1MDB in default after failure to make US$50m payment

State-owned 1MDB has been declared in default after it failed to pay a US$50.3 million debt payment on billions of dollars in bonds guaranteed by an Abu Dhabi state-owned sovereign wealth fund International Petroleum Investment Corporation (IPIC).

This is confirmed by 1MDB in a press statement today which blamed IPIC for its refusal to assume its “obligation to pay the interest and ultimately the principal for, among others, the US$1.75 billion fixed rate 5.75% notes due 2022, issued by 1MDB Energy (Langat) Limited”.

“Accordingly, due to a dispute between the parties, neither 1MDB nor its subsidiary, 1MDB Energy (Langat) Limited, has made payment either, and are now in default per the terms of the Langat Notes,” said 1MDB.

Singapore Straits Times said that the declaration of default “immediately exposes Prime Minister Najib Razak's government to more than US$6.481 billion in debt” owed to Gulf emirate Abu Dhabi.

Malaysian government officials close to the situation told Singapore Straits Times that the dispute surrounding the US$3.5 billion that IPIC helped 1MDB raise in May 2012 is likely to go into private arbitration.

While 1MDB reiterated that it will meet all its other existing financial obligations and has ample liquidity to do so, it is withholding the US$50.3 million interest payment following claims by IPIC that certain payments and other obligations were still owed it.

“1MDB has been surprised by IPIC’s comments and unequivocally asserts that it has attempted to meet all its obligations to IPIC, whereas IPIC has publicly denied receipt or knowledge of various financial transactions and/or guarantees entered into between the parties.

“Accordingly, whilst 1MDB has the funds to have made the interest payment, it is 1MDB’s position, as a matter of principle, that it was IPIC’s obligation to do so. Until IPIC accepts that all obligations have been met, 1MDB is obliged to withhold payments and will seek legal recourse and resolution.”

[More to follow]

-Mkini