[KUALA LUMPUR] The ringgit dropped for a fourth day after troubled state investment company 1Malaysia Development Bhd confirmed it's in default after missing an interest payment on bonds that are part-guaranteed by Abu Dhabi's sovereign wealth fund.
The company is withholding a US$50 million payment on US$1.75 billion of dollar notes amid a dispute with International Petroleum Investment Co, which is the co-guarantor of the bonds maturing in 2022, according to an e-mailed statement. The deadline was on Monday.
"At the margin, this has to be negative for the ringgit," said Nizam Idris, the Singapore-based head of strategy for fixed income and currencies at Macquarie Bank Ltd.
"Obviously, contingent liability on the government as well as rating risk is there." The currency declined 0.6 per cent to 3.9320 per dollar as of 9.45 am in Kuala Lumpur, according to prices from local banks compiled by Bloomberg. That's its biggest loss since March 24 and takes its drop this month to 0.9 per cent.
"Whilst 1MDB has the funds to have made the interest payment, it is 1MDB's position, as a matter of principle, that it was IPIC's obligation to do so," the company said.
"Until IPIC accepts that all obligations have been met, 1MDB is obliged to withhold payments and will seek legal recourse and resolution."