Malaysia to Pay Abu Dhabi $1.2 Billion to Settle 1MDB's Debt

Malaysia's 1MDB, Abu Dhabi state fund strike repayment deal

News that Malaysia had reached an agreement to pay Abu Dhabi about US$1.2 billion as settlement over the debt of government fund 1Malaysia Development Bhd had caught the attention of the finance world, Bloomberg reports.

Under an agreement reached at the London Court of International Arbitration, 1MDB will also assume responsibility for all future interest and principal payments on the bonds issued by its units that were guaranteed by IPIC.

The Malaysian fund announced in October 2015 that IPIC agreed to assume obligations on the two USA dollar bonds and also agreed to make a US$1bil cash payment to 1MDB. Among the issues between the two were billions in allegedly missing funds.

They refer to the $1.75bn fixed rate 5.75% notes due in 2022 issued by 1MDB Energy (Langat) Ltd and the $1.75bn fixed rate 5.99% notes due 2022 issued by 1MDB Energy Ltd.

Malaysian taxpayers via the Ministry of Finance (MoF) are now exposed to more than US$6bn (RM26.4bn) in payments to Ipic for the financial scandals of 1MDB, where not a single person has been arrested by the Malaysian authorities. In return, 1MDB had agreed to transfer assets - both cash and fund units - to IPIC as collateral. It had also extended a loan of $1 billion to 1MDB.

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Trouble at 1MDB, which had defaulted on interest payments on the two bonds, shook Najib's grip on power for a time.

1MDB said obligations will be met primarily via monetization of 1MDB-owned investment fund units. A Malaysian parliamentary committee identified at least US$4.2 billion in irregular transactions.

The agreement is conditional on the Arbitration Tribunal in London making a "consent award" by May 31. "These significant events represent the continued positive progress made by 1MDB which is nearing the completion of its rationalisation programme", he added.

The successful implementation of the proposed settlement could impact legal action being considered against 1MDB by foreign governments, including the DOJ.

However, this is only the beginning as the USA is investigating possible money laundering and other crimes linked to 1MDB across Singapore, Hong Kong and Switzerland. The sovereign fund, set by by Najib, who chaired the fund's advisory board, is still the subject of investigations in various countries, including Singapore, the United States and Switzerland.