Abu Dhabi’s International Petroleum Investment Company (IPIC) and Malaysian state fund 1 Malaysia Development Berhad (1MDB) have reached a conditional agreement under which 1MDB will pay $1.2bn to the Abu Dhabi sovereign wealth fund (SWF) to resolve a debt dispute following a legal challenge by the Gulf state.

The agreement is conditional on the Arbitration Tribunal in London making a “consent award” by 31 May.

IPIC in June 2016 filed a case against the Malaysian fund in...