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By Tyler Durden

Update: after widening by 2bps earlier, Malaysia CDS is now +4 at 167bps and starting to move as macro “analysts” finally catch up on the entire story and comprehend the implications.

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Malaysian CDS rose to near 3-month highs and the Ringgit has spiked over 300 pips – back near recent lows – after the Malaysian slushfund government investment fund 1MDB is reportedly in default. This is exactly the scenario we laid out last week that initially sent the currency lower and CDS higher, as the Abu Dhabi sovereign wealth fund has by all appearances started a potential waterfall default on Malaysian sovereign debt (due to cross-default triggers at the sovereign).

As we reported one week ago, Malaysia government investment fund was put into default by the Intl Petroleum Investment Co. Moments ago, the 5 day grace period on the missed $50.3 million payment on the TIAMK 5.75% 2022s privately placed by 1MDB Energy (Langat) expired, and as Bloomberg reported, 1MDB is now officially in default after missing its interest payment.

The big question now is – as SocGen explores – Given the default of 1MDB, Could a Malaysian Sovereign Default Occur?

While we await confirmation of whether the missed $50.3m on the TIAMK 5.75% 2022s privately placed by 1MDB Energy (Langat) has been made good as we approach the end of the five-day grace period today (25 April 2016), wire service reports (e.g. Bloomberg) indicate that 1MDB has met with holders of the Malaysian Ringgit (or MYR) SUKUK bonds which were issued by the 1MDB to “seek waivers from triggering cross default”.

We understand that the dispute over the non-payment of the missed $50.3m coupon which was originally due on 18 April 2016 relates to the now widely reported dispute between the two guarantee providers on the 5.75% TIAMK 2022 bonds – namely 1MDB and Abu Dhabi’s International Petroleum Investment Corporation (or IPIC). The dispute relates to the alleged non-conformance of terms to a ‘side’ agreement between the two parties made in May/June 2015 in relation to IPIC assumin the obligations on the $3.5bn of 1MDB bonds issued in 2012, including the TIAMK 2022s (both the 5.75% TIAMK 2022s – which were privately placed – and the 5.99% TIAMK 2022 public bonds).

We understand that the latest “waivers from triggering cross default” were sought by holders of MYR 5bn of SUKUK bonds issued by 1MDB and which carry an explicit guarantee by the Government of Malaysia (or GoM). The MYR SUKUKs were presumably issued by 1MDB’s predecessor, the “Terengganu Investment Authority Berhad” (or TIA) in May 2009, prior to the name change to 1MDB in September 2009 following its takeover by the federal government. We understand that the MYR SUKUKs were issued in eight tranches of 5.75% 30-year paper of between MYR600m and MYR650m for MYR5bn in total – they will mature in May 2039. The language of the explicit guarantee states that a default will occur (and possibly cross-default) when (among other things): “… the Issuer fails …read more

Source: Malaysian Ringgit Tumbles After 1MDB Default Raises Spectre Of Sovereign Failure

    

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Posted April 26th, 2016 in Uncategorized.