No cause for concern over possible default: 1MDB CEO

1MDB’s US dollar bondholders understand that the debt default in April was specific to the dispute with Abu Dhabi’s IPIC fund, and it is not because 1MDB could not pay, says Arul Kanda.  

(Channel News Asia) – In its first update call for US dollar bondholders, 1MDB CEO Arul Kanda said on Monday night (May 23) that the response was good overall and turnout excellent.

The US dollar bondholders understand that the debt default in April was specific to the dispute with Abu Dhabi fund IPIC, and it is not because 1MDB could not pay, added Kanda.

Additionally, he explained to them the soon-to-be-executed asset transfer to Malaysia’s Ministry of Finance (MOF) is in fact a sale to another MOF company, with payment deferred to match future principal payment. In the meantime, 1MDB will continue to receive cash flows to service the interest, so there is no reason for them to be worried about not getting paid.

While the US$3.5 billion bond due in 2022 is guaranteed by IPIC, those issued by 1MDB’s offshore subsidiary, Global Investment Limited, has a letter of support from the government, which is as good as a state guarantee, said market watchers.

Former banker-turned-Opposition strategist Wong Chen said the government cannot allow the sovereign wealth fund to fail. “(This is because) there is some explicit debt out there and, implicitly, it indicates that the government cannot raise further bonds, in order to maintain the reputation they have to honour; they have to pay all these outstanding bonds,” he said.

Malaysia’s Deputy Finance Minister Johari Abu Ghani said any disputes should be handled between IPIC and 1MDB, and MOF will monitor the situation.

1MDB said it remains committed to openly work out its dispute with IPIC over the missing US$3.5 billion payment, which IPIC said it never received.

The IPIC-guaranteed bonds are trading above par at 103 cents to a dollar, while the GIL bonds are trading at 85 cents, with a yield of 5.2 per cent.