Issuer: Federation of Malaysia Deal: sovereign bond Amount: e650 million Date: November 24 2000 Bookrunners: Deutsche Bank, Barclays Capital Last November the Malaysian government issued the first euro-denominated bond out of Malaysia, which was only the second from an Asian sovereign – the Philippines came to the market in 1999. The five-year deal with a coupon of 6.375% was 2.5 times oversubscribed and increased from e500 million. Paul Smith, head of bond and loan syndicate in Asia at Deutsche Bank in Hong Kong, says the deal met “overwhelming investor demand from Europe” where 56% of the issue was sold. “Investors welcomed the opportunity to buy into scarce Asian sovereign debt and liked Malaysia’s credit story,” says Smith. Malaysia is one of the few countries that did not lose its investment-grade rating after the Asian crisis. And in October 2000 its foreign currency debt rating was upgraded from Baa2 to Baa3. The roadshow was particularly successful, says Smith, because the new budget was realized two days before, on October 27. The deal was executed flawlessly – and within only 24 hours – by Deutsche and Barclays Capital. But rival bankers are quick to point out that there wasn’t much selling involved since the deal was cheap compared with similarly rated paper. Investors were only too happy to snatch up a coupon of 6.37% that yields 102 basis points over the Euribor swap rate, equivalent to 149bp over Bobl. At the time critics of the deal claimed that a similar five-year bond in dollar could have saved Malaysia 30bp. But Smith at Deutsche says “that this figure is more around 10bp to 15bp, which is a reasonable premium for a first-time issuer.” At the time of pricing the Malaysian 2009 dollar bond traded at Libor plus 120, which is 15bp higher than the new issue at Libor plus 105. Still, the question remains as to why one would issue in euros when the currency is running at an all-time low against the dollar, and when it will, with near certainty, be strengthening over the time of the bond. “This was a strategic decision by the sovereign to broaden its investor base, and to create a benchmark for further Malaysian issuance in euros.” says Smith. “And as is generally the case, sovereigns don’t only look at pricing when making such a decision.” This was particularly so since Malaysia wanted to make sure their euro debut would not suffer the same fate as that of the Philippines, which had been poorly executed. Some bankers, though, are at a bit of a loss over who the new benchmark was established for, because most Malay corporates that are able to borrow in the capital markets export to the US. Anyway, Malaysia got what it wanted. And who knows, with a contracting US economy and a stagnating Japan, local corporates might shift their attention to Europe so that a euro benchmark will be useful after all. |
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