1Malaysia Development Bhd., the debt-ridden state investment company, said it repaid a $975 million syndicated loan led by Deutsche Bank AG.
The repayment is part of 1MDB’s plan to reduce its debt levels and in line with a strategy approved by the Malaysian cabinet, the company’s President Arul Kanda said in an e-mailed statement Monday. The government said last month funds to repay the loan would come from Abu Dhabi’s state-owned International Petroleum Investment Co.
The early settlement of the loan that was due Sept. 1 comes as the Kuala Lumpur-based company seeks to wind down its operations. 1MDB, whose borrowings reached 41.9 billion ringgit ($11.1 billion) at the end of March 2014, flirted with default earlier this year after delaying payment on a 2 billion ringgit loan.
1MDB’s $3 billion of 4.4 percent notes due 2023 fell 0.13 cents on the dollar to 87.72 cents at 5:40 p.m. in Hong Kong Monday to yield 6.44 percent, according to prices compiled by Bloomberg. The notes were sold at par, or 100 cents on the dollar, in March 2013.
The state-owned firm’s debt is yielding 359 basis points more than Malaysian government Islamic bonds due 2021, which yield 2.85 percent. The financial assistance from IPIC would narrow the credit spread on 1MDB bonds to the sovereign by at least 100 basis points, Tim Condon, the Singapore-based head of Asia research at ING Groep NV, wrote in a report Monday.
Malaysia’s Second Finance Minister Ahmad Husni Hanadzlah said last month that IPIC will pay $1 billion to 1MDB by June 4 as part of an agreement to comprehensively address the various financial asset and liability transactions between the parties.
1MDB, set up by the government more than five years ago to build infrastructure, has drawn criticism from lawmakers for its rising borrowings.