Prime Minister Najib Razak forewarned: Malaysia Government liable in the event of 1MDB Loan Default

April 26, 2016

Prime Minister Najib Razak forewarned: Malaysia Government liable in the event of 1MDB Loan Default

by Straits Times

State-owned 1Malaysia Development Berhad (1MDB) was declared in default yesterday after it failed to settle a US$50.3 million (S$68 million) debt payment on billions of dollars in bonds guaranteed by an Abu Dhabi state-owned sovereign wealth fund which, for its part, said it would honour its obligations to bond holders.

The declaration of default against 1MDB by Abu Dhabi’s International Petroleum Investment Corp, or IPIC, immediately exposes Prime Minister Najib Razak’s government to more than US$6.481 billion in debt owed to the Gulf Emirate.

IPIC, in a statement issued yesterday, said: “A 1MDB default does not cross-default on IPIC.”

The sovereign fund also said that it would pay the US$50.3 million interest instalment to bond holders, which passed the final deadline yesterday evening, based on its commitments as the sole guarantor of the bond issue.

Private Arbitration


1MDB officials declined comment. But Malaysian government officials close to the situation say that the dispute surrounding the US$3.5 billion that IPIC helped 1MDB raise in May 2012 is likely to go into private arbitration.

“It is one option that is being considered at the highest levels (of the Abu Dhabi and Malaysian governments),” said a senior official.

The dispute is the latest twist in the ongoing financial fiasco at 1MDB, a brainchild of Dato’ Seri Najib that is now the subject of investigations in seven countries, including Singapore. The investigations, which centre on billions of dollars that allegedly have gone missing at the state-owned strategic investment fund, has put the spotlight on Mr Najib’s administration as well as governance issues in Malaysia.

The two sovereign wealth funds are feuding over fund transfers of roughly US$3.54 billion that 1MDB said it made to units of IPIC under obligation of a May 2012 bond agreement. But IPIC declared that it never received those monies, triggering questions about the payment of the US$50.3 million in interest that were due.

The deadline for that payment was April 18. But the bond agreement also stipulated that a default would only be declared if 1MDB did not settle the outstanding amount within a grace period of five working days.

The grace period lapsed yesterday and bond market strategists and hedge fund investors say a number of scenarios are now possible.

Deadline Missed

Typically, when the deadline for an instalment interest payment is missed and a default declared on the bond issue, the trustee of the bond – which in this case is a unit of The Bank of New York Mellon – will call on IPIC as the guarantor to settle the instalment payment and ultimately monies due to bond holders under the bond agreement.

IPIC will then demand payment for whatever it is owed from 1MDB and if 1MDB refuses to pay, the Abu Dhabi sovereign wealth fund will call on the guarantees of the Malaysian Government.

The fallout from the default was discussed at meetings between Mr. Najib and 1MDB’s President and Group Executive Director Arul Kanda in recent weeks. According to government officials familiar with the meetings, Mr Arul informed the Prime Minister that the Malaysian government would be liable for US$6.481 billion under indemnity clauses with IPIC in the event of a default.

The exposure, which amounts to roughly 4 per cent of the Malaysian government’s outstanding debt, includes the US$3.5 billion bond, US$1.15 billion in cash advances and another US$481 million in a disputed payment the Abu Dhabi entity says it is owed, according to Malaysian government officials.  – Straits Times

22 thoughts on “Prime Minister Najib Razak forewarned: Malaysia Government liable in the event of 1MDB Loan Default

  1. Just in case people are not counting, in total its RM20 b the govt is on the hook on top of the tens billions of land injected already lost – very close to the RM40b Mahathir supposedly wildly exaggerate when he started attacking Najib.

  2. What kind of a Prime Minister cum Finance Minister are we dealing with. He can’t claim that he does not understand what cross default means. He does not even care if the burden of this debt repayment has to be borne by Malaysian taxpayers. This amount is not kacang puteh money. Sensible people can’t understand why he is such an insensitive and irresponsible leader. –Din Merican

  3. Din: how do u teach a thief to be honest ?
    You don’t teach a thief anything. You just send him to jail for life with 12 strokes of the rattan and hard labour.–Din Merican

  4. Najib does not seem to be concerned at all. And why should he be concerned? MACC, AG chambers, IGP, PAC, BNM, Judciary, Putrajaya, his kitchen Cabinet, Sabah, Sarawak, his Gang, Jakim, muftis, Malays and Zakir Naik are all solidly behind him and defending him till kingdom comes. When Malaysia falls and is bankrupt, he and his Gang with their billions of US greenbacks stashed overseas will just walk away scot-free.

  5. goodstar, blackrock, goldman, british, camelmen, wall street
    fei low and family

    they are all laughing

    msians are paying for the biggest loot in history.

    obama, u tolerate looters?

  6. He was born with a silver spoon and a diamond studded dick. Thats enough to make anyone insensitive and irresponsible.

    With these colossal sums unaccounted for , i wonder how the people in Trengganu will react when they learn that their state’s budget has been reduced from RM 2 billion plus to RM 600 million plus.

    I guess the people in Terengganu are not important – only the stepson, Jho Low , and his gang in UMNO is important.

  7. No worries. More sukuk bond would be issued to cover that bill. Wait, no one has even begin to see what’s inside Malaysian sukuk bond system. Our 1Malaysia has turned Asset Backed Securities to Issuer Backed Securities, and we call it no riba, simply because we get to kick the can down to the next generation.

  8. Din,

    What do the people expect of Najib? But then. Where can we find a leader that is of quality who on record has Accountability, Competency, Governance and Transparency?

    He is put there (by and for Mahathir’s personal agenda) for the wrong reason. He was supposed to be a puppet, but unfortunately? or fortunately? depending on who and what and how you look at it, has turned master, but incapable or unable to hide his stringing skill.

    The one unintended consequence is, people get to see openly how their hard-earned in hundreds of billions are lost, squandered or robbed over last 35 years, by rogue Umno Baru leaders and cronies, through Money politics, Abuse of power, Corruption, Cronysm and Puppetry (MACCP).

    Hope the majority of MPs , leaders from the divide and the Rakyat had waken up.
    Doing nothing is Not an option, if they genuinely want to save Malaysia..

  9. Najib Razak is the thief-in-chief of Malaysia and his wife’s a robber. Under the great concept of Ketuanan Melayu, Malaysia governance is all about looting the country and silencing dissent, bar none. It is only a matter of time that Najib, like other despots in history, will suffer a lonely, miserable death, most likely in Sungei Buloh prison. In fact, his political coffin has arrived from Abu Dhabi. If he is smart, he would leave the country to die in the deserts of Saudi Arabia.

  10. Well, we have a bum for a PM yet there are goons who are prepared to lick his ass for a fistful of ringgits. We have morons and super goons in our midst. I am lost for words.

  11. The article said 1MDB failed to settle a debt. The PM was not worried since it’s not his money. After all if needed he can just raise the rate for GST to cover the debt payment. Really irresponsible. The government was elected to govern the country not to spend money raised from taxes at its whim and fancy.
    In the US each and every tax, even an increase of 1/4% will be voted on by the voters. The lawmakers have to justify the tax, how it will be spent and how the public will benefit from it.

  12. The billions lost, pilfered or defrauded is nothing compared to the loss of reputation of Malaysia.

    Malaysia – unfortunate prefix for a name.

  13. It is projected that BN will win the Sarawak elections and this will confirm that the State deserves the current leadership and thus vindicate all the alleged frauds-corruption-mismanagement=cronyism of the leaders.
    Anyway it is a common culture worldwide under the capitalistic free economy system where greed is the standard and the means to satisfy knows no laws or morals or values.

  14. What kind of individual to we have for a PM?

    Dr. Jekyll the scientist, and his alter ego the monster Mr. Hyde comes to mind. The analogy however would do brilliant Jekyll injustice; but the terrible Bogeysman would give Hyde a run for his money though . . .

  15. “Sensible people can’t understand why he is such an insensitive and irresponsible leader.” –Din Merican

    I think that is close to the definition of NEGLIGENCE and in Finance a grievous fault. He should be under house arrest already like his good friend in Abu Dhabi….
    The Abu Dhabi authorities have issued the former top business player with a multi-million dollar repayment demand and banks worldwide have frozen his assets:

    “He has given them [Abu Dhabi authorities] power of attorney over all his affairs and they have seized all his assets”, one contact has told Sarawak Report, “soon enough there will be a confession and that will implicate the responsible parties”.

    Under such circumstances one can understand why both Najib and his wife Rosmah are said to be receiving injections in order to sleep at night.

  16. And the chief secretary to the government seeks and asks for integrity from the civil servants ! Boleh ke?

    I wonder if INTAN has burned all the management books they have on Peter Drucker’s Management By Example!!!

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