1MDB says to engage bondholders following payment default

A construction worker works in front of a 1MDB billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia.
A construction worker works in front of a 1MDB billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia. PHOTO: REUTERS

KUALA LUMPUR (BLOOMBERG) - 1Malaysia Development Bhd, the state-owned investment company that defaulted on a US$1.75 billion (S$2.38 billion) bond last month following a dispute with a co-guarantor, is reaching out to dollar bondholders to explain why it didn't pay the interest on the notes.

A call to holders of its US dollar-denominated bonds will take place on May 23, 1MDB said in an e-mailed statement on Monday (May 9).

The troubled state fund appointed Alvarez & Marsal Asia Ltd as its financial adviser and DF King Ltd, 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 in the statement, adding it will also explain its plan to meet its existing debt obligations.

Malaysia's Ministry of Finance said last week 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 didn't meet a US$50 million coupon payment last month amid a wider dispute with Abu Dhabi's International Petroleum Investment Co (IPIC), the co-guarantor of the bonds. That triggered cross defaults on RM7.4 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 Goh Khoon, a foreign-exchange strategist at Australia & New Zealand Banking Group in Singapore.

"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 company is due to pay interest on May 11 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 cent to 101.8 cents on the dollar to yield 5.64 per cent as of 11:20 am in Hong Kong, according to prices compiled by Bloomberg. That's the highest yield in more than a week.

1MDB is asking investors to hold off any request for early repayment on its Islamic debt, a person familiar with the matter said last week. 1MDB's spokesman couldn't be immediately reached for comments by phone and e- mail.