Date
17 January 2017
Malaysian sovereign investment fund 1MDB may need billions in a potential government bailout if it fails after it defaulted on a slew of bonds. Photo: WSJ
Malaysian sovereign investment fund 1MDB may need billions in a potential government bailout if it fails after it defaulted on a slew of bonds. Photo: WSJ

Malaysia state investment fund defaults on bonds

Troubled Malaysian government investment fund 1MDB defaulted on bonds on Tuesday, raising concerns the government may have to spend billions in a bailout.

But debt markets largely took the development in stride while credit raters said the Malaysian government has the ability to foot the bill.

1Malaysia Development Bhd. confirmed that it is in default on a US$1.75 billion bond it issued in 2012, after missing a US$50 million interest payment due last week amid a dispute with the bond’s guarantor.

That default in turn triggered defaults on its two Islamic bonds, totaling 7.4 billion ringgit (US$1.9 billion), the Wall Street Journal reports, citing an official statement.

One of those bonds has a clause saying investors can redeem their holdings if 1MDB stops making payments on any other debt.

The fund said no cross-defaults were triggered on a US$3 billion bond privately issued by the fund in 2013, or on another US$1.75 billion bond also privately issued by 1MDB in 2012.

The defaults mark the latest blow to 1MDB, which is under investigation in seven countries, including Malaysia.

Global investigators say they are looking into possible misappropriations of about US$6 billion, said a person familiar with one country’s probe.

1MDB, which is owned by Malaysia’s finance ministry, has racked up more than US$11 billion in debt that could ultimately land in the government’s lap if the fund fails.

The Malaysian government has directly guaranteed at least 5.8 billion ringgit of 1MDB debt and issued a letter of support for an additional US$3 billion.

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