Credit ratings agency Moody's Investor Service said 1MDB's plan to reduce its massive debt is now in doubt following the announcement by the Abu Dhabi-based International Petroleum Investment Company (IPIC) that its obligation in the rescue deal had been terminated.
"The only thing certain at this point would be that this dispute and the possible termination of the debt-asset swap places the progress of 1MDB's debt rationalisation plan in doubt," Moody's Singapore-based senior analyst Christian de Guzman was quoted as saying by Bloomberg .
The Bloomberg report said Moody's also referred to its Jan 11 statement with regard to the impact of this fallout.
"In that statement, the company said a significant worsening in the nation's debt dynamics due to an inability to contend with lower commodity prices" or the crystallisation of large contingent liabilities could exert downward pressure on Malaysia's rating.
"Moody's rates Malaysia A3, the fourth-lowest investment grade," it said.
IPIC in an announcement to the London Stock Exchange yesterday said 1MDB and the Malaysian Ministry of Finance (MOF) had defaulted on a sum of RM1.1 billion owed to the Abu Dhabi fund.
As a result, IPIC said, it and its subsidiary Aabar Investments PJS obligation in the binding term sheet is terminated.
Similar value
Under the original rescue agreement entered into on May 28, 2015, IPIC on June 4 that year provided US$1 billion to 1MDB to repay a US$975 million loan owed to a consortium of banks led by Deutsche Bank, which had demanded early repayment.
IPIC also assumed the obligation to pay all interest due from 1MDB's US$3.5 billion bonds.
It would eventually also assume responsibility for the repayment of the entire US$3.5 billion sum as well as forgive certain 1MDB debts owed to IPIC.
These would have been in exchange for 1MDB assets of similar value by June 30, 2016.
1MDB had previously said the binding term sheet, touted as a rescue plan, would see the troubled Malaysian fund's debt reduced by RM16 billion.
However, with IPIC's announcement, that is now unlikely to take place.
In the interim, 1MDB had disposed of its energy assets to China General Nuclear Power Corp for RM9.83 billion and a sold a 60 percent stake in Bandar Malaysia to the joint venture between Iskandar Waterfront Holdings and China Railway Engineering Corp for RM7.41 billion.
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