1MDB pays back RM2b loan owed to Malaysian banks

Kuala Lumpur

MALAYSIAN state fund 1Malaysia Development Bhd (1MDB) has settled in full a RM2 billion (S$753 million) loan that it owed local banks, its executive director Arul Kanda said on Friday.

"The loan was settled in advance of the due date, per the terms of the loan facility agreement," Mr Kanda said in a statement emailed to Reuters.

The loan repayment should ease pressure on the ringgit and Malaysia's credit outlook. The intensification of 1MDB's troubles has increasingly been cited as a factor affecting Malaysia's longer-term economic outlook.

1MDB, whose advisory board is chaired by Prime Minister Najib Razak, has amassed US$11.6 billion in debt as it built up a large portfolio of power plants.

Long dogged by controversy over its debt, 1MDB's woes increased when it missed payments on a bridge loan that was originally due at the end of December. The fund was given a final deadline of Feb 18 to pay the loan, local media reported.

"With the settlement of this loan, I reaffirm 1MDB's commitment to continue meeting all our debt obligations as they become due," said Mr Kanda.

The loan was owed to the country's largest bank Malayan Banking Bhd, smaller lender RHB Capital Bhd and others.

Reuters reported on Tuesday that Malaysian billionaire Ananda Krishnan was preparing to settle the US$550 million loan owed by 1MDB in a reprieve for the fund.

The fund appointed a new CEO in January and announced plans for a strategic review. It is also looking at selling some of its property assets, people familiar with the matter have told Reuters.

Meanwhile, Malaysia's national oil company Petroliam Nasional Bhd (Petronas) is paying for troubles at 1MDB.

The yield premium on Petronas's 2022 US dollar-denominated debt over Treasuries has surged 53 basis points in the last six months after the government said it wasn't liable for 1MDB's debt and the fund missed the loan payment which was only repaid on Friday. That was unfortunate timing for Petronas, which is planning its first dollar bond in five years to raise as much as US$7 billion, according to people familiar with the matter.

The cost of insuring Malaysian sovereign debt reached a 16-month high on Jan 13, one week after local media reported 1MDB's missed payment, and is up 27 basis points since Dec 31. Fitch Ratings said last month it may downgrade Asia's only net crude exporter, citing plunging oil prices and "uncertainty" surrounding finances of the investment fund, whose advisory board is headed by the prime minister.

Petronas's sale of dollar-denominated Islamic bonds may become its biggest such offer to date. It's working with Bank of America Corp, CIMB Group Holdings Bhd and Deutsche Bank AG to lead the offering, said the people familiar with it, who asked not to be identified because the details are confidential.

The last time Petronas sold dollar notes was in August 2009, when it issued US$4.5 billion of bonds. Fitch gives Petronas an A rating with a negative outlook, one level higher than Malaysia's A- grade.

Natural gas futures dropped to US$2.58 per million British thermal units (BTU) on Feb 6, the lowest since 2012, while the price of Brent futures is down 49 per cent since last June. Petronas derived 21 per cent of its revenue from gas and an equal amount from crude, with petroleum products being the biggest contributor to its top line, according to its 2013 annual results.

About 30 per cent of the government's RM225 billion (S$85 billion) revenue in 2014 was oil-related, including a RM29 billion dividend from Petronas, according to the finance ministry. Petronas reported RM119.4 billion of cash at the end of the third quarter, compared with RM78 billion of total debt maturing within one year. Reuters, Bloomberg