1MDB and Abu Dhabi's IPIC to settle debt dispute

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KUALA LUMPUR (April 20): Malaysia and Abu Dhabi have agreed to settle a dispute involving billions of dollars between 1Malaysia Development Berhad (1MDB) and Abu Dhabi’s International Petroleum Investment Company, or IPIC, Singapore's The Straits Times said in an exclusive report.

The Straits Times reported senior financial executives as saying that the state-owned investment funds from both countries could sign an agreement as early as tomorrow.

The main component of the settlement is reported to be for Malaysia to repay Abu Dhabi US$1.2 billion (RM5.28 billion) by the end of 2017. This amount represents a loan and accumulated interest charges on a bailout package that Ipic handed to 1MDB in July 2015.

"The bulk of the payment on the outstanding loan amount will come from the sale of so-called 'fund units' from Brazen Sky Ltd, a financial unit owned by 1MDB, to an undisclosed buyer, according to the financial executives," The Straits Times reported.

As part of the agreement, both 1MDB and IPIC will start talks to settle another dispute involving about US$3.5 billion in cash advances and payments from 1MDB to IPIC that are now in dispute as IPIC claimed that it did not receive the money.

Negotiations will start early next year and must end before December 2020, during which time both parties will not pursue any legal action, the executives told The Straits Times.

The cash advances were part of Malaysia’s obligations under a US$3.5 billion bond issue that Abu Dhabi helped Kuala Lumpur raise in 2012. Under the proposed settlement, the Malaysian government will honour all obligations to its international bondholders, the Singapore daily reported.

The Straits Times reported: "Bankers and legal executives familiar with the situation believe the deal could significantly dilute the international legal challenges confronting Prime Minister Najib Razak’s administration over the fallout from the 1MDB saga.

"Proponents of the settlement between Malaysia and Abu Dhabi argue that a successful completion of the deal would weaken the impact of any legal action taken by foreign governments over alleged money laundering at 1MDB because of the lack of evidence."

According to the newspaper report, this is due to the settlement agreement achieving what is known in legal terms as “no predicate offence”.

The Straits Times reported that Malaysia’s Second Finance Minister Datuk Johari Abdul Ghani, 1MDB’s group executive director, Arul Kandasamy, and Datuk Amhari Efendi Nazaruddin, who is a senior advisor to Najib were among those who represented Malaysia in the negotiations.