1MDB just can't get a break

From the Edge:

Feb 24): 1Malaysia Development Bhd.’s bonds are trading like junk as investors seek greater clarity over the state investment fund’s plans to wind down and sell off assets.

Investors are demanding a 439 basis-point premium over similar maturity Treasuries to hold the Kuala Lumpur-based company’s securities, compared with an average of 415 for speculative-grade quasi-sovereign notes in the region, a JPMorgan Chase & Co. index shows. Its $3 billion of 4.4 percent notes due 2023 closed at 86.72 cents on the dollar on Feb. 16, a record low. They traded at 87.62 cents on Monday.

1MDB has been suffering blow after blow in the media.  The most recent statement by the CEO Arul tried to paint a profitable picture of the beleaguered investment fund by saying it made 400 million in profits on that deal.

Tony Pua, a state MP, begged to differ and stuck to his guns and asked where is the profit on this supposed profitable deal.  The market is also thinking that 1MDB may not be able to repay its debts and would need a cash injection from the government, as can be seen by the large premium over treasuries.

The problem in a lot of these "investments" 1MDB does is that it is very opaque, something like a private equity fund.  Winding down an investment like this will likely come at a significant cost as its projects are not finished yet.  Furthermore, ability to make payments on its debts is really difficult as coming up with money to hold the fund over has met many challenges.   The delayed IPO really saw how close 1MDB was to bankrupting the Malaysian banks as 1MDB was not able to pay back its loans on time.

Will investors buy into the IPO?  I'm not so sure as a couple of Malaysian government backed IPOs have not done too well.  Look at Felda and Gas Malaysia.  Confidence isn't as high as before.  Only time will tell.