KUALA LUMPUR • 1Malaysia Development Berhad (1MDB) paid the interest on its bonds that were due this quarter after the debt's Abu Dhabi co-guarantor was compelled to service the coupons earlier this year, which had led to the deepening of a US$6.5 billion (S$9.4 billion) dispute.

The payments could be part of an approach by 1MDB's management to amicably settle a spat with International Petroleum Investment Company (Ipic) even as the two sides pursue arbitration talks, Malaysia's Second Finance Minister Johari Abdul Ghani said in an interview on Tuesday.

The Finance Ministry oversees the state-owned investment firm and is increasingly taking over its assets and projects as the government winds down the embattled fund.

The sovereign companies are locked in a tussle that spilled over to repayments on two sets of bonds issued by 1MDB and co-guaranteed by Ipic. That led to a default in April, adding to 1MDB's financial scandals. It is already at the centre of global probes into alleged money laundering and embezzlement.

Ipic paid the coupons after 1MDB missed them in April and May.

"As far as 1MDB is concerned, the bond is still a 1MDB bond," Datuk Johari said of the coupon payments made this quarter. The company's management will decide who should provide the funds to pay subsequent coupons on the two US$1.75 billion bonds, he said.

Ipic is seeking US$6.5 billion from 1MDB and the Malaysian government for failure to perform their debt obligations as the dispute moves into arbitration.

"We had made a payment to Ipic - US$3.5 billion - so if they say they have not received it, this is where we have to sit down and see what happened," Mr Johari said.

1MDB has said it could be a victim of fraud if payments intended for Ipic never made it there, while the latter denied ownership in the company to which 1MDB transferred money.

Scandals surrounding 1MDB have weighed on investor sentiment in Malaysia, and Mr Johari said the country needs to learn lessons from the episode and recover.

BLOOMBERG