KUALA LUMPUR: 1Malaysia Development Bhd (1MDB) has to pay US$602.725 million (RM2.58 billion) as part of its settlement agreement with Abu Dhabi’s International Petroleum Investment Company (IPIC) today.
It is the first tranche of two due to IPIC. The remaining portion of US$602.725 million is due by the year end, according to a report in the Edge Financial Daily.
In total, 1MDB has to pay IPIC US$1.205 billion (RM5.16 billion) as part of the settlement agreement.
With reports about billions being allegedly misappropriated from 1MDB, the repayment to IPIC is being closely monitored, according to the report.
It added that other than asset disposals, this transaction would be the first major cross-border transaction for 1MDB since allegations of a scandal surfaced in 2015.
It would also be the fund’s first major foreign transaction since the US Department of Justice began civil forfeiture action on US$1.7 billion worth of assets, allegedly linked to an international conspiracy to launder funds misappropriated from 1MDB, the report added.
1MDB owes RM5.16 billion to IPIC because IPIC has been helping 1MDB meet its debt obligations since May 2015.
IPIC lent 1MDB RM1 billion in 2015. The money was used to help 1MDB repay another loan owed to Deutsche Bank worth US$975 million. As part of the arrangement, IPIC also agreed to help 1MDB service interest payments on US$3.5 billion worth of bonds.
These were two tranches of Goldman Sach’s bonds — a US$1.75 billion bond with a fixed rate of 5.75% and a US$1.75 billion bond with a fixed rate of 5.99%. Both are due in 2022, and IPIC is the co-guarantor for both as well, according to the report.
In total, IPIC paid approximately US$200 million to help cover 1MDB’s interest payments for a year to help prevent the bonds from defaulting.
As part of the arbitration settlement, the Edge Financial Daily reported,1MDB had agreed to repay the US$1.205 billion owed to IPIC.
Also, as part of the agreement, the ministry of finance (MoF) agreed to guarantee that 1MDB would assume all future interest and principal payments for the Goldman Sach bonds.
Both 1MDB and IPIC also agreed to enter into “good faith discussions”, regarding some US$3.5 billion in funds that have allegedly disappeared. This sum pertains to several transactions from 1MDB to IPIC that never arrived.
It began with a US$1.367 billion “security deposit” in 2012 for co-guaranteeing the US$3.5 billion bonds, the report said.
Later, another US$993 million was paid to IPIC for termination options, and this was followed by payments of US$855 million and US$295 million to IPIC as “top-up security deposits”.
IPIC claims it did not receive any of this money.
In all three cases, the money was sent to Aabar Investments PJS Ltd (British Virgin Islands). 1MDB claimed that Aabar BVI was a subsidiary of IPIC. However, IPIC claims it never had such a subsidiary.
The Edge Financial Daily reported that not only would 1MDB have to pay IPIC the US$1.2 billion, it would also have to service the US$3.5 billion bonds — costing over US$200 million a year.
Being the guarantor, MoF will have to step in to meet any of 1MDB’s obligations if the fund fails to do so.