1MDB: Limited cross defaults after IPIC fails to make bond payments

PETALING JAYA: 1Malaysia Development Bhd has confirmed that Abu Dhabi’s International Petroleum Investment Company (IPIC) has not made an interest payment of US$50.3mil (RM196.3mil) as required under the terms of a binding term sheet executed on May 28, 2015 but says that there is no cross default on its other remaining debt, namely the US$1.75bil 1MDB Energy Ltd notes and the US$3bil 1MDB Global Investments Ltd notes.

Under the binding term sheet, 1MDB said IPIC assumed the obligation to pay the interest and the principal for its US$1.75bil bond due 2022, issued by 1MDB Energy (Langat) Ltd (Langat notes).

“Accordingly, due to a dispute between the parties, neither 1MDB, nor its subsidiary, 1MDB Energy (Langat) Ltd, have made payment either, and are now in default per the terms of the bonds,” 1MDB said in the statement yesterday.

However, the sovereign wealth fund said that as a result of the default in the Langat notes, cross defaults have been triggered on the RM5bil 1MDB sukuk due 2039 and RM2.4bil Bandar Malaysia sukuk due between 2021 and 2024.

“There is no 1MDB cross default on an RM800mil loan from the Social Security Organisation or Socso.

“However, there is a possibility that the “material adverse effect” clause may be triggered due to the developments.The 1MDB Sukuk and the Socso loan both benefit from guarantees issued by the Government of Malaysia.

“1MDB confirms that there is no cross default on its other remaining debt, i.e the US$1.75bil fixed rate 5.99% 1MDB Energy Limited notes and the US$3bil fixed rate 4.4% 1MDB Global Investments Ltd notes,” it added.

1MDB said it has no other debt. Notwithstanding the dispute with IPIC, 1MDB reiterated that it will meet all of its other existing financial obligations and has ample liquidity to do so.

1MDB said it withheld the interest payment following claims by IPIC that certain payments and other obligations were still owed it.

“While 1MDB has the funds to have made the interest payment, it is 1MDB’s position, as a matter of principle, that it was IPIC’s obligation to do so. Until IPIC accepts that all obligations have been met, 1MDB is obliged to withhold payments and will seek legal recourse and resolution,” it said.

“1MDB trusts that the respective parties and the financial markets in general, will understand this unfortunate default as being very specific to its dispute with IPIC and is not due to an inability to make payment when due.

“1MDB wishes to underline that it is committed to working openly with IPIC to resolve the dispute in order to minimise the impact on all stakeholders and to avoid the need for accelerating bond or sukuk payments in a way that would pose significant risks to its rationalisation plan.”