The emirate's sovereign wealth fund and scandal-engulfed 1MDB have reportedly failed to resolve their differences over a $6.5 billion claim. What does it mean?
The billion-dollar graft scandal surrounding Malaysian state fund 1MDB's opaque spiderweb of offshore vehicles reaches as far as Abu Dhabi. To be sure, the emirate isn't part of a U.S.-led consortium of prosecutors probing the suspected corruption.
But Abu Dhabi does concede that something went wrong: the oil-rich state is locked in a $6.5 billion private quarrel with 1MDB over a series of soured bond deals and repayments.
Settlement Trashed Out
Even China was reportedly summoned to help mediate the dispute.
The two have agreed to arbitrate in London, but have now failed to thrash out a settlement that is amenable to both sides, «Reuters» reported, citing undisclosed sources.
Malaysia's Efforts Hampered
Abu Dhabi asked for an initial $1.2 billion from 1MDB in December, but Malaysia refused, the newswire reported.
What does this mean for the ongoing 1MDB probe? It will hamper Malaysia's efforts to put daylight between itself and the scandal: an arbitration court can take up to 18 months to rule on the dispute between the state funds.
Emirate's Embarrassment
Malaysia is expected to call elections as soon as this year, meaning the issue will continue to dog Prime Minister Najib Razak, who has in the past denied wrong-doing.
The issue is only slightly less dicey for Abu Dhabi, which is highly secretive about its investments. Two former finance officials, Khadem al-Qubaisi and Mohammed Ahmed Badawy al-Husseiny, are reportedly under arrest in Abu Dhabi.
Strong Ties Tested
The emirate has been mum as the global probe unfolds, and the vehicle which originally dealt with 1MDB, International Petroleum Investment Co, or IPIC, has since been folded into a larger one called Mubadala.
The two countries have maintained strong diplomatic relations, and state-run Abu Dhabi firms have invested copiously in Malaysia.
How Much Did Abu Dhabi Received?
The current dispute centers around a $1 billion loan by Abu Dhabi to 1MDB and coupon payments on another $3.5 billion in debt. Abu Dhabi claimed 1MDB defaulted on the loan, while the fund defaulted on two bonds that Abu Dhabi had guaranteed.
The dispute centers on how much Abu Dhabi received back from 1MDB, which involves a British Virgin Islands entity that has a very similar name to an Abu Dhabi subsidiary.
Now, the London Court of International Arbitration (LCIA) will have to decide.
