Abu Dhabi's IPIC to Make 1MDB Bond Payment in Event of Default

  • 1MDB in disagreement with IPIC over binding term sheet
  • IPIC says payment will be as guarantor, not under term sheet

Abu Dhabi’s sovereign wealth fund said on Monday it will pay bondholders of Malaysia’s troubled investment company should the latter default on an interest payment of $50 million.

International Petroleum Investment Co., which is the co-guarantor for $1.75 billion of 1Malaysia Development Bhd. bonds maturing in 2022, said it will pay the coupon if 1MDB fails to do so when the grace period expires Monday, according to a filing to the London Stock Exchange. The payment was due at midnight on April 18 in New York.

The two have been locked in a dispute over 1MDB’s debt obligations to IPIC under an agreement reached in May last year. As part of the pact, the Abu Dhabi wealth fund said then that it would assume obligations to pay interest due under $3.5 billion of 1MDB bonds that it guaranteed. IPIC said this month that 1MDB was in default of the agreement after the Malaysian fund failed to pay it more than $1 billion in connection with a loan.

Special Report: Malaysia 1MDB Controversy

That spat spilled over to the interest payment, with each side saying the other should fulfill the obligation. 1MDB President Arul Kanda said last week that while the Malaysian state fund has enough cash to make the payment, it was IPIC that should be doing so under the binding term sheet.

Honor Obligations

"IPIC has always honored its obligations arising from any agreements it has entered in to and will continue to do so," the Abu Dhabi company said on Monday. "Any payment in respect of the notes would be made by IPIC in respect of its obligations under the guarantee and not in any capacity under the terms of the binding term sheet."

The threat of default is the latest episode in financial scandals that have rocked 1MDB, already a target of global investigations into allegations of money laundering and embezzlement. 1MDB has consistently denied wrongdoing. Prices on its dollar bonds, which plunged on April 18 after IPIC announced an end of its debt obligations, have since recovered and were higher today, according to data compiled by Bloomberg.

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