Malaysia says MoF serviced 1MDB debt

SINGAPORE, May 23 (IFR) - Malaysia's new Finance Minister said the country's Ministry of Finance had been servicing 1Malaysia Development's debt obligations since April 2017, and called for a closer look at its debt pile.

State investment fund 1MDB has US$6.5bn of dollar bonds outstanding, as well as ringgit debt, and has been the subject of international probes into alleged misappropriation of funds.

1MDB's US$3bn 4.4% dollar bonds due 2023, issued in 2013, came with a letter of support from the government of Malaysia, but no implicit guarantee. The US$1.75bn 5.99% 2022 bonds and US$1.75bn 5.75% 2022 bonds were issued in 2012 with a guarantee from International Petroleum Investment (IPIC), and in 2015 IPIC agreed to service interest payments as part of a debt relief deal.

New Finance Minister Lim Guan Eng said he had asked Arul Kanda, president and CEO of 1MDB, to confirm whether the state investment fund was able to make a M$143.75m (US$36.2m) coupon payment due on May 30.

When Kanda joined 1MDB in January 2015, the fund already faced questions about its debt issues and use of proceeds, but the probe has since deepened. Since being voted out this month, former Prime Minister Najib Razak, who was instrumental in the formation of 1MDB as Finance Minister, has been questioned by the Malaysian Anti-Corruption Commission. The US Department of Justice alleges that more than US$4.5bn was diverted from 1MDB's accounts through a series of offshore transactions.

Lim said the MoF had made M$6.98bn of payments on behalf of 1MDB, including M$5.50bn paid to Abu Dhabi fund IPIC as part of a settlement agreement between the two parties after arbitration in a London court. The debt servicing arrangement broke down in April 2016 after IPIC claimed 1MDB had not transferred required funds.

1MDB said in April 2017 that it would assume responsibility for all future interest and principal payments on the 2022 bonds, and said that it would raise the cash by monetising 1MDB-owned investment fund units.

Lim said the MoF's payments of 1MDB's coupons "confirms the public suspicion that 1MDB had essentially deceived Malaysians by claiming that they have been paid via a 'successful rationalisation exercise'".

Another M$810.21m of coupon payments are due on 1MDB's bonds between September and November.

"I have instructed the officers to study in detail the debt and liabilities of 1MDB and propose measures to resolve the crisis created by the scandal," said Lim.

Bond investors seemed unconcerned by the possibility that the government might not support 1MDB's obligations in future.

The 2023 dollar bonds were bid at a cash price of 92, implying a yield of 6.4%, according to Tradeweb. The 5.99% 2023 bonds were quoted at 104, yielding 4.8%, according to Thomson Reuters data. The US$1.75bn 5.75% 2022 bond is not quoted.

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