IPIC and 1MDB reach settlement, to pay US$1.2b by year-end

International Petroleum Investment Company (IPIC) and Malaysia have reached a settlement after a year-long arbitration process involving billions.

According to filings to the London Stock Exchange, IPIC said that it will receive US$1.2 billion in two equal payments on July 31 and Dec 31.

The agreement is conditional on the Arbitration Tribunal in London making a "consent award" by May 31.

The filing indicates that the settlement involved only part of the total US$6.5 billion sought by IPIC, the remainder of which is believed to be subject to further negotiations.

"The parties have also agreed to enter into good faith discussions in relation to payments made by 1MDB Group to certain entities," read the filing.

Although it is not mentioned what the "certain entities" are, it is likely that this referred to US$3.5 billion payments made by 1MDB to Aabar Investments PJS Ltd, incorporated in the British Virgin Islands (Aabar BVI).

IPIC had claimed that its subsidiary Aabar Investments PJS, headquartered in Abu Dhabi, had no relations to Aabar BVI.

The US$1.2 billion repayment is believed to be for the US$1 billion loan plus interest, which IPIC gave to 1MDB in 2015 to cover the defaulted interest payments on bonds. The bonds were guaranteed by IPIC and 1MDB.

The bonds, valued at US$3.5 billion, were issued in 2012 to finance 1MDB's energy unit - 1MDB Energy (Langat) Limited and 1MDB Energy Limited. Both bonds are due by 2022.

As part of the settlement, 1MDB and Minister of Finance Incorporated (MOF Inc) agreed to assume responsibility for the two bonds.

"The parties have provided suitable undertakings and indemnities in respect of the performance of obligations under the settlement."

News about the settlement had already leaked last Thursday, with Singapore's Straits Times speculating that the settlement could derail the US investigations on 1MDB.

US$50m cash received

Meanwhile, 1MDB said it will pay IPIC by monetising its "investment fund units".

"1MDB is pleased to confirm that a first tranche monetisation of approximately US$50 million has been received, in cash," it said in a statement.

It said it will also assume all future interests and principal payments on the bonds issued by the 1MDB Group, which are due in 2022, it said.

It did not specify which "investment fund units" it is monetising to pay IPIC, but 1MDB has US$940 million worth of investment "units" owned via its subsidiary Brazen Sky Limited.

The units, redeemed from its investments in the Cayman Islands, were managed by BSI Bank.

The units are now managed by another international bank, which the government has not identified, after BSI Bank's license was suspended over breach of regulations linked to 1MDB.

"This arbitration settlement and monetisation of investment fund units represents the resolution of a significant challenge, and is a major part of the 1MDB rationalisation plan, which is now at its final stages of conclusion," the state investment firm said.

1MDB, brainchild of Prime Minister Najib Abdul Razak, was set up as a sovereign wealth fund but questions rose about its heavy debts and business practices rose a few years after it was set up in 2009.

The company was said to have borrowed some RM42 billion and eventually failed to service some of its debts. This was followed by an aggressive asset stripping exercise beginning 2015 as Putrajaya attempted to stop the hemorrhage.

Last June, IPIC agreed to loan US$1 billion to 1MDB to cover the interest payments on the bonds, as well as US$3.5 billion to cover repayments on 1MDB debt.

It also forgave an undisclosed amount of debt from 1MDB, in exchange for assets but claimed 1MDB failed to repay the debts to IPIC, prompting the move to arbitration.

The US$6.5 billion claimed by IPIC is for the US$3.5 billion bond plus interest that amounts to US$4.8 billion, the US$1.2 billion loan plus interest, and about US$481 million owed to Aabar, Reuters reported last year.

PMO: We're monetising all 'units'Meanwhile, the Prime Minister's Office said 1MDB is monetising all its "investment fund units".

"The government is pleased that IPIC and 1MDB have resolved their differences in an amicable manner.

"We also note the monetisation of all 1MDB-owned investment fund units," prime minister's press secretary Tengku Sarifuddin Tengku Ahmad said in a statement.

"These significant events represent the continued positive progress made by 1MDB, which is nearing the completion of its rationalisation programme."- Mkini

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