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As 1Misses $600 Million Payment, Abu Dhabi Gives New Deadline

As 1Misses $600 Million Payment, Abu Dhabi Gives New Deadline
A dispute hanging over Southeast Asia's third-biggest economy was further complicated after the troubled Malaysian state fund - 1Malaysia Development Berhad's (1MDB), failed to make a $600 million payment on Tuesday and Abu Dhabi's sovereign wealth fund has given 1MDB five days to make the payment.
In August 2017, commitment to meeting its obligations to Abu Dhabi's International Petroleum Investment Company (IPIC), originally due on 31 July 2017, was given by the 1MDB fund in a statement.
The 1MDB rationalization plan, under which it is selling assets, would form the basis for making of all payments to IPIC, it said. The need to get more "regulatory approvals" was also one the reasons for the delay, it said.
But 1MDB and the Malaysian finance ministry (MoF) have just five days to resolve the non-payment, said Mubadala, which now owns IPIC, said in a separate statement on Tuesday.
"Under the Settlement, there is a five business day cure period for MOF Inc. and 1MDB to remedy their non-payment before MOF Inc. and 1MDB become subject to additional obligations to IPIC and Aabar," Mubadala said.
After the fund was linked to a multi-billion dollar global money laundering scandal, its assets were either shifted to the government or sold off as part of the rationalization program, following the dissolution of the 1MDB's advisory board last year by Malaysia.
In May, there was a collapse of one such asset sale -- a $1.7 billion Bandar Malaysia property deal that was executed as part of the rationalization plan.
1MDB was to pay $1.2 billion in two installments as part of the agreement with IPIC. By the end of this year, a second payment is due. Worth $3.5 billion in total, responsibility for all future interest and principal payments under two bonds would be assumed by 1MDB and Malaysia's Ministry of Finance.
Sparking a dispute with IPIC, which asked a London court to arbitrate a claim totaling some $6.5 billion, the agreement was reached after the Malaysian fund defaulted on its bonds in 2016.
Earlier this year, IPIC was merged with Mubadala.
"Despite the various guarantees and debt consolidation plans there is 1MDB debt outstanding, and the debt still presents a contagion risk to the government," said Moody's Analyst Christian de Guzman.
"We don't have a clear picture of what the liability structure looks like but it is much smaller than the last publicly disclosed level of 4 percent of GDP in 2014," he said.
In at least six countries, including the United States, Switzerland and Singapore, 1MDB, founded by Prime Minister Najib Razak, is the subject of money-laundering investigations.
About $4.5 billion was misappropriated from 1MDB, the U.S. Justice Department alleged in civil lawsuits.
Najib has denied all allegations of corruption against him and 1MDB has denied any wrongdoing.
"We do not expect this bilateral dispute to impact Malaysia's sovereign ratings at this point," said S&P Global Ratings analyst YeeFarn Phua.
"That said, failure to reach a settlement between 1MDB and IPIC would increase the possibility of these contingent liabilities crystalising on the Malaysia government's balance-sheet. Should that happen, it will worsen Malaysia's fiscal metrics."

Christopher J. Mitchell

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