Negotiations over how to resolve Abu Dhabi’s US$6.5 billion claim against 1MDB have broken down, The Wall Street Journal reported.
The report said Abu Dhabi and Malaysia nearly reached a deal last December in which Putrajaya would need to fork out a US$1.2 billion payment as a first step to the dispute resolution.
“But Malaysia pulled out because advisers to the prime minister were dissatisfied with the agreement,” said the report, citing people familiar with the matter.
The dispute is now expected to go for international arbitration, it said.
According to the US Department of Justice, around US$3.5 billion of 1MDB funds, including those intended for Abu Dhabi’s International Petroleum Investment Company’s subsidiary Aabar Investments PJS, was diverted to several individuals including billionaire Low Taek Jho, better known as Jho Low.
1MDB also refused to pay back an emergency loan IPIC extended to the Malaysian fund in May 2015.
IPIC had in June last year announced that it would take 1MDB and Malaysia’s Finance Ministry to international arbitration but entered into negotiations at the request of Putrajaya.
“A senior Abu Dhabi government official said the emirate had negotiated in good faith after a request from Malaysia to resolve the dispute by the end of 2016.
“But ‘that good faith dissipated when the new year began and there had been no material progress on any repayment’,” said the report.
The report said Putrajaya and 1MDB declined to comment on the negotiations.
The Financial Times had previously reported that Malaysia was mooting an asset swap with China entities to raise funds for the US$6.5 billion claimed by IPIC.
The collapse of negotiations will likely add to the hurdle in trying to wind down 1MDB.
Second Finance Minister Johari Abdul Ghani had said that 1MDB cannot be wound down until all of its debts are cleared even though most assets are already in the midst of being transferred to the Finance Ministry.
The report, quoting Julian Wee, a market strategist at the National Australia Bank in Singapore, said Putrajaya will likely be able to absorb 1MDB’s outstanding debt.
“But doing so could produce unexpected economic strains and pressure on the Malaysian ringgit currency, among other risks,” he was quoted as saying.
At its peak, 1MDB amassed around U$11 billion (RM49 billion) in debt.
It had since pared down its debt by selling its assets, including its energy arm Edra Global Energy, a 60 percent stake in Bandar Malaysia as well as plots of land within the Tun Razak Exchange.