Ringgit resumes drop as concern mounts on 1MDB debt obligations

[KUALA LUMPUR] The ringgit resumed losses as markets reopened after the holidays on concern that Malaysia's state investment company will need government aid to repay debt.

1Malaysia Development Bhd may require a 3 billion ringgit (S$1.1 billion) cash injection as income from its power assets is insufficient to service borrowings, according to a report in Edge newspaper Monday which cited unidentified people. 1MDB will seek refinancing "from the best available sources," the company said in a statement Monday in response to the report.

"Sentiment toward the ringgit is unlikely to change until we get clarity over the financial position of 1MDB," said Khoon Goh, a strategist at Australia & New Zealand Banking Group in Singapore. "There is concern that a government bailout would be required." The ringgit dropped 0.5 per cent to 3.6388 a dollar as of 11.40 am in Kuala Lumpur and earlier fell to 3.6460, the lowest level since April 2009, according to prices from local banks compiled by Bloomberg. The currency retreated 1.1 per cent last week before Malaysian financial markets closed Feb 19 and 20 for the Lunar New Year break.

The Finance Ministry, which owns 1MDB, will be "involved, as relevant and as required" in the refinancing options to maximize shareholder value, the company said in the statement.

1MDB's financial position has become "a source of uncertainty" and the company's borrowings are weighing on Malaysia's sovereign rating outlook, Fitch Ratings said in a Jan 21 statement. Fitch rates Malaysia A-, the fourth-lowest investment grade.

The yield on Malaysia's 10-year government bonds was little changed at 3.89 per cent, data compiled by Bloomberg show.

BLOOMBERG