1MDB faces another interest payment default

KUALA LUMPUR: 1Malaysia Development Bhd (1MDB) has to settle interest on another US$1.75 billion (RM7.04 billion) bond by noon on Thursday if it is not to default a second time.

The state investment arm defaulted on a US$1.75 billion bond late last month.

Channel News Asia reports that the next coupon payment for 1MDB is due tomorrow, London time.

“So by noon on Thursday (local time), if 1MDB refuses or fails to pay for whatever reason, it will once again go into default and trigger a cross-default on its other debts, including RM7.4 billion (US$1.83 billion) worth of sukuk (Islamic bonds).”

The second bond carries a US$52.4 million interest payment, with a 5.99 per cent coupon arranged by Goldman Sachs Group Inc in May 2012.

Chances are, the report said, that co-guarantor International Petroleum Investment Co (IPIC), of Abu Dhabi ,will pay the interest as otherwise it will trigger its own cross-default. IPIC has already made good on the interest payment that 1MDB missed under the first US$1.75 billion bond.

1MDB and IPIC are trying to settle a dispute over the payment of money in the form of an indemnity to guarantee certain bonds issued by 1MDB.

“That is why 1MDB is actively engaging its bondholders, first with sukuk holders and now with US-dollar bondholders to assure them that it is not because 1MDB cannot pay. It has ample liquidity to do so, but it is withholding payment because of an ongoing dispute with Abu Dhabi wealth fund IPIC,” the report said.

It added that market watchers were concerned, even though rating agencies Moody’s and Fitch had said that sovereign risk from 1MDB was limited.

The report quoted Dr Oh Ei Sen, a senior fellow at the Institute of Defence and Strategic Studies at Nanyang Technological University, as saying: “Essentially, the (Malaysian) Ministry of Finance is assuming all its debts. The Ministry of Finance owns 1MDB, it is a government department, a government agency, so of course the people of Malaysia at some point will have to shoulder all these debts.”