Non-payment of interest: 1MDB to engage with bondholders

KUALA LUMPUR • 1Malaysia Development Berhad (1MDB), the state-owned investment company that defaulted on a US$1.75 billion (S$2.4 billion) bond last month following a dispute with a co-guarantor, is reaching out to dollar bond holders to explain why it did not pay the interest on the notes.

A call to holders of its dollar-denominated securities will take place on May 23, 1MDB said in an e-mail statement yesterday. The firm appointed Alvarez & Marsal Asia as its financial adviser and DF King, an Orient Capital company, to carry out the bondholder identification and registration process.

"1MDB will now actively engage with all holders in order to outline the next steps of the process; explain the background of the dispute; clarify why 1MDB has taken the position to not make the interest payment," the company said, adding it will also explain its plan to meet its existing debt obligations.

Malaysia's Ministry of Finance last week said 1MDB's board will resign on May 31, and that it will dissolve the advisory board headed by Prime Minister Najib Razak.

The steps come amid global probes into alleged money laundering and embezzlement at the fund. 1MDB did not meet a US$50 million coupon payment last month amid a wider dispute with Abu Dhabi's International Petroleum Investment Company (IPIC), the co-guarantor of the bonds. That triggered cross defaults on RM7.4 billion (S$2.5 billion) of 1MDB debt.

"I do not think this will have much impact, as the initial default and then payment of the interest has been well known,"said foreign exchange strategist Khoon Goh at Australia & New Zealand Banking Group. "This step is just to keep bondholders informed. Following the asset sales, 1MDB has sufficient liquidity and the main contention is with IPIC over the agreement they signed last year."

The firm is due to pay interest  tomorrow on its 5.99 per cent dollar-denominated notes maturing in 2022. The amount due is about US$52.4 million, according to calculations based on Bloomberg data.

The bonds dropped 0.3 US cent to 101.8 US cents on the greenback to yield 5.64 per cent as of 11.20am in Hong Kong, according to prices compiled by Bloomberg. That is the highest yield in more than a week.

The troubled fund is asking investors to hold off any request for early repayment on its Islamic debt, a person familiar with the matter said last week.

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A version of this article appeared in the print edition of The Straits Times on May 10, 2016, with the headline 'Non-payment of interest: 1MDB to engage with bondholders'. Print Edition | Subscribe