State investor 1Malaysia Development Berhad (1MDB) confirmed it had
defaulted on a US$1.75 billion (S$2.37 billion) bond issue, triggering
cross-defaults on locally issued Islamic bonds totalling RM7.4 billion
But it said there were no cross-defaults on a second US$1.75 billion bond and a US$3 billion bond.
Yesterday's default announcement saw the ringgit fall for a fourth day and Malaysian stocks retreating to a six-week low.
1MDB was declared in default on Monday following its failure to make a
US$50.3 million interest payment. The non-payment arose from its
dispute with International Petroleum Investment Company (IPIC), an Abu
Dhabi state-owned sovereign wealth fund, which had guaranteed 1MDB's two
US$1.75 billion bonds due in 2022.
"Notwithstanding the dispute with IPIC, 1MDB reiterates that it will
meet all of its other existing financial obligations and has ample
liquidity to do so," said the Malaysian firm, whose debt pile of RM51
billion last year fuelled calls for Prime Minister Najib Razak's
The two cross-defaults concern a RM5 billion sukuk, or Islamic bond,
due in 2039 and a RM2.4 billion Bandar Malaysia Sdn Bhd sukuk due
between 2021 and 2024.
However, an RM800 million loan from the Social Security Organisation
(Socso) could possibly be called in due to a "material adverse effect"
clause. The RM5 billion sukuk and the Socso loan are both guaranteed by
On Monday, IPIC said it would pay the US$50.3 million interest
instalment to bond holders, based on its commitments as the sole
guarantor of the bond issue, once 1MDB had defaulted on it.
The two state-owned outfits are feuding over fund transfers of
roughly US$3.54 billion that 1MDB said it made to units of IPIC under
obligation of a May 2012 bond agreement. But IPIC declared it never
received those monies, triggering questions about the US$50.3 million in
interest due on April 19. The grace period for the payment expired on
Interest payment for the other US$1.75 billion bond guaranteed by
IPIC is due on May 11. 1MDB president Arul Kanda Kandasamy told Reuters
that 1MDB is "keeping our options open" on that payment.