“[Najib] can no longer remain silent on this matter, this is the single largest default by any government subsidiary ever in the history of Malaysia,” says opposition MP Tony Pua as the world watches 1Malaysia Development Bhd (1MDB) bring the country to its knees.
This week, the debt-ridden Malaysian strategic development fund officially defaulted on a bond. It missed a $50 million interest payment, causing a cross-default on its 5 billion ringgit ($1.28 billion) sukuk – an Islamic bond – due in 2039, and a 2.4 billion ringgit sukuk due between 2021 and 2024.
And according to Tony Pua, there are, “obvious admissions by 1MDB that it will be relying entirely on the Malaysian government to bail out 1MDB on its burgeoning debt crisis.
“The event of default has been triggered which means that all bond holders will now have the absolute option to call on the Malaysian Government to pay up for its debts.
“Najib must provide a full and satisfactory explanation on the financial disaster taking place before our eyes and outline the steps that will be taken to remedy the situation.
In one of the most low-key of the current investigations, the US Justice Department’s “kleptocracy asset-recovery unit” is looking at allegations of embezzlement, says Reuters.
Add to that, US prosecutors recently subpoenaed Tim Leissner. He is the former Goldman Sachs banker who oversaw bond sales for 1MDB, and the FBI in New York is apparently probing whether any US laws were broken in his dealings.
…Although it admittedly put its own capital at risk, the American investment bank earned commissions and expenses of nearly $600 million from 1MDB for issuing bonds. That is more than 9% of the proceeds and well above what the industry might expect.
But another $52.4 million interest payment is due on 11 May. And the market remains nervous – a sukuk bond issue last week came in at an unimpressive 3.8% yield.
If the fallout from this debt default widens, and 1MDB bond holders come knocking, then a bailout from the government simply cannot be ruled out. Malaysia just cannot afford the risk of investors going cold when the government asks the market to raise capital.
Perhaps a bailout is the only way to save Malaysia and its reputation. And yes, it might well save the country’s blushes, but reaching into the people’s pockets might finally also sink Najib.
source: Asean Today