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Monday, April 25, 2016

IPIC will pay if 1MDB default

Abu Dhabi's state-owned International Petroleum Investment Co (IPIC) said it would make a US$50.3 million interest payment to holders of notes issued by Malaysian state fund 1Malaysia Development Bhd (1MDB), but only after 1MDB defaults on its payments.

A default by 1MDB will occur if the troubled Malaysian sovereign fund fails to make a payment on the 1MDB Energy (Langat) Ltd bond before Monday, April 25, IPIC said in a filing to the London Stock Exchange on Monday.
IPIC guarantees the bond.
The coupon on the US$1.75 billion bond was due on April 18, but terms of the bond gave a five-day period of grace for the payment, which ends Monday.
The Abu Dhabi fund said neither 1MDB Energy (Langat) nor 1MDB have made the payment so far. It said the guarantee has not been called upon yet.
"As at the time of this announcement, IPIC is not aware of the Guarantee being called upon. IPIC has always honoured its obligations arising from any agreements it has entered in to and will continue to do so," it said in the statement.
It was not clear whether a default had already occurred. 1MDB did not immediately respond to a request for comment.
IPIC said a 1MDB default would not mean a cross-default by IPIC on its own debts.
While the interest on the bond was widely expected to be paid, the stand-off between the two state firms, who are locked in a wider dispute, has worried markets and left bondholders waiting on the payment that was due on Monday.
The Malaysian state investor said the interest was owed by IPIC following an agreement struck on June 4, 2015.
But IPIC called off the deal earlier this month, saying 1MDB and its sole shareholder, Malaysia's Ministry of Finance, had failed to meet their obligations, including the full payment of US$1.1 billion plus interest and that they were now in default.
1MDB's 4.4% US$3 billion 2023 < MY090717251=> was still trading steady in the low 90s. The 5.99% US$1.75 billion 2022 is at 99.5/100.
Malaysian Prime Minister Datuk Seri Najib Razak heads the advisory board of 1MDB, which is at the centre of a multi-billion dollar corruption scandal. Money-laundering investigations concerning the fund are now underway in at least six countries including the United States, Switzerland and Singapore.
Source: Reuters

Tuesday, April 19, 2016

WallStreet Update: Dow closes above 18,000 for the first time since last July

Stocks advanced Monday, with the Dow Jones Industrial Average rising above the 18,000 level for the first time since July, as investors shook off oil’s losses on failed output talks and looked toward a bevy of corporate earnings this week.

The index jumped about 100 points to close above 18,000 on Monday.

It's a pretty sweet milestone considering the Dow plunged to just 15,451 in January, as Wall Street freaked out over the crash in oil prices and China's economic slowdown. Cooler heads eventually prevailed as investors realized the American economy is not collapsing and cheap oil is actually good for most Americans.

The Dow is now up 16.5% from its 2016 low, and is within striking distance of its all-time record high of 18,351 set last May. The S&P 500 also closed at a fresh 2016 high on Monday.

Even the Nasdaq is closing in on a key level: The tech index is now down just 1% on the year. That's impressive given the fact the Nasdaq was flirting with a bear market back in February.

Hasbro Inc. surged nearly 6 percent to a record, buoying sentiment after its results beat expectations, thanks in part to demand for Walt Disney Co.’s “Star Wars”-licensed toys.

Disney added 2.9 percent. Energy producers rallied as crude trimmed declines that had reached as much as 6.8 percent. Morgan Stanley was little changed after fluctuating between gains and losses as cost cuts helped the firm report a better-than-forecast profit.

The gains in equities have come even as earnings are forecast to slide at the steepest pace since the financial crisis, pushing the S&P 500’s price-earnings ratio to 19, near a six-year high. Moreover, should the Federal Reserve continue to gradually raise interest rates and the government refrain from adding stimulus, it would be the first time since 1952 that profits turned lower without a recession, Fed easing or fiscal expansion, data compiled by Bianco Research LLC show.

More than 90 companies are scheduled to report results this week, including Goldman Sachs Group Inc., Starbucks Corp. and American Express Co. Analysts are projecting a 9.5 percent decline in first-quarter profit, compared with forecasts for almost flat growth at the start of the year.

1MDB's dispute with IPIC puts it at risk of default

1MDB back in the news

The International Petroleum Investment Co (IPIC) which have a mixed debt-swap agreement with 1Malaysia Development Bhd (1MDB) yesterday, is demanding that 1MDB should pay back the USD 1.1 billion owed to it.

The Gulf emirate’s International Petroleum Investment Company (Ipic) ended its relationship with its Southeast Asian counterpart in a filing to the London Stock Exchange on Monday. 

The Abu Dhabi fund said 1MDB and Malaysia’s ministry of finance were in default on the deal, including an obligation to pay $1.1bn plus interest, and that 1MDB continued to be bound by its commitments under the agreement. 

With this new development, 1MDB, which is already a target of global investigations into allegations of money laundering and embezzlement, has another major problem: It now faces the risk of sinking into default.

The development leaves 1MDB’s bondholders waiting for an interest payment, due Monday, that may never come. The Abu Dhabi fund indicated it no longer has an obligation to make the interest payments, and 1MDB didn’t say if it would step in. Malaysia’s finance ministry said in a statement that it “will continue to honor all of its outstanding commitments.”

IPIC entered into 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 has met all its obligations to date.

"1MDB and MOF continue to be bound by their respective obligations under the terms of the Binding Term Sheet," IPIC said Monday. That includes indemnifying IPIC and its unit Aabar Investments PJS for any claims against it over guarantees it gave for bonds issued by 1MDB, it said.

1MDB amassed more than 50 billion ringgit ($12.7 billion) of debt over six years, using some of it to buy energy assets, including joint ventures with companies in Saudi Arabia and Abu Dhabi. 1MDB said in a separate statement on Monday it has repaid all short-term and bank borrowings, and has a 2.3 billion ringgit surplus.

MOF says notified of 1MDB-IPIC dispute, pledges to honour outstanding commitments

The Ministry of Finance said yesterday it has been made aware of 1MDB's dispute with IPIC, and has pledged to honour all of its outstanding financial obligations. 

In a statement, MOF said it was notified of the dispute concerning the obligations of 1MDB and IPIC in respect of certain publicly issued notes. “The MOF wishes to make clear that it will continue to honour all of its outstanding commitments in the financial markets,” it said in a short statement yesterday evening.


In response, 1MDB also made a statement, saying its entities will meet all of its other obligations under any financing arrangements, adding that the fund has ample liquidity to do so. 

"1MDB wishes to make clear that it and its group entities will meet all of their other obligations under any other financing arrangements and have ample liquidity to do so," it said.

"On June 4, 2015, IPIC assumed the issuer's obligation to pay the interest due under the notes in exchange for certain undertakings to transfer assets and cash to IPIC," 1MDB said in the statement.

1MDB added that a dispute had recently arisen between IPIC and the issuer concerning their obligations to each other.

"Consequently, as of the time of this statement, the issuer understands IPIC has not paid the interest," said 1MDB.

Monday, April 18, 2016

The Ringgit volatility continues

Just the other day, I got the opportunity to talk to two economists, one from UOB and another from AmInvest and they were pretty happy that the Ringgit has stabilized.

The article written was published on The Edge Financial Daily on April 18, 2016 (Monday) but then, today, reality sets in as the oil price plunged after the failure in negotiation between the Saudis and Iran. Here's the reality: Ringgit is still very much tied with the movement of the oil and as long as the supply and demand of the oil failed to reach its equilibrium, the Ringgit's volatility should persist.

After some good run, the Ringgit fell the most in two weeks as Brent crude plunged after major oil producers failed to come up with an agreement to freeze output and address a supply glut.

The disappointment stemming from the weekend meeting in Doha risks reversing a rally in emerging Asia’s best-performing currency this year as a renewed decline in the commodity puts pressure on the government finances of oil-exporting Malaysia. Brent tumbled 2.7 percent to $41.92 a barrel as Iran appeared to be the main stumbling block to an agreement. Hopes a deal would be reached had spurred gains across world markets in recent days and driven Brent above $44 for the first time in four months.

The ringgit fell 0.6 percent to 3.9265 a dollar in Kuala Lumpur after being down as much as 1.5 percent earlier, according to prices from local banks compiled by Bloomberg. That pared its gain this year to 9.3 percent, trailing only Brazil’s real among emerging markets.