1MDB confirms that cross defaults have been triggered


April 26, 2016

1MDB confirms that cross defaults have been triggered

 1MDB Statement

 www.freemalaysiatoday.com

1mdb-ipic

PETALING JAYA: 1Malaysia Development Berhad (1MDB) states that the International Petroleum Investment Company (IPIC) has not made payment of USD50.3 million in interest as required under the terms of a binding term sheet executed on May 28, 2015 (Binding Term Sheet), under which IPIC assumed the obligation to pay the interest and ultimately the principal for, amongst others, the USD1.75 billion fixed rate 5.75% notes due 2022, issued by 1MDB Energy (Langat) Limited (Langat Notes).

Accordingly, due to a dispute between the parties, neither 1MDB, nor its subsidiary, 1MDB Energy (Langat) Limited, have made payment either, and are now in default per the terms of the Langat Notes.

Notwithstanding the dispute with IPIC, 1MDB reiterates that it will meet all of its other existing financial obligations and has ample liquidity to do so. 1MDB withheld the interest payment following claims by IPIC that certain payments and other obligations were still owed it.

1MDB has been surprised by IPIC’s comments and unequivocally asserts that it has attempted to meet all its obligations to IPIC, whereas IPIC has publicly denied receipt or knowledge of various financial transactions and/or guarantees entered into between the parties. Accordingly, whilst 1MDB has the funds to have made the interest payment, it is 1MDB’s position, as a matter of principle, that it was IPIC’s obligation to do so. Until IPIC accepts that all obligations have been met, 1MDB is obliged to withhold payments and will seek legal recourse and resolution.

Limited cross defaults

As a result of the default on the Langat Notes, 1MDB confirms that cross defaults have been triggered on the 1MDB RM5 billion Sukuk due 2039 (1MDB Sukuk) and the RM2.4 billion Bandar Malaysia Sdn Bhd Sukuk due between 2021 and 2024 (BMSB Sukuk).

There is no 1MDB cross default on an RM800 million loan from the Social Security Organisation (Socso Loan). However, there is a possibility that the “material adverse effect” clause may be triggered due to the developments highlighted above.

The 1MDB Sukuk and the Socso Loan both benefit from guarantees issued by the Government of Malaysia.1MDB confirms that there is no cross default on its other remaining debt, i.e. the USD1.75 billion fixed rate 5.99% 1MDB Energy Limited notes (Energy Notes) and the USD3.00 billion fixed rate 4.4% 1MDB Global Investments Limited notes (GIL Notes). 1MDB has no other debt.

Over the past week, 1MDB has proactively met with and explained the consequences of the IPIC dispute to the Trustees and investors of the 1MDB Sukuk and the BMSB Sukuk. 1MDB has also engaged with Socso. 1MDB trusts that the respective parties and the financial markets in general, will understand this unfortunate default as being very specific to its dispute with IPIC and is not due to an inability to make payment when due.

Engaging with all bondholders

1MDB has and will continue to undertake discussions with all bond and Sukuk holders to explain the background of the dispute; clarify why it has taken the position to not make the interest payment on the Langat Notes; and reiterate that it has a successful rationalisation plan in place that enables it to meet all its existing debt obligations.

1MDB wishes to underline that it is committed to working openly with IPIC to resolve the dispute in order to minimise the impact on all stakeholders and to avoid the need for accelerating bond or Sukuk payments in a way that would pose significant risks to its rationalisation plan.

1MDB welcomes dialogue with all its bond/Sukuk holders and urges them to make contact at investor.relations@1mdb.com.my

Notes:

On June 4, 2015, the International Petroleum Investment Company (IPIC) publicly announced it was assuming the Issuer’s obligation to pay the interest due under the Langat Notes in exchange for certain undertakings to transfer assets and cash to IPIC.

Interest was payable on the semi-annual interest payment date of April 18, 2016 in respect of the USD1.75 billion 5.75% Notes due 2022 issued by the Issuer.

Rationalisation plan

1MDB’s rationalisation plan is centred on three main pillars: first, the sale of the Edra Global Energy power assets; second, the sale of land at Bandar Malaysia; and third the debt-for-asset swap that was agreed with IPIC. Through these pillars, all 1MDB debt would be repaid, transferred or matched, as per current assumptions.

To date, the rationalisation plan has delivered on the sale of Edra Global Energy and the 60% equity stake sale in Bandar Malaysia. Proceeds from the sales have been utilised to repay all bank and short term debt of 1MDB. 1MDB now retains a cash surplus of approximately RM2.3 billion for infrastructure and other debt service requirements.

Future debt obligations are fully matched by the sale of Bandar Malaysia land, the development and sale of TRX lands as well as the eventual monetisation of the Pulau Indah and Air Itam land.

Statement issued by 1MDB.

2 thoughts on “1MDB confirms that cross defaults have been triggered

  1. Loan with governmental guarantee is the tell-tale sign of socialism. Such loan seems innocuous and sometimes even is applauded by left-leaning pundits for a model of good government. In reality, the governmental guarantee distorts the free market and make the loans less risky than would be otherwise. All businessmen worth their salt will inevitably leverage on the artificial low-risk. While all crooks will inevitably cash in without the risk of being held accountable because of the governmental guarantee. At the end, it is the fault of socialistic policy that makes human common weaknesses (such as greed) a disproportional disaster at the national level.

    Without governmental guarantee, a company making bad loan will be punished by the free market in the form of bankruptcy and potentially some criminal charges — all of which are local damages easily absorbed by the society.

    The worst part of the socialists is to find scapegoat for the humongous negative effect of socialistic policy. They will now claim the need to overthrow governments as in Brazil and Malaysia because they lay claim that the leaders are corrupt. See, nobody faults the socialistic policy, which is supposedly introduced with good intention. Isn’t the role of government is to help people, “wherever” it can such as providing loan guarantee? (Who can argue against that?)

    Such a view of socialistic government is a far cry from American conservative idea of government. That conservative idea was very well understood by Mr. LKY when he led Singapore. That is the reason that Singapore Airline’s viability is not guaranteed by its government.

  2. Najib claim the growth we have had because of his planning. Truth is its largely because of China and the Fed. Policy wise Mahathir’s established policy had more to do with it than his. BUT GST and inflation we can debit to Najib’s lack of planning and 1MDB

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