Malaysia’s 1MDB defaults
hong kong — 1Malaysia Development (1MDB) said on Tuesday it did not pay a $50.3 million coupon on a $1.75 billion bond following a stand-off with Abu Dhabi sovereign fund IPIC (International Petroleum Investment Co), triggering cross defaults on some of its other bonds.
The troubled Malaysian state fund, which is at the centre of a multi-billion-dollar graft scandal, said in a statement it would meet all its other liabilities.
The missed payment increases the probability the government will have to assume 1MDB’s obligations, said Christian de Guzman, a senior analyst at Moody’s Investors Service.
“It brings us one step closer to crystallisation of contingent liabilities on the government’s balance sheet,” he told Reuters.
S&P associate director YeeFarn Phua said the default may trigger an “acceleration event on the other
The default may trigger an acceleration event on the other bonds of 1MDB
YeeFarn Phua, S&P associate director
bonds of 1MDB”, meaning lenders may demand an early bond or loan repayment.
The cross default, the continuing stand-off with IPIC and a widening investigation across at least six countries into possible corruption and money-laundering connected to the fund are starting to affect the markets.
The Malaysian fund said the missed interest payment caused a cross-default on its five billion ringgit ($1.28 billion) sukuk (Islamic bond) due in 2039 and a 2.4 billion ringgit sukuk due between 2021 and 2024. 1MDB President Arul Kanda Kandasamy said in an interview with Reuters it was keeping its options open on another coupon payment coming up on May 11 “and will deal with the payment closer to time”.
1MDB is locked in a dispute over its obligations to IPIC under a debt restructuring agreement reached last June.
Under that deal, IPIC agreed to loan $1 billion to 1MDB and assume payments on $3.5 billion of 1MDB debt. It also forgave an undisclosed amount of debt that 1MDB owed to IPIC, in exchange for assets which have not been named.
IPIC said 1MDB was in default of that agreement, after the Malaysian fund failed to repay the loan, now at $1.1 billion with interest. IPIC said on Monday it would make the interest payment on a $1.75 billion bond that was due on Monday but only after 1MDB defaulted. IPIC guaranteed the bond.
The Malaysian fund said in a statement on Tuesday it “will continue to undertake discussions with all bond and sukuk holders to explain the background of the dispute”.