Thursday 28 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on January 11 - 17, 2016.

THE Edge: What is the status of the deal with International Petroleum Investment Company (Ipic)?

Arul Kanda Kandasamy: We signed a binding term sheet with Ipic in June 2015. Ipic has now assumed interest payments — US$100 million paid in October and November for the Ipic guaranteed bonds. And we are now in the completion stage of the negotiations for the debt for asset swap.

In summary, the debts are in US dollars. We have made a number of US dollar cash deposits, which you can see from our financial statements. And we have a number of fund units. The famous Cayman fund units. The idea is pretty straightforward.

We have this US dollar cash and this US dollar debts. We will give them to Ipic in exchange of them taking over this US dollar debt. There is no currency mismatch as it will be in the same currency. A chunk of that money is already with Aabar (Investments PJS) in the form of deposits.


How much deposits are with Aabar?

Ipic as of the last financial statements has US$1.4 billion, of which figures have been bandied about. If you add it up with the fund units, it matches.

The question people always ask is, why don’t you just repay the bonds? The answer to that is that these bonds trade at a premium, they are trading at 1.05 to 1.06 to the US dollar. Secondly, paying back the bonds is not as easy as paying back a bank loan. With a bank loan, you have a defined set of lenders. You sit down in one room and negotiate and find a resolution.

There are hundreds of bond investors for this bond. Bond investors, when they make a bond investment decision, they take a view  of the entire yield to maturity of the bonds. Besides the premium at which the bond is trading, there is also a need to compensate for the reinvestment risk.

The cost of paying of the bond is high, as is the complexity. Usually, unless you have the ability to mitigate that, you will let the bond run to maturity.


Will you give them assets that will generate yield to match the bonds?

It is up to them how they want to manage that. We are looking at it from a principal to principal basis. For example, future interest — do we compensate them or not, for example, so that is where the negotiations are at. That is why we gave ourselves till June 2016 to sort these things out. The important thing is that they have already assumed interest payments of US$100 million.


Why is Ipic lending you a helping hand?

This goes back to 2012 when 1MDB was acquiring the power assets. 1MDB essentially had no operating business. 1MDB had the land, which had significant obligations to meet. RM1 million of equity, not credit rating, etc.

The Ipic guarantee was a means for which 1MDB could raise the debt portion of the energy business. It was also part of a broader government-to-government relationship and this is one expression of that relationship.

It was not all goodwill. 1MDB also granted an option to Aabar to subscribe to the energy IPO at a certain exercise price. And they had a view that those assets would be worth more upon an IPO. That was the basis for them providing the guarantee.

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