1MDB trades like junk as investors weigh wind-down

By admin-s On Feb 24, 2015

1Malaysia Development Bhd.’s bonds are trading like junk as investors seek greater clarity over the state investment fund’s plans to wind down and sell off assets.

David Yong, Bloomberg

Investors are demanding a 441 basis-point premium over similar maturity Treasuries to hold the Kuala Lumpur-based company’s securities, compared with an average of 413 for speculative-grade quasi-sovereign notes in the region, a JPMorgan Chase & Co. index shows. Its $3 billion of 4.4 percent notes due 2023 closed at 86.72 cents on the dollar on Feb. 16, a record low. They fell 0.2 cents to 87.90 cents today.

1MDB said last week it won’t undertake any new investments after it sets up separate entities for property projects and raises cash from selling its power business. The group settled a 2 billion ringgit ($551 million) loan Feb. 13, after two repayment deadline extensions sparked concern a default may trigger cross defaults on its some 49 billion ringgit of total debt. The group will need to show progress in asset sales and avoid fire-sale prices to regain market confidence, Phillip Capital Management said.

“The problem is they have a lot of assets that aren’t generating enough cash flow to service their debt,” Ang Kok Heng, the fund manager’s Kuala Lumpur-based chief investment officer, said by phone on Feb. 23. “Going forward, there will be other bonds due for payments or maturity. These could be new pressure points.” Phillip Capital manages 2.3 billion ringgit and doesn’t own 1MDB’s dollar bonds.

Cayman Islands

1MDB’s next two dollar bond coupons are due on March 9 and May 11, according to data compiled by Bloomberg. The company struggled to meet its loan repayment despite redeeming a $2.32 billion Cayman Islands investment.

1MDB’s 2023 bonds are rated A-, four levels above non-investment grade, by Standard & Poor’s, the same score the ratings company gives Malaysia. Weakening public finances and lower oil prices mean Malaysia’s rating may be cut by one level in the first half by Fitch Ratings Ltd., according to ING Groep NV, which says corporate governance concerns at 1MDB may have “some minor influence.”