Malaysian state fund denies non-payment of $1.4bn to Abu Dhabi

International Petroleum Investment Co alleges it never received a promised collateral payment from Malaysia’s beleaguered 1MDB fund
Malaysian state fund denies non-payment of $1.4bn to Abu Dhabi
(Getty Images)
By Sarah Townsend
Thu 10 Sep 2015 04:13 PM

An Abu Dhabi state investment vehicle is reportedly trying to break ties with troubled Malaysian economic development fund 1Malaysia Development Berhad (1MDB), claiming it has yet to receive a $1.4 billion payment owed to it by the fund.

However, 1MDB denies the allegation and claims its records show the payment was made.

The disputed payment relates to the purchase of power plants around the world by the Malaysian fund in 2012, the Wall Street Journal (WSJ) reported.

It cited bond offering documents that appear to show that Abu Dhabi’s International Petroleum Investment Co (IPIC) guaranteed the $3.5 billion in bonds which 1MDB issued to finance the purchase.

In return, IPIC was to receive options to buy a 49 percent stake in the plants, as well as collateral for the bond.

The WSJ report noted that 1MDB’s financial statements appear to show that the fund did make a collateral payment of $1.4 billion to IPIC – and analysts said this was via a subsidiary called Aabar Investments PJS.

However, IPIC’s consolidated financial statements, the WSJ report said, contain no reference to receipt of the payment and it quoted two people familiar with the matter as insisting that neither IPIC nor Aabar ever received the money.

Abu Dhabi is reportedly now trying to sever its ties to the fund and restructure the particular entity that provided 1MDB with financial support.

In a statement published on its website on Wednesday, 1MDB dismissed the WSJ’s story as “biased” and “sensationalist” and insisted the $1.4 billion payment had been made.

“We refer to a biased article by the Wall Street Journal today relating to US$1.4 billion of payments made by 1MDB. We note that the Wall Street Journal does not name its source or provide any proof of the unproven allegations it is making, thereby seriously discrediting its sensationalist story.

“1MDB cannot speak on behalf of Aabar or IPIC nor can we comment on the accounting arrangements of third parties. What we can confirm is that the 1MDB audited financial statements clearly describe the amount and purpose of the payments, which for the avoidance of doubt, is structured as a deposit (i.e. a financial asset belonging to 1MDB and not an expense to 1MDB).”

1MDB also confirmed in its statement that IPIC did provide, and continues to provide, the guarantees for two $1.75 billion bonds it had issued, with a total principal and interest amount of around $5.5 billion.

And it claimed that its auditors, Deloitte, made “specific and detailed” enquiries on these payments prior to signing off on the 1MDB audited accounts, and that Deloitte strongly defended its methodology at the Malaysian Parliament’s Public Accounts Committee (PAC) hearings.

1MDB said it was “shocked” that WSJ had referred to what the fund claimed was a “confidential” transcript of the proceedings in its story – which, it said, was illegal.

“1MDB strongly urges the relevant authorities to investigate this matter thoroughly and take all requisite action to preserve the process integrity and Standing Orders of the Malaysian Parliament,” the statement said.

It is understood that the details in the WSJ story is part of ongoing debt restructuring talks between IPIC and 1NDB, with support from Malaysia’s Ministry of Finance. Under an agreement announced on the London Stock Exchange on June 10, IPIC pledges to provide financial support to 1MDB in the region of $5 billion, and 1MDB in return is to allocate assets to the same value to IPIC. The deadline for the transfers to be made is June 30 2016.  

A spokesperson for Dow Jones, which owns WSJ, said: “We continue to stand behind our fair and accurate coverage of this evolving story.”

IPIC/Aabar Investments declined to comment when approach by Arabian Business for comment.

The current dispute comes as Malaysia’s prime minister Najib Razak is fighting a corruption scandal linked to 1MDB.

Malaysian investigators are examining the transfer of hundreds of millions of dollars into the prime minister’s alleged private bank accounts, prompting a national political crisis and setting off other, related investigations around the world.

Najib has denied that he took money for personal gain. 

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