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Abu Dhabi fund denies guaranteeing 1MDB's Cayman investments

Friday, July 1, 2016 - 14:05
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An Abu Dhabi sovereign fund embroiled in a debt dispute with 1Malaysia Development Bhd (1MDB) said it didn't guarantee any of the Malaysian state company's holdings in a Cayman fund, stirring up more questions on investments that amounted to billions of dollars.

[KUALA LUMPUR] An Abu Dhabi sovereign fund embroiled in a debt dispute with 1Malaysia Development Bhd (1MDB) said it didn't guarantee any of the Malaysian state company's holdings in a Cayman fund, stirring up more questions on investments that amounted to billions of dollars.

International Petroleum Investment Co PJSC is also investigating companies set up outside its group structure and in other jurisdictions that used variations of the name of its Aabar Investments PJS unit, it said in an exchange filing on Thursday.

It had earlier denied ownership of a company known as Aabar BVI, to which 1MDB said it sent US$3.5 billion. IPIC didn't say if the other entities using Aabar's name were also related to 1MDB.

1MDB is at the center of probes at home and abroad, including in Switzerland, the US and Singapore as authorities seek to determine if some of the billions of dollars it raised were siphoned off. While it has denied wrongdoing, a report by a Malaysian parliamentary committee in April identified at least US$4.2 billion of questionable transactions, including those involving Abu Dhabi companies.

Investigators are faced with a complex web of transactions, some of which involve companies with similar names. Questions over 1MDB and its finances have extended to Malaysian Prime Minister Najib Razak, who was until recently the head of its advisory board and who has faced a separate scandal over political donations.

FINANCIAL GUARANTEES

1MDB has "intimated the existence of guarantees" of about US$940 million provided by Aabar for units in a Cayman-registered fund owned by 1MDB unit Brazen Sky, and guarantees from Aabar BVI of investments held with various third-party fund managers of about US$1.5 billion, IPIC said in a financial statement released Thursday. 

In September 2012, 1MDB sold its shares in a venture for US$2.32 billion and received units in a Cayman-registered fund managed by Bridge Partners, a Hong Kong-based fund manager.

1MDB said the units were owned by Brazen Sky, and held through Swiss bank BSI SA's unit in Singapore as custodian. Transcripts of a parliamentary committee probe of 1MDB showed lawmakers were told by its auditor of an investment guarantee by Aabar.

'NO RECORD'

"Both IPIC and Aabar confirm there is no record of any such guarantees being provided by Aabar," IPIC said. "Neither IPIC nor Aabar has received any payments, assets or fund units from Brazen Sky."

1MDB declined to comment on the IPIC statement. It has said it negotiated "various legal agreements" with the previous heads of IPIC and Aabar, and called it a "surprising claim" that neither Gulf company knew of its dealings with Aabar BVI.

Swiss authorities said in April they were investigating two former public officials from the United Arab Emirates, who handled Abu Dhabi sovereign wealth funds that guaranteed 1MDB bonds.

IPIC entered into an agreement with 1MDB in May 2015 to provide the Malaysian fund US$1 billion to settle liabilities in exchange for a transfer of assets, and assume interest obligations on US$3.5 billion of debt. That deal included IPIC forgiving US$482 million in debt, the financial statement on Thursday showed.

1MDB and Malaysia's finance ministry "are in default" on the the binding term sheet, IPIC said in April. The tussle between the two companies spilled over to repayments on bonds issued by 1MDB, which led to a default in April. IPIC said Thursday it's taking a US$3.5 billion provision related to guarantees it provided on 1MDB debt.

The Abu Dhabi company said last month it's seeking US$6.5 billion from 1MDB and Malaysia's finance ministry after they failed to "perform their obligations, cure their defaults or put forward acceptable proposals" to resolve the disagreement. 

It submitted an arbitration request to a London court and 1MDB said it'll provide a "robust response" by July 11.

The Wall Street Journal reported Friday that a delegation from Malaysia was in Abu Dhabi for talks with senior officials on the dispute, citing a person it didn't identify. 1MDB said it couldn't comment on the report, while representatives from IPIC and the Malaysian finance ministry didn't immediately respond to requests for information.

BLOOMBERG

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