that it will meet all of its other existing financial obligations and has ample liquidity to do so," said the Malaysian firm, whose debt pile of RM51 billion last year fuelled calls for Prime Minister Najib Razak's resignation.

The two cross-defaults concern a RM5 billion sukuk, or Islamic bond, due in 2039 and a RM2.4 billion Bandar Malaysia Sdn Bhd sukuk due between 2021 and 2024.

However, an RM800 million loan from the Social Security Organisation (Socso) could possibly be called in due to a "material adverse effect" clause. The RM5 billion sukuk and the Socso loan are both guaranteed by the government.

On Monday, IPIC said it would pay the US$50.3 million interest instalment to bond holders, based on its commitments as the sole guarantor of the bond issue, once 1MDB had defaulted on it.

The two state-owned outfits are feuding over fund transfers of roughly US$3.54 billion that 1MDB said it made to units of IPIC under obligation of a May 2012 bond agreement. But IPIC declared it never received those monies, triggering questions about the US$50.3 million in interest due on April 19. The grace period for the payment expired on Monday.

Interest payment for the other US$1.75 billion bond guaranteed by IPIC is due on May 11. 1MDB president Arul Kanda Kandasamy told Reuters that 1MDB is "keeping our options open" on that payment.

A version of this article appeared in the print edition of The Straits Times on April 27, 2016, with the headline '1MDB confirms $2.37b bond default'. Print Edition | Subscribe