KUALA LUMPUR: International Petroleum Investment Company (IPIC) is providing US$1bil to the debt-laden 1Malaysia Development Bhd (1MDB) to repay a loan totalling US$975m (RM3.5bil) owed to international lenders.
Second Finance Minister Datuk Seri Ahmad Husni Hanazlah said this was part of the rationalisation plan for 1MDB, which he had put forward to the Cabinet earlier on Friday.
As part of the plan, IPIC and its subsidiary Aabar Investments (Aabar) signed an agreement with 1MDB wherein IPIC would provide US$1bil on or before June 4, 2015.
“This US$1bil payment will be used to repay a US$975mil (RM3.5bil) loan, in advance of its due date, to a syndicate of international bank lenders.
“The agreement will also include further measures to comprehensively address the various financial asset and liability transactions between the parties, further details of which will be announced in due course,” he said.
Ahmad Husni said the agreement marked a significant step towards reducing 1MDB’s overall debt levels.
The agreement, he said, was a crucial part of the rationalisation plan and was expected to be implemented in full by early next year.
To recap, the consortium of banks led by Deutsche Bank had asked for their US$975mil loan to be repaid by 1MDB less than four months earlier ahead of its due date. The loan was due on Aug 31.
The money from the US$975mil loan was used by 1MDB to pay Abu Dhabi’s IPIC to terminate an option to subscribe for the future listing of 1MDB’s power asset, Edra Energy.
StarBiz had reported should the lenders call a default of the loan, 1MDB could be faced with a situation of a cross default on the rest of its debts of RM42bil.
The loan, which was syndicated to five Gulf banks including Abu Dhabi Commercial Bank, is guaranteed by the Malaysian Government. The US$975mil loan was secured with 1MDB’s wholly owned Brazen Sky’s US$1.103bil.
Earlier, IPIC guaranteed US-dollar debt papers of US$3.5bil (RM11.2bil) to facilitate 1MDB’s purchase of the power plants from Tanjong and Genting.
In return for the corporate guarantee from IPIC, 1MDB had given a 10-year option to Aabar Investments PJS to acquire up to a 49% equity interest in the Tanjong and Genting power plants when the energy division goes for listing.
Meanwhile, Ahmad Husni said the binding agreement with IPIC would also include further measures to comprehensively address the various financial asset and liability transactions between the parties, further details of which will be announced in due course.
The rationalisation of 1MDB followed the conclusion of the strategic review, as announced in February, he said where in Tun Razak Exchnage and Bandar Malaysia would be set up as standalone companies with full autonomy and accountability for their operational and financial performance.
“Whilst options are being pursued with respect to the monetisation of Edra Energy, the Ministry of Finance will remain a key shareholder in TRX and Bandar Malaysia, which will raise equity via third party investors. Proceeds raised will be used for capital expenditure and to reduce 1MDB’s debt,” he said.
Below is the statement issued by Second Finance Minister Datuk Seri Ahmad Husni Hanazlah on Friday:
“Earlier this morning, I presented a plan for the rationalisation of 1MDB to the Cabinet. This followed an announcement by 1MDB, in February 2015, of the conclusion of a strategic review. As has already been achieved with Edra Energy, this will see TRX and Bandar Malaysia established as standalone companies, with full autonomy and accountability for their operational and financial performance.
“Whilst options are being pursued with respect to the monetisation of Edra Energy, the Ministry of Finance will remain a key shareholder in TRX and Bandar Malaysia, which will raise equity via third party investors. Proceeds raised will be used for capital expenditure and to reduce 1MDB’s debt.
“Given the above, I am pleased to announce that 1MDB has entered into a binding agreement with the International Petroleum Investment Company (“IPIC”) and its subsidiary Aabar Investments (“Aabar”). As part of this agreement, IPIC will make a payment of USD 1 billion, on or before 4 June 2015.
“This USD 1 billion payment will be used to repay a USD 975 million (RM3.5 billion) loan, in advance of its due date, to a syndicate of international bank lenders. The agreement will also include further measures to comprehensively address the various financial asset and liability transactions between the parties, further details of which will be announced in due course.
“This agreement marks a significant step towards reducing 1MDB’s overall debt levels, and is a crucial part of the rationalization plan I presented to Cabinet earlier, which we expect to be implemented in full by early next year.”
