Malaysia says it will challenge 1MDB-IPIC arbitration award
(Bloomberg) – Malaysia will challenge an arbitration award that requires it to make multi-billion dollar payments to an Abu Dhabi wealth fund and bondholders of certain 1MDB notes, raising the spectre of a repeated default of the debt in contention.
The government believes fraud was at the crux of the former Malaysian administration’s agreement to pay $5.78bn to Abu Dhabi’s International Petroleum Investment Co and the bond trustee, Attorney-General Tommy Thomas said in a statement.
Malaysia will file the challenge in the High Court in London, seeking to recover $1.46bn already paid and relieving it of any obligation to pay the remainder, he said.
“We are confident we have a strong case,” Thomas said.
“Fraud is an established ground to challenge the consent award for public policy reasons.”
Malaysia, under Prime Minister Mahathir Mohamad, is trying to uncover the extent of alleged embezzlement or money laundering at 1MDB, a state investment company set up by former premier Najib Razak in 2009 to attract foreign investment.
There are global criminal and regulatory probes as investigators attempt to trace if money flowed out through a complex web of opaque transactions and fraudulent shell companies to finance what the US said were spending sprees by corrupt officials and their associates.
IPIC guaranteed two separate dollar-denominated bonds for 1MDB in 2012 in deals arranged by Goldman Sachs Group Inc that raised $3.5bn.
The bonds due in 2022 were the subject of a dispute in recent years on who’s liable to make interest payments on the debt. In a settlement agreement last year, 1MDB agreed to pay IPIC $1.2bn and assume the coupon and principal obligations for the bonds.
IPIC completed a merger with Abu Dhabi sovereign wealth fund Mubadala Development Co last year.
“We are not aware of, and have not been notified of, legal action challenging the outcome of the arbitration that took place between IPIC and 1MDB at the London Court of International Arbitration,” Mubadala said in a statement.
“There remains in place a legally-binding settlement agreement that was agreed to by the arbitrating parties.”
Thomas said that IPIC and fellow claimant Aabar Investments PJS were aware of fraud that it alleged was perpetrated by Najib.
Najib’s spokesman didn’t immediately respond to a text message seeking comment on the fraud allegations.
The Malaysian finance ministry and 1MDB were respondents to the settlement agreement.
“He was principally responsible for 1MDB and Minister of Finance Inc consenting to the award,” Thomas said, referring to Najib. “Every system of law would hold that he could not possibly have acted in the best interests of his country and his company.
Indeed, he did not.”
Among the issues between the 1MDB and IPIC were billions in allegedly missing funds. 1MDB has said it could be a victim of fraud if payments intended for IPIC never made it there, while the latter had denied ownership in the company that the Malaysian investment firm transferred money to.
Mubadala also said there is currently no debt owed by 1MDB to IPIC or it.
“The 1MDB group issued $3.5bn of notes to various noteholders for which IPIC has given guarantees to those noteholders.” Mubadala said. “As issuer, the 1MDB group has the primary liability to pay the noteholders regular interest coupons and to repay the principal amount at maturity.”
