Thursday, December 8, 2016

Report: China to be 1MDB’s new white knight in dispute with IPIC

Published     Updated

China will reportedly assist 1MDB in making a repayment to International Petroleum Investment Company (IPIC) amid a US$6.5 billion dispute between the Malaysian and Abu Dhabi state-owned funds.

According to the Financial Times, three people with knowledge of the matter said China was approached as a source of funds for 1MDB.

It added that one source said Malaysia would swap assets for financing.

The claim cannot be independently verified by Malaysiakini.

According to the report, 1MDB president Arul Kanda Kandasamy in response to the claim, said the Malaysian fund “does not have anything further to add to previous statements in relation to the ongoing dispute with IPIC”.

In May last year, IPIC was in a similar position as China, having emerged as a “white knight” for 1MDB, which was struggling to repay a US$975 million loan.

This was after a consortium of banks led by Deutsche Bank demanded early repayment from 1MDB due to “incomplete securitisation documents”.

As part of a bailout deal, IPIC in June last year extended a US$1 billion loan to 1MDB to settle the outstanding loan with Deutsche Bank and its consortium partners.

The deal was to hammer out a subsequent debt-for-asset swap to settle around US$3.5 billion of 1MDB’s debt.

However, by August that year, reports emerged that IPIC was planning to pull out from the deal.

This coincided with the sacking of IPIC's subsidiary Aabar Investments PJS chief executive officer Mohamed Badawy Al Husseiny the same month, following the resignation of IPIC chairperson Khadem al-Qubaisi in April last year.

Both men were later implicated by the US Department of Justice (DOJ) as having facilitated in allegedly siphoning at least US$3.5 billion of funds from 1MDB, along with Prime Minister Najib Abdul Razak step-son Riza Shahriz Abdul Aziz and Penang-born billionaire Jho Low.

It was later revealed deals IPIC entered with 1MDB prior to the bailout deal were also amiss, amid an international money laundering investigation.

This included the US$3.5 billion diversion of 1MDB's funds intended for IPIC's subsidiary Aabar Investments PJS to a British Virgin Islands company bearing a similar name but unrelated to IPIC - Aabar Investments PJS Limited.

‘Defaulted on coupon payments’

Furthermore, 1MDB defaulted on coupon payments on two bonds totalling US$3.5 billion which were guaranteed by IPIC, forcing the Abu Dhabi fund to pick up the tab instead.

It culminated with IPIC taking Malaysia’s Ministry of Finance Incorporated and 1MDB to the London Court of International Arbitration in June, seeking US$6.5 billion in claims.

While the bailout deal with IPIC was disintegrating, 1MDB was selling off its assets to China to cope with its massive debts which totalled almost US$13 billion at its peak.

In December last year, 1MDB sold a 60 percent stake in Bandar Malaysia to a consortium comprising Johor-based Iskandar Waterfront Holdings and Beijing-owned China Railway Engineering Corporation for RM7.42 billion.
 
A month before that, 1MDB sold its energy assets holding company Edra Global Energy to China General Nuclear Power Corp for RM9.38 billion.
Putrajaya has increasingly pivoted to China following the US Department of Justice investigation into 1MDB as the misappropriated funds were allegedly laundered through the US financial system.

Najib, in a commentary piece in China Daily during his visit to China in November criticised “former colonial powers”, telling them not to lecture other countries.

In an immediate reaction, Second Finance Minister Johari Abdul Ghani told Malaysiakini that he is unaware if China is being approached over the matter.
While 1MDB CEO Arul Kanda Kandasamy asked that his statement to Financial Times, declining to comment further be referred to.

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