(Aug 1): 1Malaysia Development failed to make a US$603 million ($818 million) payment to Abu Dhabi’s sovereign wealth fund as part of a settlement over a debt dispute, according to a person with knowledge of the matter.
International Petroleum Investment Co. is expected to make an announcement in London on Tuesday, said the person who asked not to be identified as the information isn’t public yet.
The obligation, which was due on July 31, is half the amount 1MDB and the Malaysian finance ministry agreed to make to IPIC, with a second payment by the end of 2017.
1MDB and the Ministry of Finance didn’t immediately respond to emails seeking comment on the non-payment.
While Malaysia is regaining favour as investors shrug off far-reaching investigations into 1MDB and focus on encouraging signs of an economic turnaround, analysts have warned that failure to pay IPIC could hurt sentiment and become a contingent liability for the government.
The ringgit was little changed as of 2.20pm in Kuala Lumpur. Five-year credit-default swaps protecting Malaysia’s sovereign notes were at 81 basis points on Monday, near the lowest in almost three years, prices from CMAN show. 1MDB’s 5.99% notes due 2022 were little changed at 108.6 to the dollar on Tuesday, according to prices compiled by Bloomberg.
IPIC completed a merger with Abu Dhabi sovereign wealth fund Mubadala Development Co. earlier this year. A Mubadala representative couldn’t immediately comment on the matter.
Debt Tussle
1MDB and IPIC were locked in a tussle that spilled over to repayments on two sets of bonds issued by the Malaysian state fund, leading to a default in April 2016. IPIC was seeking US$6.5 billion from 1MDB and the Malaysian government for failure to perform their debt obligations as the dispute moved into arbitration at the London Court of International Arbitration.
In April, the parties said they reached an agreement. On top of the US$1.2 billion payment, 1MDB would also assume the coupon and principal obligations for US$3.5 billion of bonds issued by it and co-guaranteed by IPIC. The settlement would be funded by the sale of 1MDB’s investment fund units, it said then.
Among the issues between the 1MDB and IPIC were billions in allegedly missing funds. 1MDB has said it could be a victim of fraud if payments intended for IPIC never made it there, while the latter had denied ownership in the company that the Malaysian investment firm transferred money to.
