Najib's Malaysia government used funds from central bank land deal to pay 1MDB dues: sources

KUALA LUMPUR - The government of former Malaysian Prime Minister Najib Razak used funds from a central bank deal to pay for some of the liabilities of beleaguered state fund 1Malaysia Development Berhad (1MDB), two sources with knowledge of the matter told Reuters.

Funds from a land sale made by the government to the central bank for about 2 billion ringgit ($502.51 million) were used to pay for 1MDB's obligation to Abu Dhabi state fund IPIC, the sources said.

The ministry had made use of government assets to make several payments to bail out 1MDB, one source said.

The sources did not want to be identified as they were not authorised to talk to media.

The payment from the central bank was first reported on Wednesday by the Wall Street Journal.

The central bank and the finance ministry did not immediately respond to requests for comment.

The news comes as Malaysia's new finance minister said this week that Najib's government had deceived the public and parliament over the country's financial situation and 1MDB.

The previous government has been bailing out debt-burdened 1MDB since April 2017, paying a total of 6.98 billion ringgit so far, Lim Guan Eng said, adding that 1MDB directors confirmed the fund was insolvent.

1MDB had agreed to pay $1.2 billion to IPIC as part of a settlement agreement reached in April 2017 after 1MDB defaulted on its bonds.

The total settlement amount was to be paid to IPIC over two installments - one by the end of July, which 1MDB paid in August - and another by December.

1MDB said on Dec. 27 that it had paid the second tranche and that the entire settlement amount was paid through funds raised by an "on-going rationalization" programme.

However, the sources said the second instalment to IPIC was paid by the ministry of finance through funds from the land sale agreement with the central bank.

Bank Negara Malaysia said on Jan. 4 that it had agreed to purchase a plot of land from the Malaysian government for about 2 billion ringgit after several months of discussions.

1MDB is the subject of money-laundering investigations in at least six countries, including the United States, Switzerland and Singapore. In civil lawsuits, the US Justice Department has alleged that about $4.5 billion was misappropriated from 1MDB.

The Malaysian fund has denied any wrongdoing and Najib, who founded 1MDB, has denied all allegations of corruption against him.

He was defeated in a general election earlier this month and was succeeded by Mahathir Mohamad, who immediately opened investigations into the state fund and barred Najib from leaving the country.