1MDB says it will meet other obligations amid debt dispute with Abu Dhabi fund IPIC

International Petroleum Investment Company has said that an agreement to provide financial support to 1MDB has been terminated.
International Petroleum Investment Company has said that an agreement to provide financial support to 1MDB has been terminated. PHOTO: REUTERS

KUALA LUMPUR (REUTERS) – Malaysian state fund 1Malaysia Development Berhad (1MDB) said on Monday (April 18) it would meet all its “other” financial obligations, after an Abu Dhabi sovereign fund said 1MDB had defaulted on a deal agreed between the two in June.

1MDB said in a statement that the fund, International Petroleum Investment Company (IPIC), had agreed to assume its interest payments on the bond but one such payment due on Monday that had not been paid due to dispute between the two.

“1MDB wishes to make clear that it and its group entities will meet all of their other obligations under any other financing arrangements and have ample liquidity to do so,” it added.

IPIC had said earlier in a filing to the London stock exchange that 1MDB was in default of obligations worth $1.1 billion (S$1.49 billion) and a June agreement to provide financial support to the latter had been terminated.

But the Abu Dhabi fund said it still expected the Malaysian side to honour its commitments.

IPIC was now considering all its options to remedy the default, including referring the matter to the appropriate dispute resolution forum, the statement added. Under the June agreement, IPIC agreed to provide US$1 billion in cash as well as assume US$3.5 billion of 1MDB debt.

It also forgave an undisclosed amount of debt owed to IPIC by 1MDB, in exchange for assets which have not been named.

1MDB did not specify in its statement whether it would make the interest payment that was due on Monday.  

In an earlier statement on Monday, 1MDB said it has repaid all of its bank debt and short term obligations, and has a cash surplus of approximately RM2.3 billion(S$795 million).  

Over the past four weeks, 1MDB has made debt principal repayments of approximately RM7.25 billion, it said.

Monday’s announcements throw 1MDB’s efforts to rationalize its debt into doubt, said Christian de Guzman, a credit analyst at Moody’s Investors Service in Singapore, which rates the US$1.75 billion 1MDB-linked energy bonds.

“We’re still trying to figure out what it means for IPIC because IPIC has guaranteed these bonds and as far as we understand these (guarantees) were irrevocable.”

PM’S BROTHER TAKES LEAVE

Malaysian Prime Minister Najib Razak has been under pressure from critics at home after reports claimed that US$681 million deposited into his personal bank account just before a 2013 general election originated from 1MDB.  

Saudi Arabia’s foreign minister said last week the money from an unspecified Saudi source was a “genuine donation” with no obligations attached.

The prime minister’s younger brother, Nazir Razak, announced on Monday that he was taking a voluntary leave of absence from his role as chairman of CIMB Group Holdings Bhd amid an independent review into money transfers into his personal account.  

Nazir was dragged into the scandal around political funding and alleged misuse of money from 1MDB after the Wall Street Journal reported last month he received US$7 million in funds from Najib before the 2013 elections.

“Nothing I did was illegal or compromised my position at CIMB, but given the media attention, I understand that it makes the stakeholders uncomfortable,” Nazir told a news conference after the bank’s annual general meeting, explaining his decision to take leave.

Nazir, a leading Malaysian corporate figure, had said earlier he believed the money came from legitimate fund-raising. He said that CIMB bank staff disbursed the funds to ruling-party politicians on the instructions of his brother, the prime minister.  

Transactions involving 1MDB, which had a debt of over US$11 billion, are being investigated in several countries, including the United States, Switzerland and Singapore.  

Najib has denied any wrongdoing, saying that he had not accepted money from any state entity for personal gain.

A government-appointed attorney-general this year cleared Najib of any criminal offence or corruption, saying the funds were a political donation from the royal family of Saudi Arabia.

Such donations are not considered illegal in Malaysia.