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Malaysia's 1MDB, Abu Dhabi State Investment Fund Reach Repayment Agreement

23 Apr 2017 2:58 pm
By Bradley Hope and Tom Wright 

State investment funds in Abu Dhabi and Malaysia struck an agreement to avoid potentially embarrassing arbitration proceedings related to billions of dollars that were allegedly misappropriated by a conspiracy of former executives and advisers to both funds, according to people with direct knowledge of the deal.

The agreement could ease tension between 1Malaysia Development Bhd., or 1MDB, and Abu Dhabi's International Petroleum Investment Co., or IPIC, according to an agreement signed by the parties on Saturday, the people said.

The Malaysian fund agreed to pay $1.2 billion to IPIC and both sides agreed to keep discussing a further $3.5 billion of disputed payments. A formal announcement on the London Stock Exchange, where IPIC bonds are listed, could come as early as Monday, the people added.

News of the deal was originally reported by the Straits Times in Singapore.

Malaysia and Abu Dhabi have been in a dispute since last year over who should foot the bill for billions of dollars that U.S. investigators allege were stolen from 1MDB. The money was allegedly funneled out with the help of former 1MDB executives and people close to the fund, as well as assistance from former senior executives of IPIC, U.S. prosecutors said in their filings.

The former chairman of IPIC, Khadem Al Qubaisi, is now in jail in Abu Dhabi, although he hasn't been formally charged, while many of the alleged Malaysian conspirators are living overseas. They include Jho Low, a 35-year-old Malaysian who the U.S. Justice Department believes directed the fraud, and who has been living in Thailand and China.

Attempts to reach Messrs. Low and Al Qubaisi weren't successful. Both have previously denied wrongdoing.

The Justice Department filed civil lawsuits last summer seeking to seize assets worth more that $1 billion -- including mansions in Los Angeles and New York, as well as some of the rights to profits from the movie "The Wolf of Wall Street" -- which it claims were financed with money from 1MDB. The department is building a criminal case against Mr. Low for alleged money laundering among other potential charges, according to people aware of the matter.

Before the scandal was publicized in 2015, IPIC was a key business partner of 1MDB, helping guarantee $3.5 billion in bonds that Goldman Sachs Group Inc. sold for the Malaysian fund. Under the cover of these dealings, IPIC executives, including Mr. Al Qubaisi, helped Mr. Low and officials from 1MDB siphon billions of dollars from the fund, the Justice Department alleged. When a consortium led by Deutsche Bank pulled a loan to 1MDB over concerns about the collateral, IPIC stepped in with an emergency loan of $1 billion.

But as the scandal erupted, relations deteriorated between Malaysia and Abu Dhabi, and both sides began trading public accusations over who was to blame.

The agreement Saturday would repay the emergency loan that IPIC made to 1MDB, plus interest the Abu Dhabi fund paid when 1MDB was unable to service its bonds. Malaysia will pay IPIC about $600 million by the end of July and another $600 million by the end of December, the people said.

The agreement doesn't resolve the $3.5 billion in funds the Justice Department alleges was transferred from 1MDB to a shell company in the British Virgin Islands controlled by Mr. Al Qubaisi. That shell company had a similar name to an IPIC subsidiary. Abu Dhabi says IPIC or the subsidiary never received the money; Malaysia claims the shell company was a de facto part of IPIC.

Hundreds of millions of dollars of 1MDB money also allegedly found their way into the accounts of Malaysian Prime Minister Najib Razak via a chain of intermediaries, including the disputed shell company, court documents show. Much of that was returned to the web of offshore companies from where it came, records show. Mr. Najib has said the money was a donation from Saudi Arabia and that most of it was returned. The Malaysian attorney general has cleared of him any wrongdoing.

A company controlled by Mr. Najib's stepson, Riza Aziz, also received hundreds of millions of dollars originating from 1MDB and transferred to him by intermediaries, the Justice Department said. He has denied wrongdoing.

Negotiations between IPIC, 1MDB and the Malaysian government broke down on several previous occasions, including in January. Abu Dhabi merged IPIC with another state fund called Mubadala Development Co. earlier this year. The new fund is called Mubadala Investment Co.

Write to Bradley Hope at bradley.hope@wsj.com and Tom Wright at tom.wright@wsj.com
 

(END) Dow Jones Newswires

April 23, 2017 10:58 ET (14:58 GMT)

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