1MDB Defends Liquidity Position After Moody’s Removes Rating

  • Malaysian fund defaulted on debt in April amid dispute
  • Dispute was with Abu Dhabi’s sovereign wealth fund IPIC

Malaysia’s troubled state investment company 1Malaysia Development Bhd. defended its liquidity position after Moody’s Investors Service withdrew the rating for one of its bonds.

Moody’s said Tuesday it withdrew the rating on 1MDB Energy Ltd.’s $1.75 billion of 5.99 percent 2022 notes "for its own business reasons," according to a statement, pointing to its website for its policy on such moves.

"1MDB reiterates that its liquidity position is strong and the company remains focused on execution of its successful rationalization plan," the company said in a statement Wednesday in response to Moody’s action.

The rating removal came two weeks after 1MDB reiterated to bondholders its commitment to resolving a dispute with Abu Dhabi’s sovereign-wealth fund, International Petroleum Investment Co., that led to a debt default in April. That added to the financial scandals for the company that is already a target of global investigations into allegations of money laundering and embezzlement. 1MDB has consistently denied wrongdoing.

The yield on the 5.99 percent notes rose five basis points to a one-week high of 5.32 percent as of 5:38 p.m. in Hong Kong, according to Bloomberg-compiled prices. The yield has declined from as high as 6.63 percent on April 20.

Missed Payments

The Malaysian state fund sold two securities in 2012 and raised $3.5 billion in sales that were arranged by Goldman Sachs Group Inc. On April 18, the fund skipped a $50 million interest payment on one of the bonds and didn’t pay the $52.4 million coupon on a second set of debentures on May 11. Both were paid by IPIC, which was a guarantor for the bonds.

The debt which had the ratings withdrawn by Moody’s are securities IPIC guaranteed. Moody’s last rated the 1MDB bonds at Aa2, the third-highest investment grade and on par with its ranking for the Abu Dhabi investment fund.

"Our withdrawal of the credit rating on 1MDB Energy Limited notes was for our own business reasons and does not reflect a change in our view on the creditworthiness of the debt instrument," said Christian de Guzman, a senior analyst at Moody’s.

S&P Rating

1MDB also said the withdrawal was undertaken without a downgrade in the notes and the securities still have an AA rating from S&P Global Ratings, also the third highest investment grade. S&P reiterated on Wednesday its rating on the 1MDB Energy bonds.

"It may not be a cause of concern but obviously, it’s a lack of a view from a particular credit rating agency," said Sean Chang, head of debt investment at Baring Asset Management Ltd. in Hong Kong.

S&P said Wednesday its rating on the 1MDB Energy bonds is "based on what we view as an unconditional and irrevocable guarantee provided by IPIC."

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