HALISTER1: RESEARCH ROUNDUP: 1MDB May Miss Bond Payment, Pressure Malaysia

RESEARCH ROUNDUP: 1MDB May Miss Bond Payment, Pressure Malaysia

(Bloomberg) -- 1MDB may not meet the coupon payment on its bond Wednesday after defaulting on a similar commitment last month, some analysts say.
  • Investors are likely to start pricing in more sovereign risk as govt may eventually have to step in to support 1MDB
    • Overall impact, especially on the ringgit, may not be as strong as when the fund first defaulted, they say
  • 1MDB didn’t respond to queries on whether it plans to make the payment
  • 1MDB must repay $52.4 million of interest on $1.75b of 5.99% bonds maturing in 2022
    • The bonds today dropped to lowest in over 2 wks; it lost 1.65 cents on the dollar this month to 100.68 cents, the lowest since April 22
  • Malaysia may face $7.6b risk from 1MDB: UOB
  • Data on May 13 will probably show nation’s 1Q 2016 GDP rose 4.0% y/y vs 4Q 2015 4.5%
  • NOTE: 1MDB missed bond coupon payment in April highlights ongoing uncertainty around finances and governance of state- owned fund, Fitch says May 10
  • Pimco (Luke Spajic, executive vice president, emerging markets portfolio management)
    • Pimco hasn’t been keen on local Malaysia rates or ringgit due to lower oil prices and governance concerns around 1MDB
    • Malaysia is one of the highest-rated emerging country, and its external balances look “okay”
  • Credit Suisse (Michael Wan, analyst)
    • Current indication is that bondholders are not making a call for early redemption on the bonds
    • Both IPIC and 1MDB have enough liquidity to fulfill interest payments
    • Though not base case, there has to be some pricing of more sovereign risk going forward due to increased probability that the govt might eventually have to step in to support 1MDB
    • If there’s an official default, some investors may demand money back and the question is how will they will make the payment amounting to 1.5%-2.5% of GDP that rating agencies are talking about
    • NOTE: Malaysia’s contingent liability under the default may amount to about $7.5 billion, or 2.5 percent of 2015’s GDP, Moody’s Investors Service said in a report in April
  • Barclays (Rahul Bajoria, economist)
    • Impact of imminent payment for another bond by 1MDB will probably have a smaller magnitude than the first bond default last month because information may be in the price already
    • 1MDB will probably not meet the coupon payments again
    • Payment due isn’t huge; issue isn’t about a lack of money but more about inter-company disputes
    • Key stakeholders will get more worried only in the extreme scenario of a significant breakdown in communication between
  • OCBC (Wellian Wiranto, economist)
    • Oil prices and 1MDB are on-and-off factors weighing on ringgit sentiment even as growth remains supportive
    • There are concerns surrounding factors that are simply unknown, such as extent of liabilities
    • It is uncertain how 1MDB will proceed going forward given it doesn’t look like the company will make the coupon payments themselves; how they will resolve this going forward is still unknown
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
Luke Spajic (Pacific Investment Management Co LLC)
Michael Wan (Credit Suisse Group AG)
Rahul Bajoria (Barclays PLC)
Wellian Wiranto (Oversea-Chinese Banking Corp Ltd)

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