1MDB's debt restructuring plan hits snags

Datuk Johari has downplayed tensions with Abu Dhabi over $9.4 billion in debt obligations, saying the two sides are "not in arbitration".
Datuk Johari has downplayed tensions with Abu Dhabi over $9.4 billion in debt obligations, saying the two sides are "not in arbitration".PHOTO: BLOOMBERG

Differences over valuations slow disposal of real estate; dispute with Abu Dhabi drags on

A complex debt restructuring plan at scandal-torn 1Malaysia Development Berhad (1MDB) is stumbling over delays in the disposal of real estate assets and prickly differences with Abu Dhabi over a dispute involving more than US$6.5 billion (S$9.4 billion) in debt obligations.

1MDB's prospective project partners and lawyers involved in the troubled sovereign fund's debt work-outs said the proposed disposal of prime parcels of real estate in Kuala Lumpur and Penang for joint development has been bogged down by disagreements over valuations.

Separately, already tense relations with the Abu Dhabi government over a dispute involving billions of dollars in debt obligations have worsened in recent weeks, after a breakdown of an earlier deal where Malaysia would settle part of the disputed debt as a precondition for both governments resolving the matter through private negotiations, lawyers said.

Malaysia's Second Finance Minister Johari Abdul Ghani, who is overseeing the debt resolution at 1MDB, acknowledged some of the bumps facing the restructuring plan. But he insisted to The Straits Times that the problems would be ironed out. 1MDB declined to comment.

A special task force headed by Datuk Johari, codenamed the Budiman Committee, was set up to handle the divestment restructuring of 1MDB. "We are pushing ahead (with the debt rationalisation plan). There are many issues, but key milestones, such as the sale of the power assets, have been completed," he said in an interview.

KEY MILESTONES COMPLETED

We are pushing ahead (with the debt rationalisation plan). There are many issues, but key milestones, such as the sale of the power assets, have been completed. Our next move is to kick-start the property development of Bandar Malaysia and TRX.

DATUK JOHARI ABDUL GHANI, Malaysia's Second Finance Minister, who heads a special task force handling the divestment restructuring of 1MDB.

"Our next move is to kick-start the property development of Bandar Malaysia and TRX." He was referring to 1MDB's massive real estate projects on the fringes of Kuala Lumpur. TRX, or Tun Razak Exchange, is an upcoming financial district.

The 1MDB-International Petro- leum Investment Company (Ipic) dispute is related to a deal last year in which the Abu Dhabi fund guaranteed US$3.5 billion of 1MDB bonds when they were issued in 2012. Last year, when 1MDB was short on cash, Ipic also agreed to give an emergency US$1 billion loan and make interest payment on the same bonds.

1MDB was to repay the loan through an Ipic subsidiary, but Ipic in April revealed for the first time that it never received the money.

Mr Johari conceded that Prime Minister Najib Razak's administration and 1MDB were facing issues with Ipic, which is demanding the US$6.5 billion settlement that includes accumulated interest on the bonds and loan. "Abu Dhabi wants certain conditions but we need to look at the dispute in totality," he said. He downplayed the tensions with Abu Dhabi. "We are not in arbitration. We are in the case management stage. So let us deal with this," he said.

Executives involved in the debt work-outs at 1MDB said top government officials from Malaysia and Abu Dhabi have been in private talks since June to hammer out a settlement to avoid what could potentially turn into a messy arbitration battle. Both parties had reached a tentative agreement in recent weeks that Malaysia would settle roughly US$1.2 billion of the disputed amount, as a precondition for a government-to-government deal on the rest of the disputed monies.

"There was a deal but the Malaysian side is having a change of heart, so it looks like it will go to arbitration," said a financial executive involved in the negotiations.

Datuk Seri Najib, who set up 1MDB seven years ago to spur development at home and to pursue strategic investments abroad, has repeatedly rejected claims from his critics that the fund had morphed into a private political slush fund for him and his ruling Umno party.

Bloomberg, which interviewed Mr Johari, on Wednesday reported that 1MDB had paid the interest on its bonds due this quarter to the Abu Dhabi fund.

A version of this article appeared in the print edition of The Straits Times on December 23, 2016, with the headline '1MDB's debt restructuring plan hits snags'. Print Edition | Subscribe