By Khairie Hisyam
Self-styled strategic development company 1Malaysia Development Bhd (1MDB) still owes International Petroleum Investment Co (IPIC) some US$481.3 million (RM2 billion at today’s exchange rates) to extinguish options initially granted to the latter’s subsidiary, said IPIC.
According to IPIC’s reviewed, unaudited consolidated financial statements as of June 30, 2015, which was published on the London Stock Exchange late afternoon today, the amount outstanding is similar to the amount owed as of Dec 31, 2014 for the same deal.
1MDB’s past annual accounts, however, indicate that 1MDB had already taken out a bridging loan of US$250 million as well as a syndicated financing of US$975 million to extinguish the options.
It is unclear whether the amount outstanding is less any amount already paid by 1MDB or whether payment was only remitted after June 30, 2015.
The payment outstanding relates to options 1MDB granted to IPIC’s subsidiary Aabar Investments PJS in 2012 in relation to power assets it was purchasing. The options allow Aabar to acquire up to 49% stake in the shares of two of 1MDB’s power assets at a fixed price for a period of 10 years, according to 1MDB annual accounts.
These options were granted in exchange for IPIC’s co-guarantee of two 1MDB bonds amounting to US$3.5 billion, which were issued to finance the acquisition of the power assets. In 2014, 1MDB entered into a deal with IPIC to extinguish these options for an unspecified sum.
Notably the options were not the only concession given to IPIC in exchange for the co-guarantee. IPIC was also allowed to keep some 38% of the proceeds from the bond issuances, according to 1MDB’s annual accounts, which amounted to some RM4.25 billion kept as refundable security.
On May 28 this year, Ipic and its subsidiary Aabar signed a binding term sheet with 1MDB and its sole shareholder the Finance Ministry, a deal which is expected to reduce 1MDB’s debts by RM16 billion, said Second Finance Minister Ahmad Husni Hanadzlah.
Among others the deal will see IPIC extend US$1 billion in cash to 1MDB, which 1MDB will use to repay the US$975 million loan. This cash provision is not a loan, said 1MDB president and group executive director Arul Kanda previously.
IPIC will also assume all interest payments under the two bonds amounting to US$3.5 billion, which it co-guaranteed, from June 4, 2015 onwards. It will also receive a transfer of assets equivalent to SU$1 billion in value by June 30, 2016, after which it will directly take liability for all payment obligations under the two bonds as well as forgive certain financial obligations of 1MDB towards it.
IPIC is an Abu Dhabi government investment vehicle set up to invest in energy and energy-related industries globally.
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