Malaysian bondholders back 1MDB

SINGAPORE: Beleaguered 1Malaysia Development Berhad (1MDB) won some welcome respite last week after local investors said they would take no action on a cross default on RM7.4 billion (US$1.89 billion) of ringgit-denominated bonds.
Market sources said major bondholders, holding about a quarter of the RM5 billion government-guaranteed 5.75% due 2039s, were unlikely to accelerate the bonds after the state-owned fund triggered a cross default last Monday, following a missed coupon on notes of US$1.75 billion, carrying a guarantee from an Abu Dhabi sovereign wealth fund.
“We are on the same page,” said one bondholder. We will not call for an acceleration of the bond.”
Investors holding 75% of the bonds will need to call for an acceleration of payment in order to force early redemption – a move that will challenge 1MDB’s restructuring efforts.
With around 25% already on board, and other bondholders either state-owned or seeing nothing to gain from rocking the boat, that is highly unlikely to happen.
“There are big investors in the bonds, such as state-owned funds like Kumpulan Wang Persaraan and Kumpulan Wang Simpanan Pekerja,” said another investor, who does not hold 1MDB bonds.
Other parties are showing less patience. Bank Negara Malaysia (BNM), the central bank, fined the fund an unspecified amount on Thursday and is demanding that 1MDB repatriate fund from abroad by May 30. These funds are related to a total of US$1.8 billion of foreign transfers that BNM had approved between 2009 and 2011, and then revoked in October last year.
Last Monday, 1MDB failed to pay a US$50.3 million coupon on a US$1.75 billion 5.75% 2022 1MDB bond with a guarantee from International Petroleum Investment Co. It said this had triggered cross defaults on the 5.75% 2039s and subsidiary Bandar Malaysia’s series of bonds amounting to RM2.4 billion.
Investors in the Bandar Malaysia notes are also not expected to call for an acceleration of the bonds.
The cross defaults did not affect a RM800 million loan from the Social Security Organisation, but could instead be impacted by the “material adverse effect” clause, 1MDB said. That loan also carries a federal government guarantee.
There is no cross default on the remaining US$1.75 billion 5.99% bond via 1MDB Energy and the US$3 billion 4.4% bond via 1MDB Global Investments.
The 1MDB said it had sufficient funds to pay the interest, but was withholding payment as its stance was that IPIC (International Petroleum Investment Company) had the 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,” the statement said. – Reuters