1MDB insists debt reduction plan still on course

1MDB president Arul Kanda Kandasamy said that the troubled state investor is on track to retire its crippling US$12 billion of borrowings although its debt-reducing deal with Abu Dhabi fund IPIC has hit a wall.

Malaysian fund's president says it is willing to discuss the deadlock with Abu Dhabi fund IPIC

1Malaysia Development Berhad (1MDB) is still on track to pay off its RM51 billion (S$17.6 billion) debt pile despite being locked in a dispute with an Abu Dhabi sovereign wealth fund, the state investor's president Arul Kanda Kandasamy said yesterday.

1MDB signed a deal with Abu Dhabi's International Petroleum Investment Company (IPIC) in May last year, with the Emirati firm involved in reducing the Malaysian fund's debts by RM17 billion in return for financial assets.

That deal, Mr Arul Kanda insisted in an interview with The Straits Times, remained in effect as the assets to be handed over to IPIC were intact. "The assets are there, the contractual relationships behind those assets are there. The concept behind the debt-for-asset swop does not change," he said.

He was responding to concerns in the financial market that 1MDB would not be able to retire its heavy debts now that it is at loggerheads with IPIC over which side is at fault over some US$3.5 billion (S$4.7 billion) that might have been misappropriated.

The missing funds have led to international investigations in several countries including Singapore.

DEAL STILL ON

The assets are there, the contractual relationships behind those assets are there. The concept behind the debt-for-asset swop does not change.

1MDB PRESIDENT ARUL KANDA KANDASAMY, about its deal with Abu Dhabi's International Petroleum Investment Company last May, with the Emirati firm involved in reducing the Malaysian fund's debts by RM17 billion in return for financial assets.

The financial troubles at 1MDB, wholly owned by Malaysia's Finance Ministry, have led to calls for Prime Minister Najib Razak to resign, as he heads the state fund's board of advisers. Datuk Seri Najib is also the Finance Minister.

IPIC says it did not receive US$3.5 billion that 1MDB insists it had transferred to the Emirati company. This dispute led to a US$1.75 billion IPIC-guaranteed 1MDB bond going into default this week.

Ratings firm Moody's said yesterday that the default of the 1MDB bond had yet to affect the standing of Malaysia's credit outlook.

But Moody's vice-president of sovereign risk Christian de Guzman told a media conference that "we are one step closer for these contingent risks to be realised".

Under the debt reduction deal, 1MDB was to have surrendered a portion of the US$3.5 billion in cash plus US$2.5 billion investment units to IPIC.

In return, IPIC was to take on liabilities and interest payments for 1MDB's US$3.5 billion in bonds.

But IPIC last week accused 1MDB of defaulting on the deal when the Malaysian company failed to repay US$1.1 billion relating to a loan and said its obligations were therefore terminated.

But Mr Arul Kanda said yesterday that "we dispute that, we do not believe we were in default".

"We are open to engaging with IPIC on this issue, and if necessary to pursue dispute resolution, for example, arbitration," he added.

But corporate lawyers said the dispute with IPIC could take years to resolve, thus continuing to be a political burden for Mr Najib, with a general election due by 2018.

Moody's Mr de Guzman said the 1MDB-IPIC battle "could take quite a long time" to unravel.

Adding to the financial complication surrounding 1MDB is the accusation by enemies of PM Najib that money from 1MDB was sent to his personal accounts, which he and the company have vehemently denied.

Mr Najib said the funds deposited in his accounts in 2013, just before the previous general election, were a donation from Saudi Arabia.

Mr Arul Kanda yesterday denied he had "admitted there was fraud" in the transfer of some US$3.5 billion out of Malaysia, saying he only accepted the possibility based on statements by Swiss investigators.

A version of this article appeared in the print edition of The Straits Times on April 28, 2016, with the headline '1MDB insists debt reduction plan still on course'. Print Edition | Subscribe