Malaysia’s debt-laden state investment firm 1Malaysia Development Bhd (1MBD), that is under probe by its government agencies, may be in further trouble, and creditors led by Deutsche Bank could ask the embattled fund to pay back the $975 million syndicated loan before the due date in August, a report said.
It also added that lenders could seek early repayment of the loan as they become increasingly apprehensive of the controversy building around 1MDB.
Singapore’s Business Times said creditors had turned panicky, some more than others, as the loan is secured with 1MDB’s wholly owned Brazen Sky’s $1.103 billion, which the Malaysian government-backed firm has said is being kept at Swiss private bank BSI Singapore.
The Business Times report said that the offshore loan, led by Deutsche Bank Singapore and syndicated to five Gulf banks including Abu Dhabi Commercial Bank, is guaranteed by the Malaysian government.
The financial daily quoted sources saying that the ‘securitisation document’ for the loan has now been deemed ‘incomplete’, as one of the covenants was not fulfilled. “This essentially allows lenders to demand payment on the loan anytime before it becomes due at the end of August,” the report said.
It also quoted unnamed source as starting, “What was earlier construed as a tightly collateralised loan is now making the banks nervous, given this controversy.”
The worst-case scenario, according to market watchers, is that, if the lenders declare the loan to be in default, 1MDB could run headlong into a situation of a cross default on the rest of its debts of MYR42 billion ($11.66 billion).
“For now, the affected parties are believed to be locked in intense negotiations to avert such a crisis involving the loan, which was used by 1MDB to pay Abu Dhabi’s International Petroleum Investment Company (IPIC) to terminate an option to subscribe for the future listing of 1MDB’s power asset, Edra Energy,” the report added.
Edra’s initial public offering has been delayed, with no indication of when it will and there is no certainty it will take off as planned.
Whistleblower site Sarawak Report earlier alleged that BSI Singapore had informed the Singapore authorities that the documents related to 1MDB’s account in BSI were in fact ‘false bank statements’ and “did not represent a true account of the assets of the 1MDB subsidiary”.
1MDB has responded saying that it would not comment on speculation and market rumour.
As per the report, a spokesman for Deutsche Bank Singapore commented that the bank was “unable to assist” on the matter.
The unfolding of the 1MDB saga highlights the widening reach of the controversy, which has extended to several banks in Singapore, such as BSI, RBS Coutts and now, Deutsche Bank.
The Monetary Authority of Singapore (MAS) has said that it was providing assistance, within the full ambit of its laws, to Malaysian regulators who are probing 1MDB’s accounts and business practices.
Industry sources also told Business Times that some of the banks in Singapore, BSI Singapore being one of them, have hired legal representatives in the event the situation turns serious and potential claims are made against them.
A source said: “If things start to develop and no one is sure what the affected parties might do, the banks need to ensure legal representation is in place to defend their position. It’s a normal prudent move on their part.”
One of BSI Singapore’s officers who may have been involved in 1MDB’s dealings with the bank has been on “gardening leave”, and is believed to have hired lawyers, in case the need arises, Business Times report further said.