IPIC said this month that Malaysia’s state fund was in default after failing to pay it more than US$1 billion in connection with a loan.
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“The contingent risks associated with 1MDB’s non-guaranteed liabilities may be as high or even higher than the government’s actual explicitly guaranteed exposures”, he was quoted as saying.
1MDB has said the debts are co-guaranteed by Abu Dhabi’s sovereign wealth fund International Petroleum Investment Co, with which the Malaysian firm has a dispute.
However, 1MDB has reiterated that it will meet all of its other existing financial obligations, and had ample liquidity to do so.
“The guarantee is clear and there is no dispute – IPIC saidthey will pay under the guarantee and 1MDB as the borrower isthe primary obligor”, said Arul.
It’s still too early to say if the developments this week will affect the Malaysian sovereign, according to Baring Asset Management Ltd.
1MDB also confirmed that cross defaults have been triggered on the 1MDB RM5 billion Sukuk due 2039 and the RM2.4 billion Bandar Malaysia Sdn Bhd Sukuk due between 2021 and 2024 as a result of the default on the bond.
1MDB must make the interest payment in May on its 5.99 percent notes that mature in 2022.
1MDB said it has been talking to investors and trustees of its sukuk in the past week, assuring them that it had a cash surplus of 2.3 billion ringgit, more than enough to pay the interest of $50.3 million.
Standard & Poor’s said in a e-mail it doesn’t see any impact on Malaysia’s A- rating, its fourth-lowest investment-grade ranking, from 1MDB.
While the prime minister has faced calls to step down over mismanagement at 1MDB and after he received a $681 million personal donation from the Saudi royal family in 2013, he retains the support of the bulk of senior officials in the ruling coalition.
However, this figure does not incorporate the progress made by 1MDB over the past year in paring its debt through various asset sales. In 2012 under Mr Khadem’s leadership, IPIC had guaranteed two 1MDB bond tranches totalling US$3.5 billion plus US$2 billion in interest in return for which 1MDB put down an initial US$1.4 billion deposit with the BVI-registered Aabar. The cost to insure Malaysia’s government debt rose to the highest level in seven weeks and ringgit yields surged.
Malaysia’s main stock index fell more than 1% and its currency also weakened following the announcement.
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The Malaysian government has directly guaranteed at least 5.8 billion ringgit of 1MDB debt and issued a letter of support for an additional US$3 billion.
