KUALA LUMPUR: The Finance Ministry is trying to amicably resolve the payment issues of 1Malaysia Development Berhad (1MDB) and Abu Dhabi’s sovereign wealth fund.
Although the dispute over a USD6.5 billion payment between Abu Dhabi’s International Petroleum Investment Company (IPIC) and 1MDB is headed for arbitration next month, Malaysia feels it is better to settle it through talks.
The talks, Second Finance Minister Johari Abdul Ghani told The Straits Times in an interview last week, would enable the government to decide on legal action against 1MDB’s previous management or directors over the soured dealings.
“It doesn’t look good for two countries to fight over a business transaction. This is all about getting two parties to sit down and discuss and thrash out whatever differences that we have,” Johari is reported to have said.
1MDB signed a debt asset swap deal with IPIC in May last year, but the Emirati firm claimed in April that 1MDB had not repaid a USD1 billion advance and applied for arbitration in London, where it is publicly listed.
Johari said his ministry, which owns 1MDB and provided indemnity on the deal, is “trying to see if we can settle this amicably.”
Reaching a settlement would prevent the matter – which goes into case management next month – from dragging on. Seventy per cent of cases at the London Court of Arbitration take more than 18 months to resolve, said the ST report.
Abu Dhabi’s The National had earlier reported that the fact that IPIC had filed with the London Court of International Arbitration implied the two parties had failed to reach a negotiated settlement.
The National said the dispute between IPIC and Malaysia was further complicated by investigations into 1MDB in at least seven jurisdictions.
According to Bloomberg, IPIC entered into an agreement with 1MDB in May 2015 to provide the Malaysian fund USD1 billion to settle some liabilities in exchange for a transfer of assets, and assume interest obligations on USD3.5 billion of debt.
IPIC, which had guaranteed two sets of 1MDB debt, made payments after the Malaysian company missed them in April and May, according to the earlier Bloomberg report.
It said a report by a Malaysian parliamentary committee (PAC) in April identified at least USD4.2 billion of questionable transactions by 1MDB, including those involving the Abu Dhabi companies. The PAC had said it couldn’t verify a USD2.1 billion payment to Aabar Investments PJS Ltd.
IPIC has denied ownership of the company that received the funds known as Aabar Investments PJS Limited, or Aabar BVI.
IPIC’s unit has a slightly different name to the one that 1MDB transferred money to. 1MDB has said it negotiated “various legal agreements” with the previous heads of IPIC and Aabar, and called it a “surprising claim” that neither Gulf company knew of payments to Aabar BVI, according to the Bloomberg report.
On the economy, Johari told the ST, the Finance Ministry would divest some state-owned enterprises to rein in the fiscal deficit and keep government debt in check.
“We are looking at all these companies to see their relevance in the government stable. Companies we need to keep for social reasons, we will keep, but we cannot run away from efficiency, productivity, governance and good management.”
The ministry owns several outfits with overlapping functions. For instance, SME Bank, Agro Bank, Exim Bank, Bank Pembangunan and Bank Simpanan Nasional are dedicated to developmental financing, while Malaysia Debt Ventures, Malaysia Venture Capital Management and Kumpulan Modal Perdana are involved in venture capital.
The ST report said Malaysia’s public debt stood at RM630.5 billion at the end of last year, or 54.5% of gross domestic product, just short of a self-imposed 55% ceiling which the government has vowed not to breach.