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1MDB in Default, Misses Bond Payment
World Economy

1MDB in Default, Misses Bond Payment

1Malaysia Development Bhd said on Tuesday it did not pay a $50.3 million coupon on a $1.75 billion bond following a stand-off with Abu Dhabi sovereign fund IPIC, triggering cross defaults on some of its other bonds.

The troubled Malaysian state fund, which is at the center of a multi-billion-dollar graft scandal, said in a statement it would meet all its other liabilities, Reuters reported.

The missed payment increases the probability the government will have to assume 1MDB’s obligations, said Christian de Guzman, a senior analyst at Moody’s Investors Service.

“It brings us one step closer to crystallization of contingent liabilities on the government’s balance sheet,” he told Reuters.

S&P Associate Director YeeFarn Phua said the default may trigger an “acceleration event on the other bonds of 1MDB”, meaning lenders may demand an early bond or loan repayment.

The cross default, the continuing stand-off with IPIC and a widening investigation across at least six countries into possible corruption and money-laundering connected to the fund are starting to affect the markets.

The ringgit fell 1% to 3.94 to the dollar by mid-afternoon on Tuesday, mostly on the default news, traders said. Malaysia’s Sovereign Credit Default Swap—a type of insurance that protects against a country defaulting or restructuring its debt—rose 4.5 basis points to 166/171 bps.

The Malaysian fund said the missed interest payment caused a cross-default on its 5 billion ringgit ($1.28 billion) sukuk (Islamic bond) due in 2039 and a 2.4 billion ringgit sukuk due between 2021 and 2024.

1MDB President Arul Kanda Kandasamy said in an interview with Reuters it was keeping its options open on another coupon payment coming up on May 11 “and will deal with the payment closer to time”.

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