Malaysia and Abu Dhabi settle 1MDB dispute with $1.2 bln deal

Anita Tucker
April 25, 2017

Abu Dhabi's International Petroleum Investment Co (Ipic) and a Malaysian state fund have resolved a debt dispute with a conditional US$1.2 billion deal.

In addition, 1Malaysia Development Berhad (1MDB) and the Minister of Finance (Inc) Malaysia have promised to assume responsibility for all future interest and principal payments due in 2022 under two bonds issued by 1MDB that are guaranteed by 1MDB and IPIC. The fund borrowed heavily through bonds issues to raise capital, leading to debts of 50 billion ringgit ($11.4 billion) as of January 2016, barely more than its assets, worth 53 billion ringgit.

These include the $1.75 billion 5.75 percent fixed rate notes due 2022 and $1.75 billion fixed rate 5.99 percent notes due 2022, both issued by 1MDB entities.

Malaysian taxpayers via the Ministry of Finance (MoF) are now exposed to more than US$6bn (RM26.4bn) in payments to Ipic for the financial scandals of 1MDB, where not a single person has been arrested by the Malaysian authorities.

The statement did not mention the total remaining size of the investment fund units still owned by 1MDB, how the monetisation took place or who bought the fund units.

Editor's Remarks: The two governments were at odds after a default in April 2016 over the repayment of bond obligations.

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However, this is only the beginning as the U.S. is investigating possible money laundering and other crimes linked to 1MDB across Singapore, Hong Kong and Switzerland.

Are 1MDB and Arul Kanda telling us that despite having paid US$3.51 billion to IPIC, we still owe the US$3.5 billion we borrowed?

"The news that 1MDB and Abu Dhabi's IPIC has come to a USD6 billion settlement instead of continuing with their global arbitration has come to a shock to many but not to me".

"These obligations will be met by 1MDB, primarily via monetisation of 1MDB-owned investment fund units".

"This arbitration settlement and monetisation of investment fund units represent the resolution of a significant challenge, and are a major part of the 1MDB rationalisation plan, which is now at its final stages of conclusion", 1MDB said in its statement. "These significant event represents positive progress made by 1MDB, which is nearing the completion of its rationalisation programme".

Both the fund and Najib have vehemently denied wrongdoing.

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