Abu Dhabi fund demands compensation after 1MDB defaults on third payment

KUALA LUMPUR — Abu Dhabi’s state-owned International Petroleum Investment Co (IPIC) said yesterday that it had paid interest of US$52.4 million (S$71.8 million) due on bonds guaranteed by troubled Malaysian state fund 1MDB, after 1MDB defaulted on them.

IPIC said this marked a third default by 1MDB, adding that it would step up its demands for 1MDB and the Malaysian government to compensate IPIC for its exposure to 1MDB; it said it was now owed US$1.2 billion plus accrued interest.

1MDB had to repay US$52.4 million of interest yesterday on US$1.75 billion of 5.99 per cent bonds maturing in 2022. It failed to make a US$50 million coupon payment last month on separate, privately placed notes amid a dispute with IPIC, which co-guaranteed the securities. The 5.99 per cent notes dropped 1.79 cents on the dollar this month to 100.54 cents, the lowest since April 22. The bonds are also co-guaranteed by IPIC.

Bank Negara Malaysia governor Muhammad Ibrahim earlier expressed confidence that the federal government would honour all its debt obligations.

Mr Muhammad, who took office on May 1, also said he was confident that 1MDB’s move to engage with US dollar-denominated bondholders would help improve market sentiment.

But others have been less optimistic. “Why pay the next coupon if the last one wasn’t?” said Mr Zafar Nazim, a London-based credit analyst at JPMorgan Chase.

“But we don’t know about discussions in the background between IPIC and 1MDB, so we can’t rule out the possibility of a temporary resolution.”

The two funds have been locked in a dispute over 1MDB’s debt obligations to IPIC under an agreement reached in May last year.

As part of the pact, the Abu Dhabi wealth fund said then that it would assume obligations to pay interest due under US$3.5 billion of 1MDB bonds that it guaranteed.

IPIC said last month that 1MDB was in default of the agreement after the Malaysian fund failed to pay it more than US$1 billion in connection with a loan. AGENCIES