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Malaysia’s troubled 1MDB fund defaults on bonds
TROUBLED Malaysian state investment fund 1MDB said the day before yesterday it had defaulted on US$1.75 billion in company bonds after missing an interest payment, heightening fears of a market-rattling bailout of the scandal-hit company.
The fund, founded in 2009 by Prime Minister Najib Razak, is teetering on the brink of collapse amid multiple investigations around the world into allegations that billions were looted from it.
1MDB, or 1Malaysia Development Berhad, released a statement saying it was “now in default” on the bonds after missing the US$50 million interest payment. It blamed a dispute with Abu Dhabi’s sovereign wealth fund, the International Petroleum Investment Co (IPIC).
IPIC, the bonds’ co-guarantor, earlier this month accused 1MDB of failing to pay it back a US$1 billion loan, the latest indication of financial chaos at the state-owned fund.
1MDB insists it repaid the loan.
But IPIC says the money went to a company with which it has no relationship – fuelling accusations the money was diverted. It is refusing to guarantee the bonds until the loan is repaid.
The Malaysian fund, whose advisory board is chaired by Najib, said the failed interest payment triggered “cross-defaults” on two other bond issues.
Malaysia’s main stock index fell more than one per cent and its currency also weakened following the announcement.
1MDB sought to reassure skittish investors, say it “will meet all of its other existing financial obligations and has ample liquidity to do so”.
1MDB, which ran up more than US$11 billion in debt in a series of much-questioned investments, has steadfastly denied money was stolen or that it was in financial trouble.
But those claims have been severely tested lately.
Earlier this month a Malaysian parliamentary committee said at least US$4.2 billion in questionable overseas money transfers were made by 1MDB.
Tony Pua, a prominent opposition parliamentarian, said the bond defaults indicates “1MDB’s house of cards has all but collapsed” and that Malaysian taxpayers would bear the cost.
“This is another obvious admission that 1MDB will be relying entirely on the Malaysian government to bail out 1MDB in its burgeoning debt crisis,” he said.
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