US probe makes Chinese yuan currency of choice for 1MDB-IPIC settlements

1MDB initiated the Chinese yuan-denominated payment of US$602.7 million (S$810 million) in debt obligations to Abu Dhabi's IPIC last week ahead of the end-December deadline.
1MDB initiated the Chinese yuan-denominated payment of US$602.7 million (S$810 million) in debt obligations to Abu Dhabi's IPIC last week ahead of the end-December deadline. PHOTO: REUTERS

KUALA LUMPUR - The unresolved US Justice Department probe into the alleged misappropriation of funds at state-owned 1Malaysia Development Berhad (1MDB) has forced the troubled investment vehicle to use the Chinese yuan or the renminbi as the currency of choice for its recent financial settlements with Abu Dhabi's International Petroleum Investment Company (IPIC).

Financial executives familiar with the recent settlement plan told The Straits Times that intermediary financial institutions involved in deals were reluctant to use US dollars over fears that the transactions could come under the oversight of US financial regulators.

1MDB initiated the Chinese yuan-denominated payment of US$602.7 million (S$807 million) in debt obligations to Abu Dhabi's IPIC last week ahead of the end-December deadline. IPIC informed the London Stock Exchange on Wednesday (Dec 27) that it had received the monies from 1MDB.

The payment, the second instalment of a US$1.2 billion loan IPIC extended to the 1MDB in July 2015, is part of an overall financial settlement reached in April this year between the governments of Malaysia and Abu Dhabi over billions of dollars in disputed financial transactions.

1MDB missed the deadline of end-July on the first payment because of regulatory complications faced by its intermediary banks that were involved in the transaction. To get around those hurdles, the settlement to IPIC was made with yuan-denominated payments in August.

"The process to pay was initiated early because the government and 1MDB wanted to avoid any administrative trip-ups that could result from the banking holidays at the end of the year," one Malaysian government official familiar with the settlement said.

1MDB announced on Wednesday that funds for the full IPIC settlement had come from "its ongoing rationalisation program". It did not elaborate.

Financial executives and government sources said that over the course of the year, 1MDB transferred its holdings in four land parcels to the Ministry of Finance under a financial restructuring plan for the Malaysian government to carry out development projects or sell.

Under that arrangement, 1MDB would receive payment over an unstipulated period for the transfer of those assets to meet its financial obligations.

1MDB's holdings in the Tun Razak Exchange development and the Bandar Malaysia project on the fringes of the capital Kuala Lumpur were transferred to the Ministry of Finance in end-March, the sources said. The ownership transfers for tracts of land in the northern Penang state and another 128ha real estate parcel around Port Klang were finalised in recent months, the sources added.

According to the financial executives, the Malaysian government has entered into transactions to sell the land parcels to concerns ultimately controlled by Chinese state-owned enterprises. The sources declined to elaborate.