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Tuesday, April 19, 2016

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.

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