* 1MDB did not pay $50.3 mln coupon over dispute with IPIC
* Non-payment triggered cross-default on several 1MDB bonds
* Moody's analyst flags risk govt could assume 1MDB debts (Updates with IMDB CEO, S&P comment, market reaction)
By Umesh Desai and Saeed Azhar
HONG KONG/SINGAPORE, April 26 (Reuters) - 1Malaysia Development Bhd (1MDB) said on Tuesday it did not pay a $50.3 million coupon on a $1.75 billion bond following a stand-off with Abu Dhabi sovereign fund IPIC, triggering cross defaults on some of its other bonds.
The troubled Malaysian state fund, which is at the centre of a multi-billion-dollar graft scandal, said in a statement it would meet all its other liabilities.
The missed payment increases the probability the government will have to assume 1MDB's obligations, said Christian de Guzman, a senior analyst at Moody's Investors Service.
"It brings us one step closer to crystallisation of contingent liabilities on the government's balance sheet," he told Reuters.
S&P Associate Director YeeFarn Phua said the default may trigger an "acceleration event on the other bonds of 1MDB", meaning lenders may demand an early bond or loan repayment.
The cross default, the continuing stand-off with IPIC and a widening investigation across at least six countries into possible corruption and money-laundering connected to the fund are starting to affect the markets.
The ringgit fell 1 percent to 3.94 to the dollar by mid-afternoon on Tuesday, mostly on the default news, traders said. Malaysia's Sovereign Credit Default Swap -- a type of insurance that protects against a country defaulting or restructuring its debt -- rose 4.5 basis points to 166/171 bps.
The Malaysian fund said the missed interest payment caused a cross-default on its 5 billion ringgit ($1.28 billion) sukuk (Islamic bond) due in 2039 and a 2.4 billion ringgit sukuk due between 2021 and 2024.
1MDB President Arul Kanda Kandasamy said in an interview with Reuters it was keeping its options open on another coupon payment coming up on May 11 "and will deal with the payment closer to time".
1MDB is locked in a dispute over its obligations to International Petroleum Investment Co (IPIC) under a debt restructuring agreement reached last June.
Under that deal, IPIC agreed to loan $1 billion to 1MDB and assume payments on $3.5 billion of 1MDB debt. It also forgave an undisclosed amount of debt that 1MDB owed to IPIC, in exchange for assets which have not been named.
IPIC said 1MDB was in default of that agreement, after the Malaysian fund failed to repay the loan, now at $1.1 billion with interest.
IPIC said on Monday it would make the interest payment on a $1.75 billion bond that was due on Monday but only after 1MDB defaulted. IPIC guaranteed the bond.
The Malaysian fund said in a statement on Tuesday it "will continue to undertake discussions with all bond and sukuk holders to explain the background of the dispute". 1MDB's debt rationalisation plan announced last year is enabling the fund to meet all existing debt obligations, it said.
1MDB said there would be no cross default on an 800 million ringgit loan from the government held Social Security Organisation.
The Malaysian fund did not foresee any cross default on its other remaining debt. It has two other bonds: the $1.75 billion 1MDB Energy Limited notes, which pay a fixed rate of 5.99 percent; and the $3 billion 1MDB Global Investments Limited notes, with a fixed rate of 4.4 percent. The bonds due 2023 had slipped by 2 points to 87/89 in afternoon trading.
The dispute between the two state investors has its roots in payments 1MDB made to a mystery fund in the British Virgin Islands (BVI).
A Malaysian parliamentary committee investigating 1MDB said in a report this month 1MDB sent a total of $3.5 billion to a BVI-registered company called Aabar Investments PJS Ltd. IPIC says that, while the firm had a similar name to its subsidiary, it did not belong to IPIC or its subsidiary.
IPIC said it had not received any payments from the BVI company, which was wound up last June, nor assumed any liabilities on its behalf.
What happened to the $3.5 billion after it went to the BVI company could not be determined, the Malaysian parliamentary report said.
Malaysian Prime Minister Najib Razak heads the advisory board of 1MDB. Money-laundering investigations concerning the fund are now under way in at least six countries, including the United States, Switzerland and Singapore.
Both 1MDB and the prime minister have denied any wrongdoing.
Leong Lin Jing, an investment manager at Aberdeen Asset Management Asia Ltd, said he believes the Malaysian government will "try to contain the situation as much as they can to avoid any doubts to Malaysian government bonds".
He said "investors are quite sanguine because everyone has priced in how negative these headlines are".
$1 = 3.94 ringgit Writing by Praveen Menon; Editing by Bill Tarrant