STATE investor 1Malaysia Development Bhd (1MDB) has some breathing space until the end of August to repay the US$603 million (RM2.6 billion) first tranche to Abu Dhabi’s sovereign fund after it missed the July 31 deadline.

1MDB chairman and Treasury secretary-general Irwan Serigar Abdullah disclosed this today at the expiration of the five-day extension given by Abu Dhabi’s International Petroleum Investment Company (IPIC) after the Malaysian state investor missed the July payment.

But the extension has come at a price for the Malaysian government, sources said.

It is understood the Abu Dhabi government is incredulous at the cavalier manner Putrajaya has handled its debt obligations and is puzzled why it has taken the Malaysian government so long to handle the transfer of funds, given that the agreement with IPIC was inked in April.

Prime Minister Najib Razak had blamed 1MDB’s failure to pay IPIC on July 31 on “technical issues”, saying it was not because 1MDB had no money.

“Regarding 1MDB (and its failure to repay IPIC), we have released a statement that it was due merely to a technical issue, and not because we are not able to pay back,” Najib said in Parliament on August 2.

IPIC subsequently gave 1MDB five days to make the payment or become subject to additional obligations.

But sources said the delay was nothing technical, and was in fact embarrassing because local and international banks do not want to handle transactions with the prefix 1MDB.

1MDB has had difficulty transferring funds from overseas accounts with even Malaysian banks being wary of entering any transactions, one source told The Malaysian Insight.

The Finance Ministry is looking at various options of raising the funds needed to repay IPIC, the source added.

The sum owed is the first of two payments amounting to US$1.2 billion due IPIC before the end of the year, according to the terms of the private arbitration in April in London.

Under the deal, 1MDB and the Finance Ministry also assumed responsibility for all future interest and principal payments under two bonds, worth US$3.5 billion in total. – August 8, 2017.