Thursday 28 Mar 2024
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HONG KONG (May 24): Malaysian state-owned investment fund 1MDB’s insolvency is stirring debate among investors on whether the government will support its bonds.

Newly elected Prime Minister Mahathir Mohamad said last week that Malaysia will honor 1MDB’s debt obligations. However, troubles at the fund have since deepened as officials told the government the fund is insolvent and unable to repay debts, which Bloomberg data show could amount to almost $7 billion over the next five years.

Among 1MDB’s two publicly sold dollar bonds, its 2023 notes, which have a letter of support from the government, are trading at about 90 cents on the dollar, according to traders.

In contrast, its 2022 bonds are guaranteed by Abu Dhabi’s International Petroleum Investment Co. Those securities are quoted around 102 cents on the dollar, though they have not traded much, traders said.

While there has been no indication that Malaysia isn’t backing the letter of support on the 2023 notes, any such indication would be negative for the nation’s reputation as that support isn’t tied to any political party, according to Lombard Odier (Singapore) Ltd.

“Given there is a letter of support from the government, it would be onerous for them not to honor that commitment,” said Dhiraj Bajaj, portfolio manager at the firm. “If they don’t honor it, that would impact Malaysia’s standing among global investors.”

The firm’s Asia funds do not hold the bonds.

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