1MDB Says It's in Default After Mis

1MDB Says It's in Default After Missing Interest Payment

Shamim Adam @shamimadam

Y-Sing Liau

David Yong @dyong126

April 26, 2016 — 8:32 AM ICTUpdated on April 26, 2016 — 2:46 PM ICT
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The Malaysian government’s reputation took another hit on Tuesday after state-owned 1Malaysia Development Bhd. defaulted on a $1.75 billion bond. The ringgit fell and 1MDB’s dollar debt slumped.
The development fund withheld a $50 million coupon payment amid a wider dispute with Abu Dhabi’s International Petroleum Investment Co., the co-guarantor of the bonds. The missed payment triggered cross defaults on 7.4 billion ringgit ($1.9 billion) of 1MDB debt, including borrowings that are guaranteed by the Malaysian government, the fund said in a statement on Tuesday.
The default is the latest episode in financial scandals that have rocked 1MDB, whose advisory board is headed by Malaysian Prime Minister Najib Razak. The fund is at the heart of investigations at home and abroad, including in Switzerland, the U.S. and Singapore, over allegations it was used to funnel money to politically-connected individuals. 1MDB has consistently denied wrongdoing.

“It’s never good news" when there’s a default, said Tim Condon, head of Asia research in Singapore at ING Groep NV. "Investors view it as a complication with corporate governance implications for Malaysia, but not a threat to the sovereign’s balance sheet.”
Markets Rattled
The default rattled markets, with the ringgit headed for the longest stretch of losses since November, and 1MDB bonds maturing in March 2023 halting a five-day gain. The cost to protect Malaysia’s sovereign notes with credit-default swaps increased.
IPIC guaranteed two separate dollar-denominated bonds for 1MDB in 2012 in deals arranged by Goldman Sachs Group Inc. The default concerns the debt with a 5.75 percent coupon sold in a private placement in October that year. A $1.75 billion offering with a coupon of 5.99 percent sold by Goldman in May 2012 hasn’t had any missed payments.
1MDB’s non-payment is another blow to Najib’s efforts to halt months of political attacks and draw a line under allegations of irregularities surrounding the fund. A Malaysian parliamentary committee this month identified at least $4.2 billion of unauthorized or unverified transactions by 1MDB, including some that involved Abu Dhabi companies.
Turnaround Plan
1MDB President Arul Kanda has spent the past year trying to turn the fund around and sort out a debt burden he inherited when he took over in January 2015. 1MDB has 11 times the amount needed to cover the $50 million coupon, he said in an interview last week. He said IPIC agreed to pay interest on the bonds and should make the payment. IPIC said on Monday it will pay bondholders should 1MDB default.
Opposition lawmakers were quick to point the blame for the latest glitch in the government fund.
Najib "must provide a full and satisfactory explanation on the financial disaster taking place before our eyes and outline the steps which will be taken to remedy the situation," said Tony Pua, an opposition lawmaker with the Democratic Action Party and a member of the parliamentary committee that probed 1MDB.
‘Ample Liquidity’
Najib’s office didn’t immediately provide a comment on the implications of the default on the country. 1MDB said it will meet all of its other existing financial obligations and has "ample liquidity" to do so.
Malaysia warned investors during a bond sale this month that it faces as much as $4.5 billion in potential liabilities should 1MDB default. The fund amassed more than 50 billion ringgit of debt over six years, using some of it to buy