1MDB's Abu Dhabi dispute puts restructure in doubt, Moody's says

[DUBAI] A loan dispute between 1Malaysia Development Bhd. and the Abu Dhabi sovereign wealth fund puts in doubt the progress of the Malaysian state investment company's debt restructuring efforts, according to Moody's Investors Service.

The credit ratings company was responding to a stock exchange filing by Abu Dhabi's International Petroleum Investment Co that 1MDB failed to make a payment of more than US$1 billion in connection with a loan extended last year. That means 1MDB and Malaysia's finance ministry "are in default," IPIC said in the filing to the London exchange.

"The only thing certain at this point would be that this dispute and the possible termination of the debt-asset swap places the progress of 1MDB's debt rationalization plan in doubt," Christian de Guzman, a Singapore-based senior analyst at Moody's, said by e-mail in response to questions from Bloomberg.

1MDB is in the midst of selling assets to cut borrowings after it amassed more than 50 billion ringgit (S$17.3 billion) of debt over six years. The embattled state investment company had drawn criticism from opposition lawmakers who called for the resignation of Prime Minister Najib Razak, who chairs the firm's advisory board.

The cost to protect Malaysia's five-year sovereign notes with credit-default swaps rose 11 basis points to 163 basis points on Monday, the biggest increase in four weeks. The Malaysian finance ministry pledged to "continue to honor all of its outstanding commitments," after 1MDB told the government it is in dispute with Abu Dhabi's IPIC.

Moody's referred Bloomberg to a Jan 11 statement when asked about the impact of the dispute on Malaysia's sovereign rating. In that statement, the company said a significant worsening in the nation's debt dynamics due to an inability to contend with lower commodity prices "or the crystallisation of large contingent liabilities, could exert downward pressure on Malaysia's rating." Moody's rates Malaysia A3, the fourth-lowest investment grade.

The ringgit rose 0.6 per cent to 3.9035 per dollar as of 10:17 am in Kuala Lumpur. The currency has appreciated 9.9 per cent this year, the most among major Asian currencies after the yen.

BLOOMBERG