1MDB debt may reach RM34.6 billion

KUALA LUMPUR: Malaysia’s costs of servicing 1MDB debt may reach as much as RM34.6 billion (US$8.6 billion) from 2019 to 2023, as the government will probably fully account for it, according to Maybank Kim Eng Securities

Full crystallisation of 1MDB’s debt has become highly likely, analysts Winson Phoon and Se Tho Mun Yi wrote in a report yesterday.

Debt service, both coupon and principal repayment, estimated at RM1.7 billion in 2019, RM1.7 billion in 2020, RM2.7 billion in 2021, RM15.4 billion in 2022 and RM13.1 billion in 2023. Other options include buying back USD bonds from the open market, such as 1MDB Global Investment bonds trading at 89% of par, which is cheaper than redeeming the notes on maturity date at par.

Gross issuance of government and state-guaranteed bonds may decline to RM136 billion this year, from RM146 billion in 2017, due to a review of infrastructure projects.

Sales will probably total RM127 billion in 2019 and RM126 billion in 2020. Unlikely to be any supply risk for govt bonds this year as Finance Ministry has said it’s on track to meet the fiscal deficit target of 2.8% of GDP.

Outlook is less certain for 2019 as govt may budget for expenditure on infrastructure that was previously funded by contingent liability, as well as obligations accruing under 1MDB and public-private partnerships; this would widen the budget deficit.