1MDB misses deadline to pay Abu Dhabi's IPIC US$603 million, says will pay in August

Men walk past a 1 Malaysia Development Berhad (1MDB) billboard at the fund's flagship Tun Razak Exchange development in Kuala Lumpur.
Men walk past a 1 Malaysia Development Berhad (1MDB) billboard at the fund's flagship Tun Razak Exchange development in Kuala Lumpur.PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG, THE STAR/ASIA NEWS NETWORK) - Malaysia's troubled state investor 1MDB said on Tuesday (Aug 1) it would make a US$603 million (S$818.09 million) payment to Abu Dhabi's sovereign wealth fund in August, after the media reported that it had missed a July 31 deadline.

The obligation, part of a settlement over a debt dispute, is half the amount 1MDB and the Malaysian finance ministry agreed to make to Abu Dhabi's International Petroleum Investment Co. (IPIC), with a second payment by the end of 2017.

In a three paragraph statement, 1MDB said all payments due from 1MDB to IPIC will be made from the proceeds of the 1MDB rationalisation plan.

“1MDB itself is awaiting funds that were due to be received in July 2017. Due to the need for additional regulatory approvals, the receipt of those funds has been delayed to August 2017. 

“As these are the funds which will be used to pay IPIC, 1MDB has written to IPIC to inform them of our commitment to meet the obligations, originally due on 31 July 2017, in August 2017,” it said.

The statement came hours after sources told the media 1MDB had not made the payment as scheduled.

IPIC is expected to make an announcement in London on Tuesday (Aug 1), said the person who asked not to be identified as the information isn't public yet. 

While Malaysia is regaining favour as investors shrug off far-reaching investigations into 1Malaysia Development Bhd (1MDB) and focus on encouraging signs of an economic turnaround, analysts have warned that failure to pay IPIC could hurt sentiment and become a contingent liability for the government.

"That's definitely a negative for the ringgit at some point," said Michael Every, head of financial markets research at Rabobank Group in Hong Kong.

"We have to wait and see how it develops. If people don't make an arbitration payment they've agreed to, it doesn't say something positive about the currency or the country or the regulatory framework."

1MDB and IPIC were locked in a tussle that spilled over to repayments on two sets of bonds issued by the Malaysian state fund, leading to a default in April 2016. IPIC was seeking US$6.5 billion from 1MDB and the Malaysian government for failure to perform their debt obligations as the dispute moved into arbitration at the London Court of International Arbitration.

In April, the parties said they reached an agreement. On top of the US$1.2 billion payment, 1MDB would also assume the coupon and principal obligations for US$3.5 billion of bonds issued by it and co-guaranteed by IPIC. The settlement would be funded by the sale of 1MDB's investment fund units, it said then.

Among the issues between the 1MDB and IPIC were billions in allegedly missing funds. 1MDB has said it could be a victim of fraud if payments intended for IPIC never made it there, while the latter had denied ownership in the company that the Malaysian investment firm transferred money to.

The yield on 1MDB's 5.99 per cent notes due 2022 rose 4 basis points to 4.02 per cent on Tuesday, according to prices compiled by Bloomberg. The ringgit was little changed as of 3 pm in Kuala Lumpur.

Five-year credit-default swaps protecting Malaysia's sovereign notes were at 80 basis points, near the lowest in almost three years, prices from CMAN show. 

IPIC completed a merger with Abu Dhabi sovereign wealth fund Mubadala Development Co. earlier this year. Mubadala has not received any information from banks about the payment due, said a source who asked not to be identified because of the sensitivity of the matter.