KUALA LUMPUR/HONG KONG | BY JOSEPH SIPALAN AND UMESH DESAI Reuters Wed May 11, 2016
Disputes between Abu Dhabi state-owned International Petroleum Investment Co (IPIC) and the troubled Malaysian state investment fund 1MDB intensified on Wednesday, with IPIC saying there was a fresh default by 1MDB.
IPIC claimed that 1MDB and the Malaysian government now owe it more than $1.2 billion after a complex series of agreements between the two former partners went sour.
The latest turn came on Wednesday, when IPIC [INTPV.UL], said it had to stump up a $52.4 million coupon payment after 1MDB defaulted on $1.75 billion on bonds due in 2022.
1Malaysia Development Berhad (1MDB) said it had “more than sufficient” funds to make the interest payments on that bond and another $1.75 billion declared in default in April, but did not due to its dispute with IPIC.
1MDB has been locked in a dispute over its obligations to IPIC under a debt restructuring agreement reached in June.
After the default in April, 1MDB maintained that it would meet all its other liabilities but its CEO Arul Kanda had also said “we are keeping our options open on the May 11 coupon”.
The April default, the continuing stand-off with IPIC and a widening investigation across at least six countries into possible corruption and money-laundering connected to 1MDB have been weighing on Malaysia economy and its currency ringgit.
On Wednesday, IPIC said it would now step up its demands for 1MDB and the Malaysian government to compensate the Abu Dhabi firms $1.2 billion, plus accrued interest.
The 1MDB statement said it is “committed to working openly with IPIC to resolve the dispute”.
It also said that the fund recently started an “engagement process” for its US dollar denominated bondholders and encourages all of them to register at a company website.
Credit rating agency Standard & Poor’s said on Tuesday that Malaysia’s and 1MDB’s contractual dispute with IPIC is not considered a sovereign default. S&P said it does not expect 1MDB to represent a large contingent liability to the Malaysian government.
HONORING DEBT OBLIGATIONS
Earlier on Wednesday, Malaysia’s new central bank governor said he was confident the government would honor all its debt obligations.
“I’m quite confident the government will honor all of its debt obligations,” Muhammad Ibrahim told reporters in response to a question about 1MDB at an event in Kuala Lumpur.
Earlier this month, Malaysia’s finance ministry said it was taking over 1MDB’s remaining assets, but it was unclear how much of the fund’s debt, would be shouldered by the government.
The fund piled up about $12 billion in debt since its inception in 2009. Some of that was paid off through asset sales late last year as part of a restructuring of the fund.
The defaults at 1MDB come at a difficult time for Prime Minister Najib Razak, with a political controversy raging over the fund, which is the focus of a multi-billion dollar money-laundering investigation in at least six countries.
1MDB’s advisory board was chaired by Najib until its dissolution earlier this month.
(Writing by Praveen Menon; Editing by Simon Cameron-Moore and Richard Borsuk)