Malaysian International Shipping Corporation
In the past 12 months Malaysia has re-emerged as a borrower in the debt capital markets as the government of prime minister Abdullah Badawi continues to loosen the fiscal strings on companies and the economy as a whole. In 2004 there was almost $3 billion of debt issuance from Malaysia – and that with no issues from the state, national oil company Petronas or electricity generator Tenaga.
Instead, in the past 12 months several Malaysian companies have tapped overseas debt investors for the first time. Chief among these was Malaysian International Shipping Corporation (MISC), the country’s leading shipping company and the world’s largest single owner-operator of liquefied natural gas tankers, which launched a successful $1.1 billion two-tranche benchmark bond in July 2004 described by one insider as “MISC’s coming out story”.
The deal was especially interesting for having been launched to refinance a large bridge loan used to finance the $1.1 billion acquisition in July 2003 of American Eagle Tankers from Neptune Orient Lines of Singapore. The constraints placed on the company by the need to refinance this loan in a timely fashion made the transaction all the more challenging, says Aamir Rahim, managing director and co-head of Asia debt markets at Citigroup, joint lead manager of the bond alongside Barclays Capital. “We were repaying a bridge loan,” he says, “so the timing was boxed in a bit. Plus it was a relatively difficult market at the time.”
This is one reason why the deal was not exactly a runaway success in terms of demand. With a $400 million five-year and a $700 million 10-year tranche, MISC attracted total demand of about $4.4 billion by the time the books closed. Decent enough coverage perhaps, but the total hides the fact that the 10-year tranche was covered barely one-and-a-half times. The bonds were priced at 120 basis points over five-year US Treasuries and 155bp over 10-year US treasuries respectively. That amounted to an appealing premium over similar bonds for Petronas, Malaysia’s state-controlled oil company and MISC’s controlling shareholder. The bonds proved especially attractive to US fund managers, with 51% and 61% allocation to US accounts for the five-year and 10-year bonds respectively.
In the aftermarket, the bonds traded in opposite directions, with the five-year spread tightening and the 10-year widening, perhaps reflecting the thinner book of demand and leading some to suggest that the longer tenor deal was mispriced.
“People said the 10-year was mispriced because it traded flat,” says Rahim. “[The tranche] was slightly bigger than it should have been perhaps, but it was a nervous market – very tough. And two weeks later, people were complaining that it was mispriced because it was trading inside pricing!”
In fact, the difficulties experienced on the 10-year tranche, more likely a result of impending supply for other Asian credits as weak demand for the deal, makes MISC’s performance in executing this bond so well all the more impressive. A large benchmark bond issue for a maiden borrower from a country at times still at odds with the international capital markets, and executed within the tight restrictions imposed by a large bridge loan, warrants the award for best corporate borrower in Asia.
