1MDB partners pump US$1 billion into troubled strategic fund

1MDB, the debt-laden government-owned strategic fund, will get some much-needed cash from its Middle East partners to help make loan repayments to banks. – The Malaysian Insider file pic, May 29, 2015.Troubled 1Malaysia Development Berhad's (1MDB) Middle East partners will inject US$1 billion into the debt-laden strategic fund for early repayment of a US$975 million syndicated loan led by Deutsche Bank, the Finance Ministry said today.

The funds from Abu Dhabi's International Petroleum Investment Company (IPIC) and its Aabar Investments unit (Aabar) will be paid by June 4, ahead of the September deadline to repay the loan, Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said in astatement today.

“This US$1 billion payment will be used to repay a US$975 million (RM3.5 billion) loan, in advance of its September due date, to a syndicate of international bank lenders. The agreement will also include further measures to comprehensively address the various financial asset and liability transactions between the parties, further details of which will be announced in due course.

“This agreement marks a significant step towards reducing 1MDB’s overall debt levels, and is a crucial part of the rationalisation plan I presented to Cabinet earlier, which we expect to be implemented in full by early next year," he said.

The Cabinet met this morning and in the meeting, Husni presented the state investment vehicle's rationalisation plan.

In its May 13 report, Singapore's Business Times reported that the six "jittery lenders" – led by Deutsche Bank had turned "panicky" because the loan was secured by 1MDB's wholly-owned Brazen Sky's US$1.103 billion – money which is currently being parked at BSI Singapore, a Swiss-based private bank.

The business daily, in quoting sources, said "securitisation document" for the loan was now deemed "incomplete", as one of the covenants was not fulfilled.

This meant lenders could demand for repayment from the state investment vehicle any time before its due date of end-August.

"What was earlier construed as a tightly collateralised loan is now making the banks nervous, given this controversy," the daily quoted an unnamed source as saying.

However, on April 22, whistle-blower Sarawak Report said 1MDB’s account in BSI Bank merely contained “paper assets”, the “true value of which cannot be determined”.

In a parliamentary reply to Tony Pua (DAP–Petaling Jaya Utara), Putrajaya had recently revealed that the balance of the investment redeemed by 1MDB were assets in US dollars.

Last March, in another parliamentary reply to Pua, the finance ministry had said that the redeemed money was in cash form.

Criticism has been mounting over the Finance Ministry's wholly-owned investment vehicle, established in 2009, which has chalked up debts of up to RM42 billion, backed by Putrajaya.

Scrutiny has grown more intense following Sarawak Report's recent exposes, which piled pressure on Prime Minister Datuk Seri Najib Razak and prompted opposition politicians, current and former Umno leaders, including long serving former prime minister Tun Dr Mahathir Mohamad, and anti-graft bodies to demand a thorough investigation into the fund.

The Auditor-General is currently looking through 1MDB's books, with a preliminary report expected to be submitted to the Parliament in June, while Parliament's Public Accounts Committee (PAC) started its owninvestigation into the company last Tuesday.

- TMI