Malaysia’s 1MDB Fund Scandal Update

Malaysia’s 1MDB Fund Scandal Update.

Abu Dhabi’s sovereign wealth fund has given 1Malaysia Development Berhad’s (1MDB) five days to make a $600 million payment, which the troubled Malaysian state fund failed to pay on Tuesday, 1 August 2017, further complicating a dispute hanging over Southeast Asia’s third-biggest economy. The 1MDB fund said in a statement it was committed to meeting its obligations to Abu Dhabi’s International Petroleum Investment Company (IPIC), originally due on 31 July 2017, in August 2017. It did not specify a date in August. It said all payments to IPIC would be made from the proceeds of the 1MDB rationalisation plan, under which it is selling assets. It said the delay was also due to the need to get more “regulatory approvals.” But Mubadala, which now owns IPIC, said in a separate statement on Tuesday that 1MDB and the Malaysian finance ministry (MoF) have just five days to resolve the non-payment. “Under the Settlement, there is a five business day cure period for MOF Inc. and 1MDB to remedy their non-payment before MOF Inc. and 1MDB become subject to additional obligations to IPIC and Aabar,” Mubadala said. Malaysia dissolved 1MDB’s advisory board last year, and its assets were either shifted to the government or sold off as part of the rationalisation program, after the fund was linked to a multi-billion dollar global money laundering scandal.

One such asset sale — a $1.7 billion Bandar Malaysia property deal that was executed as part of the rationalisation plan — collapsed in May. As part of the agreement with IPIC, 1MDB was to pay $1.2 billion in two instalments. A second payment is due by the end of this year. 1MDB and Malaysia’s Ministry of Finance will also assume responsibility for all future interest and principal payments under two bonds worth $3.5 billion in total. The agreement was reached after the Malaysian fund defaulted on its bonds in 2016, sparking a dispute with IPIC, which asked a London court to arbitrate a claim totalling some $6.5 billion. IPIC was merged with Mubadala earlier this year. “Despite the various guarantees and debt consolidation plans there is 1MDB debt outstanding, and the debt still presents a contagion risk to the government,” said Moody’s Analyst Christian de Guzman. “We don’t have a clear picture of what the liability structure looks like but it is much smaller than the last publicly disclosed level of 4 percent of GDP in 2014,” he said.

1MDB, founded by Prime Minister Najib Razak, is the subject of money-laundering investigations in at least six countries, including the United States, Switzerland and Singapore. In civil lawsuits, the U.S. Justice Department alleged that about $4.5 billion was misappropriated from 1MDB. 1MDB has denied any wrongdoing and Najib has denied all allegations of corruption against him. Najib faced the biggest challenge to his leadership in 2015 after allegations that hundreds of millions of dollars was misappropriated from 1MDB. He has resisted all calls to step down over the past two years, and is widely seen to have averted the crisis, as he prepares to call early elections this year for a fresh mandate. Credit: Stanley Carvalho & Umesh Desai for Reuters, 1 August 2017.

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https://www.bloomberg.com/graphics/2016-malaysia-1mdb/