Malaysia Reaches Deal on $2.5 Billion of 1MDB Bonds

  • Nation will pay $2.5 billion as partial debt settlement
  • Deal to be announced Monday on London Stock Exchange

The battle over the repayment of 1MDB bonds may be coming to an end.

Malaysia has reached an agreement to pay Abu Dhabi $2.5 billion as partial debt settlement for embattled government fund 1Malaysia Development Bhd., according to a person familiar with the matter.

Under a deal that’s expected to be announced Monday on the London Stock Exchange, Malaysia will pay Abu Dhabi $1.2 billion before the end of this year, said the person, who asked not to be identified as the information isn’t yet public. Malaysia will also assume the coupon obligations for two dollar bonds issued by 1MDB and co-guaranteed by Middle Eastern sovereign wealth fund International Petroleum Investment Co., the person said. 

1MDB and the Malaysian finance ministry will pay the $2.5 billion through proceeds raised from the sale of units Brazen Sky Ltd. and 1MDB Global Investment Ltd., the person said. The two countries also agreed not to pursue legal action before December 2020 as they negotiate the dispute over $3.5 billion linked to the two bonds, the person said.

1MDB and IPIC were locked in a tussle that spilled over to repayments on two sets of bonds issued by the Malaysian state fund that led to a default in April 2016. The agreement removes a key hurdle amid investigations from the U.S. to Singapore, Hong Kong and Switzerland into money laundering and embezzlement linked to 1MDB.

Representatives from 1MDB and the prime minister’s department couldn’t be immediately reached for comment by phone or email.

Singapore’s Straits Times reported Friday that both parties are expected to reach a settlement agreement on 1MDB debt as early as that day.

A brainchild of Prime Minister Najib Razak to attract foreign investment, 1MDB accumulated billions of dollars in debt after its 2009 inception. A Malaysian parliamentary committee identified at least $4.2 billion in irregular transactions.

A proposed settlement is being handled by the 1MDB board and management, along with the prime minister’s department, Malaysia’s Second Finance Minister Johari Abdul Ghani said in a text message response to questions on Friday.