Funds from Abu Dhabi partner will be used to repay loan from six banks
1MALAYSIA Development Berhad (1MDB) has been thrown a lifeline after its Abu Dhabi partner agreed to provide US$1 billion (S$1.4 billion), so it can pay off a loan from creditors who are reportedly planning to pull their funding.
Under a deal with International Petroleum Investment Company (IPIC) and a subsidiary, 1MDB will get the money to repay a US$975 million loan it took from a syndicate of international bank lenders.
Second Finance Minister Husni Hanadzlah said in a statement yesterday that IPIC’s injection was part of a “rationalisation” plan for 1MDB, which racked up RM42 billion (S$15.6 billion) in debt in just over six years of operation. More than a third of the debt is guaranteed by taxpayers.
“I am pleased to announce that 1MDB has entered into a binding agreement with IPIC and its subsidiary, Aabar Investments. As part of this agreement, IPIC will make a payment of US$1 billion, on or before June 4,” he said, adding that the loan was being repaid “in advance of its due date”.
The deal includes further measures to comprehensively address the various financial asset and liability transactions between the parties, “further details of which will be announced in due course”, Datuk Seri Husni said.
But he did not explain why IPIC – which holds a security deposit of US$1.4 billion for guaranteeing a 2012 US$3.5 billion bond issuance by 1MDB – was coughing up the US$1 billion within the week.
IPIC had backed 1MDB-issued bonds so that the state investment company could buy over enough power plants to become Malaysia’s second-largest independent electricity producer.
The deal allowed the Abu Dhabi government-owned firm to gain options to acquire 49 per cent of the power plants.
Last year, 1MDB raised another US$250 million to buy back the options. In September, IPIC, via Aabar, released the options after agreeing on compensation. This was reportedly the day after 1MDB took the US$975 million loan from six financiers led by Deutsche Bank.
Reports earlier this month said Deutsche and five other banks from the Gulf wanted to recall the loan ahead of its August due date. This was due to uncertainty over US$1.1 billion a 1MDB subsidiary had deposited in BSI Bank in Singapore. The reported move could potentially trigger cascading defaults on the remainder of 1MDB’s debt if the firm was declared to be delinquent.
Although the government had earlier claimed that the deposit in the Singapore bank was in cash, Mr Husni later admitted it was held in “units” without explaining further.
Prime Minister Najib Razak has come under intense pressure in the face of claims that some of his associates had siphoned more than US$1 billion out of 1MDB businesses.
The huge borrowings were needed to keep the firm solvent. Datuk Seri Najib is Finance Minister and chairman of the advisory board of 1MDB, which is wholly owned by the Finance Ministry.
He has ordered the Auditor-General to investigate 1MDB and promised to punish any wrongdoing. The Parliament’s bipartisan Public Accounts Committee is also conducting its own probe.
However, critics have called for criminal investigations and independent forensic audits.
Mr Husni said 1MDB’s rationalisation plan, to be fully implemented by early next year, would include raising investments for mega developments Tun Razak Exchange and Bandar Malaysia, as well as the monetisation of its energy arm.