Jittery lenders might force 1MDB to settle debt earlier, says report

1Malaysia Development Berhad might have to settle a US$975 million loan four months before its due date by lenders based in Singapore. – The Malaysian Insider file pic, May 13, 2015.

A consortium of six international banks, led by Deutsche Bank, plan to ask debt-laden 1Malaysia Development Berhad (1MDB) to settle a US$975 million loan four months before its due date.

Singapore's Business Times reported today that the "jittery lenders" have turned "panicky" because the loan was secured by the state investment vehicle's wholly owned Brazen Sky's US$1.103 billion – money which is currently being parked at Swiss private bank BSI Singapore 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 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.

In a worst-case scenario whereby if the consortium deemed the loan to be in default, then 1MDB could find itself in a cross default situation for its remaining debts of US$15.5 billion (RM42 billion).

"This has been a possibility long flagged by naysayers," the report said.

Faced with such scenario, Singapore Business Times said the affected parties were believed to be in talks to avert a crisis involving the loan.

The daily contacted Deutsche Bank Singapore with a spokesperson saying the bank was "unable to assist" while 1MDB had previously said it would not comment on speculation and market rumour.

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”.

Yesterday, PKR's Pandan MP Rafizi Ramli expressed his worries over 1MDB's ability to pay the looming loan, claiming that he had information that the troubled state investment fund listed its “questionable” account in BSI Bank Singapore as collateral.

Rafizi said that if this was true, 1MDB may have to resort to using public funds to meet the September payment deadline, since its account in BSI Bank reportedly had no actual cash.

Singapore Business Times also noted that the 1MDB saga had touched several banks like BSI, RBS Coutts and Deutsche Bank.

It said the Monetary Authority of Singapore (MAS) was providing assistance to Malaysian regulators probing into the troubled firm's accounts and operations.

It quoted industry sources as saying that some banks, including BSI Singapore, have hired legal representatives in case the "situation turn serious and potential claims are made against them".

"If things start to develop and no one is sure what the affected parties might do, the banks need to ensure legal representation is in place to defend their position. It's a normal prudent move on their part," a source was quoted as saying.

The daily also said one of BSI Singapore's officers, who may have dealings with 1MDB, was put on "gardening leave" and is also believed to have hired lawyers.

An unnamed lawyer was quoted by the report as saying: "MAS is a prudent and diligent regulator and has a lot of power to obtain information from banks very quickly. The question is whether this saga involving banks in Singapore is about lapses in best practices or breaches that are under the jurisdiction of other regulatory bodies such as the CAD (Commercial Affairs Department) and the police."

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

Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah previously disclosed that Putrajaya had approved an RM950 million standby credit facility for 1MDB, of which RM600 million has been used.

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, former Umno leaders and anti-graft bodies to demand a thorough investigation into the fund.

- TMI