Abu Dhabi gives new deadline to Malaysia Development

Abu Dhabi’s sovereign wealth fund has given 1Malaysia Development Berhad (1MDB) five days to make a $600 million payment, which the troubled Malaysian state fund failed to pay on Tuesday, further complicating a dispute hanging over Southeast Asia’s third-biggest economy.
The 1MDB fund said in a statement it was committed to meeting its obligations to Abu Dhabi’s International Petroleum Investment Company (IPIC), originally due on July 31, 2017, in August 2017. It did not specify a date in August.
It said all payments to IPIC would be made from the proceeds of the 1MDB rationalization plan, under which it is selling assets. It said the delay was also due to the need to get more “regulatory approvals.”
But Mubadala, which now owns IPIC, said in a separate statement on Tuesday that 1MDB and the Malaysian finance ministry (MoF) have just five days to resolve the non-payment.
“Under the Settlement, there is a five business day cure period for MOF Inc. and 1MDB to remedy their non-payment before MOF Inc. and 1MDB become subject to additional obligations to IPIC and Aabar,” Mubadala said.
Malaysia dissolved 1MDB’s advisory board last year, and its assets were either shifted to the government or sold off as part of the rationalization program, after the fund was linked to a multi-billion dollar global money laundering scandal.
One such asset sale — a $1.7 billion Bandar Malaysia property deal that was executed as part of the rationaliazation plan — collapsed in May. As part of the agreement with IPIC, 1MDB was to pay $1.2 billion in two installments. A second payment is due by the end of this year. 1MDB and Malaysia’s Ministry of Finance will also assume responsibility for all future interest and principal payments under two bonds worth $3.5 billion in total.
The agreement was reached after the Malaysian fund defaulted on its bonds in 2016, sparking a dispute with IPIC, which asked a London court to arbitrate a claim totalling some $6.5 billion.
IPIC was merged with Mubadala earlier this year.
Bonds linked to 1MDB remained largely unmoved on Tuesday.
1MDB’s 4.4 percent bonds due 2023 were trading slightly weaker at 91/93 while the bonds due 2022 were down half a point at 108.3/108.9 cents on the dollar.
“Despite the various guarantees and debt consolidation plans there is 1MDB debt outstanding, and the debt still presents a contagion risk to the government,” said Moody’s Analyst Christian de Guzman.
“We don’t have a clear picture of what the liability structure looks like but it is much smaller than the last publicly disclosed level of 4 percent of GDP in 2014,” he said.