MALAYSIA’S debt-laden 1Malaysia Development Bhd has settled its arbitration with Abu Dhabi fund International Petroleum Investment Company (IPIC), in a deal welcomed by Putrajaya.

Both companies issued separate statements on the settlement of the arbitration proceedings at the London Court of International Arbitration.

“As per the settlement, 1MDB will, amongst others, make certain payments to IPIC and will assume responsibility for all future interest and principal payments for two bonds issued by 1MDB Group companies due in 2022,” 1MDB said in its statement.

The government of Malaysia also issued a statement to announce the settlement.

According to the IPIC statement, the agreement was made between IPIC, Aabar Investments, the Minister of Finance (Inc) of Malaysia and 1MDB. It added that the agreement is conditional upon a consent award by the Arbitration Tribunal on May 31.

“Under the terms of the settlement, IPIC will receive US$602.7 million by July 31, 2017 and a further amount of US$602.7 million by December 31, 2017.

“Separately, 1MDB and MoF undertake to IPIC to assume responsibility for all future interest and principal payments under the two bonds issued by the 1MDB Group companies that are guaranteed by 1MDB and IPIC,” it said.

The first bond is for US$1.75 billion at a fixed rate of 5.75% issued by 1MDB Energy (Langat) Limited the second one is for US$1.75 billion at a fixed rate of 5.99% issued by 1MDB Energy Limited according to the statement. Both bonds are due in 2022.

“As per the settlement, 1MDB will, among others, make certain payments to IPIC and will assume responsibility for all future interest and principal payments for two bonds issued by 1MDB Group companies due in 2022,” 1MDB said in a four-paragraph statement.

“These obligations will be met by 1MDB, primarily via monetisation of 1MDB-owned investment fund units. 1MDB is pleased to confirm that a first tranche monetisation of approximately US$50 million has been received, in cash.

“This arbitration settlement and monetisation of investment fund units represents the resolution of a significant challenge, and is a major part of the 1MDB rationalisation plan, which is now at its final stages of conclusion,” said 1MDB.

The relationship between IPIC and 1MDB began in 2012 when the former guaranteed two bonds worth US$1.75 billion each for 1MDB to raise funds for the purchase of power-generation assets. In return, 1MDB was to make collateral payments to IPIC.

However, by the end of 2015, problems arose when IPIC/Aabar and 1MDB could not agree over a sum of missing funds due to IPIC and the Malaysian state investor failed to settle a US$1.2 billion loan from Abu Dhabi.

Both sides were unable to reconcile the missing monies with Malaysia insisting that it had repaid US$3.5 billion to IPIC subsidiaries while the later maintained that it did not receive most of the funds.

In May 2016, government of Abu Dhabi and Malaysia agree to take dispute for private arbitration in London.

The Prime Minister’s Office also issued a statement to note the settlement. “The government is pleased that IPIC and 1MDB have resolved their differences in an amicable manner.

“We also note the monetisation of all 1MDB-owned investment fund units.

“These significant events represent the continued positive progress made by 1MDB, which is nearing the completion of its rationalisation programme,” said Prime Minister Najib Razak’s press secretary Tengku Sarifuddin today. – April 24, 2017.