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1MDB issue continues to dampen investor confidence

 | May 10, 2016

Bloomberg report says although Malaysia’s economic fundamentals are good, politics is dragging it down.

1MDB-BloombergKUALA LUMPUR: Malaysia’s economic fundamentals are good but the protracted 1Malaysia Development Berhad (1MDB) scandal is causing investors to think twice.

Bloomberg reported that the main problem was not economics but politics. Investors were uncertain about the political situation and this was affecting their decisions, with some saying they cannot wait to hear the end to the 1MDB saga.

1MDB, which defaulted on dollar-denominated bonds last month and faces another coupon payment Wednesday, said it plans a call on May 23 to explain its dispute with a co-guarantor and how it plans to meet future obligations.

Returns on debt from Malaysian issuers have cooled amid probes into financial irregularities at 1MDB, whose advisory board has been headed by Prime Minister Najib Razak, the report said.

“The political situation in Malaysia continues to be one of the biggest, I would say, hurdles for foreign investors,” it quoted Arthur Lau, co-head of emerging-market fixed income in Hong Kong at PineBridge Investments, which manages about USD83 billion globally, as saying.

“In terms of fundamentals everything points to be quite OK, especially now with oil prices rebounding. The only one thing that really drags is the political noise.”

The report quoted Euben Paracuelles, a Singapore-based economist at Nomura Holdings Inc, as saying: “Headlines about 1MDB that keep coming back would probably be kind of a dampener and may give investors less reason to focus on the fundamentals.”

He said it was very hard for investors, given their experience last year, to put it to bed.

The ringgit has slumped 2.8 per cent this quarter, turning to Asia’s worst performer from its best in the first quarter. The cost of insuring the nation’s sovereign debt against default has risen 10 basis points since March 31 to 163, Bloomberg reported.

The report said Tengku Sariffuddin Tengku Ahmad, the prime minister’s press secretary, didn’t immediately respond to an e-mail seeking comment.

1MDB didn’t meet a USD50 million coupon payment last month amid a dispute with co-guarantor Abu Dhabi’s International Petroleum Investment Co, which triggered cross defaults on RM7.4 billion (USD1.85 billion) of 1MDB debt.

The company is due to pay another USD52.4 million of interest on Wednesday on its 5.99 per cent notes maturing in 2022, according to calculations based on Bloomberg data.

“1MDB will now actively engage with all holders in order to outline the next steps of the process,” the company said in a statement on Monday. It is also asking investors to hold off any request for early repayment on its Islamic debt, the report quoted a person familiar with the matter as saying last week.

The report said 1MDB’s spokesman could not be reached for comment by phone and e-mail.


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