April 19, 2016
Malaysia’s debt-ridden state investment fund, which is facing the risk of a bond default, said it expects an interest payment to be made as it enters the start of a five-day grace period. The ringgit extended gains.
1Malaysia Development Bhd. has a cash surplus of about $550 million, or 11 times the $50 million amount due on interest that was payable on April 18, President Arul Kanda said in a Bloomberg Television Malaysia interview on Tuesday. The company is in dispute with Abu Dhabi’s sovereign wealth fund, which earlier agreed to pay interest on the bonds, and Kanda said he expects an “amicable resolution.”
The threat of default is the latest episode in financial scandals that have rocked 1MDB, already a target of global investigations into allegations of money laundering and embezzlement. Prices on its dollar bonds plunged on Monday after Abu Dhabi’s International Petroleum Investment Co. or IPIC announced an end of its debt obligations to 1MDB after failure by the Malaysian fund to make payment of more than $1 billion in connection with a loan. IPIC declined further comment beyond its Monday statement.
“It is important to maintain a sense of perspective here,” Kanda said. “We are in direct contact with IPIC and we are seeking to work through these differences to come to a resolution.”
IPIC entered an agreement with 1MDB in May 2015 where it would provide the Malaysian fund $1 billion to settle some liabilities in exchange for a transfer of assets, as well as assume interest obligations on $3.5 billion of debt. 1MDB and its shareholder, Malaysia’s finance ministry, “are in default” on the terms of the binding term sheet with IPIC and its unit, the Abu Dhabi fund said, adding that it had met all its obligations to date.
“If IPIC doesn’t pay in terms of the binding term sheet, we will then have to assess our position because clearly it is originally our debt obligation,” Kanda said. “It is always open to us to settle that issue should we decide at the right time to do so. While there is concern around investor sentiment, I think the quantum and our ability to pay is not in question.”