Exclusive: Former Malaysia government used money raised from Khazanah to pay 1MDB dues - sources

KUALA LUMPUR (Reuters) - The government of former Malaysian Prime Minister Najib Razak used money raised from a deal with sovereign wealth fund Khazanah Nasional Berhad to pay for some of the liabilities of state fund 1Malaysia Development Berhad (1MDB), two sources told Reuters.

Khazanah paid the government 1.2 billion ringgit ($301.05 million) in mid-2017 in exchange for redeemable shares that the finance ministry owned, the sources said, adding that the funds were used to pay some of 1MDB's dues to Abu Dhabi fund IPIC.

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 finance ministry did not immediately respond to requests for comment.

Khazanah told Reuters in an e-mail that the ministry of finance exercised its right in August 2017 to redeem outstanding Redeemable Convertible Cumulative Preference Shares amounting to 1.2 billion ringgit, which were issued to the ministry in 2011.

However, it did not comment on whether the funds were used for repaying 1MDB's dues.

Najib's government also used about $500 million raised from a land sale agreement with the central bank to pay some of 1MDB's liabilities to IPIC, Reuters reported earlier.

($1 = 3.9860 ringgit)

(Reporting by A. Ananthalakshmi, Joseph Sipalan and Liz Lee; Editing by Raju Gopalakrishnan)