S&P says 1MDB not a drastic liability to govt

KUALA LUMPUR: The debt dispute between 1MDB and Abu Dhabi wealth fund International Petroleum Investment Co (IPIC) is not a sovereign default, ratings agency Standard & Poor’s says.

The Financial Times quoted S&P Global Ratings credit analyst Christian Esters as saying: “Our sovereign ratings refer to the sovereign’s ability and willingness to service financial obligations to non-official creditors. Consequently, we do not consider a contractual dispute and termination of a bilateral agreement between governments or their entities as sovereign default.”

The ratings agency said it did “not expect 1MDB to represent a large contingent liability to the government”.

It said the government was reluctant to extend its support for debt beyond the level that it had explicitly guaranteed or extended in the letter of support (a total of RM17.6 billion or 1.4 per cent of GDP), adding, “We do not consider these amounts to be material to the government’s balance sheet”.

Still, the FT report quoted S&P as saying, implications for the country’s political stability could be more pressing. “A disorderly change in the government cannot be ruled out,” the ratings agency said.

There are moves in the country to get Prime Minister Najib Razak, who headed the 1MDB advisory board until it was dissolved recently, to resign.

1MDB is working to settle a dispute over its obligations to IPIC under a debt restructuring agreement reached last June.

Under that deal, IPIC agreed to loan US$1 billion to 1MDB and assume payments on US$3.5 billion of 1MDB debt. It also forgave an undisclosed amount of debt that 1MDB owed to IPIC, in exchange for assets which have not been named, Reuters reported.

IPIC said 1MDB was in default of that agreement, after the Malaysian fund failed to repay the loan, now at US$1.1 billion with interest.

The dispute between the two state investors has its roots in payments 1MDB made to a mystery fund in the British Virgin Islands (BVI).

The Public Accounts Committee investigating 1MDB said in a report last month that 1MDB had sent a total of US$3.5 billion to a BVI-registered company called Aabar Investments PJS Ltd.

IPIC said that, while the firm had a similar name to its subsidiary, it did not belong to IPIC or its subsidiary. It said it had not received any payments from the BVI company, which was wound up last June, nor assumed any liabilities on its behalf, Reuters reported.

What happened to the US$3.5 billion after it went to the BVI company could not be determined, the PAC report said.

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