Malaysia's new central bank governor said he was confident the government would honor all its debt obligations, as a deadline loomed on Wednesday for troubled state fund 1MDB to make a coupon payment on a $1.75 billion bond.
Muhammad Ibrahim, formerly a deputy governor at Bank Negara, took over the stewardship of the central bank at the start of this month following the retirement of his respected predecessor, Zeti Akhtar Aziz.
His appointment comes at a difficult time for Prime Minister Najib Razak, with a political controversy raging over 1Malaysia Development Bhd, which is the focus of a multi-billion dollar money-laundering investigation in at least six countries.
"I'm quite confident the government will honor all of its debt obligations," Muhammad Ibrahim told reporters in response to a question about 1MDB at the sidelines of an event in Kuala Lumpur.
Earlier this month, Malaysia's finance ministry said it was taking over 1MDB's remaining assets, but it was unclear how much of the fund's debt, would be shouldered by the government.
Ratings firm S&P said the government has explicitly guaranteed, or extended a letter of support, to cover debt totaling 17.6 billion ringgit ($4.4 billion).
Muhammad said resolution of 1MDB's problems would improve market sentiment toward Malaysia.
1Malaysia Development Berhad (1MDB) has to make a payment on a $1.75 billion bond on Wednesday, but there was no indication yet on whether it would be paid.
1MDB's bond fell ahead of the coupon deadline due to mounting uncertainty over whether the payment would be made on time. The 5.75 percent $1.75 billion 2022 1MDB bond MY078492627= was 1.5 cents lower on Wednesday at 101/102 cents on the dollar. It has fallen 16 cents since the start of the year.
Last month, 1MDB did not pay a $50.3 million coupon on another $1.75 billion bond, following a stand-off with Abu Dhabi sovereign fund IPIC, triggering cross-defaults on some of its other bonds.
IMDB's advisory board was chaired by Najib until its dissolution earlier this month.
Critics say Najib was a beneficiary of 1MDB's funds, after about $681 million was deposited in his bank account before a 2013 election.
Najib has dismissed these claims, and the attorney-general said the money was a gift from Saudi Arabia's royal family and most of the funds were returned.
Najib has resisted calls to step down as prime minister and has consolidated his position by sacking dissenters within his party, but his most fierce critic is his former mentor, Mahathir Mohamad, who led the country for 22 years.