Ringgit Adds to Declines as New 1MDB Probes Compound Losses

Updated on
  • NYT report says Najib under probe by U.S. Justice Department
  • Reserves data for first two weeks of September due Tuesday

The ringgit added to Monday’s decline after the New York Times reported the U.S. Justice Department has started an investigation into allegations of corruption associated with Malaysian Prime Minister Najib Razak and people close to him, spurring a surge in debt insurance costs.

The NYT said the probe is focusing on U.S. properties that were purchased by shell companies belonging to Najib’s stepson and the premier’s personal bank accounts. The prime minister’s office didn’t respond to a phone call and text message seeking comment on the report. A report days earlier from the Wall Street Journal said the U.S. Federal Bureau of Investigation began a probe into alleged offshore money laundering by state investment company 1Malaysia Development Bhd.

“The ‘1MDB wound’ is getting fresh knocks from the U.S.,” said Vishnu Varathan, a Singapore-based economist at Mizuho Bank Ltd. “Malaysia has suffered from the preexisting commodity dent and softer currency that could exacerbate the vulnerabilities from external debt.”

The ringgit retreated 0.8 percent to 4.2960 a dollar in Kuala Lumpur following Monday’s 1.4 percent loss, according to prices from local banks compiled by Bloomberg. It has weakened 25 percent in the past year and fell to a more than 17-year low this month, with prospects of a U.S. rate increase compounding losses.

Five-year credit-default swaps on Malaysian sovereign bonds rose six basis points to 194 after increasing 16 basis points on Monday, the most since January, CMA prices show.

1MDB, whose advisory board is chaired by Najib, came under the spotlight last year due to its rising debt, drawing criticism from opposition law makers and calls for him to step down. The value of the firm’s assets exceeds its debt, according to an e-mailed statement from the company on Tuesday. “1MDB has consistently met, with no default, its interest service and principal repayment obligations, to both foreign and domestic lenders,” it said.

Bank Negara Malaysia will issue foreign-exchange reserves figures for the first two weeks of September on Tuesday. The holdings have dropped 18 percent this year to $94.7 billion, fueling speculation the central bank was intervening by selling dollars to stem the ringgit’s losses.

Malaysia’s government bonds fell, with the 10-year yield rising nine basis points to 4.23 percent in its biggest increase in a month, prices from Bursa Malaysia show. The five-year yield climbed one basis point to 3.79 percent.