Wednesday, June 16, 2010
Impressive Bond Benchmarking exercise
Despite much complain on the domestic side with regard to New Economic Model, Idris's shock PR of Pemandu's Subsidy Rationalisation plan, and the rather hodgepodge Tenth Malaysia Plan, there is another bright note coming out of Malaysia.
While this blog has no qualms of being critical and at times sceptical, credit should be given where is due. A confidence building event is worth mentioning.
In the midst of a shaky international debt market arising from the default by Greece, problems in the Middle East market, and an emerging debt problem in Europe, the recent bond benchmarking issue by Malaysia was a successful one.
Malaysia is in no need to raise bonds since local money market is sufficiently liquid for local financing needs.
The recent issuance of US$1.25 billion global Sukuk Bond as a test marketing exercise attracted some 270 investors from around the world.
It serves to put a benchmark value to Malaysia's sovereign bond and in turn, for comparative valuation to Malaysian corporate bonds.
It would be useful in attracting investment into local bond market - both foreign floated sovereign and private debt papers - to raise fund for the Tenth Malaysia Plan and much awaited economic recovery.
Not only do Malaysia need sovereign bonds, it needs to issue more long term Government Bonds or Malaysian Government Stocks (MGS) to prop up trading in local ringgit bond market.
Most of our MGS are confined to within less than 10 years. We need long end papers of 15-20 years to establish a complete yield curve structure and resolve the valuation distortion in the market.
The high demand for our sukuk bond despite a challenging and volatile international bond market is remarkable and indicative of confidence from foreign investors on Malaysia.
When the book opened on May 27 for final pricing the total demand was for US$6bil or an oversubscription of 6 times. This prompted us to increase the size to US$1.25bil from the original US$1bil,
Standards & Poor (S&P)'s Ratings Services assigned its 'A-' long-term foreign currency issue rating to the global Sukuk trust certificates due in 2015. Malaysia also set a new benchmark with a record low yield of 3.87% for an emerging market sovereign in Asia.
It is the largest US dollar sovereign sukuk to date. With a 3.93% fixed-rate coupon and a yield of 3.87%, it is only the second bond to be issued by an emerging market country in the past five years to yield below 4%.
The rating, Standard & Poor's said in a statement, is based on the final offering memorandum dated May 27, 2010, and various agreements, undertakings and the declaration of trust, dated May 31, 2010.
The rating on the trust certificates of the issuer, 1Malaysia Sukuk Global Bhd (1Malaysia), reflects on Malaysia's strong external liquidity, net external creditor position, and a diversified and competitive economy.
On the downside, the ratings are constrained by sustained fiscal deficits, moderately high and increasing general government net debt and a moderately high level of contingent liabilities.
To quote from Bernama's report, Finance Asia reported that "it wasn't just a lack of new issuance in general that drove investors to buy into the bonds but quite specifically a craving for Malaysian paper.
"Malaysia had not hit the market with a sovereign sukuk since 2002 and the country has only issued international debt three times over the past 10 to 15 years. Therefore the deal presented a strong scarcity value that investors were keen to latch on to."
The country last issued a global bond eight years ago when it raised US$600 million from selling the world's first international sovereign sukuk.
Malaysian corporates and the Ministry of Finance have historically not turned to offshore markets for funding due to the level of domestic liquidity.
After a clearer picture of market pricing of Malaysian International and local papers, the Government and corporation could tap on the local market. Does the Government have such plans?
Idris Jala must be squirmish with the sight of more borrowings. But what does he knows?
He could neither get the nation's debt level right nor differentiate between social services such as education and subsidies. His BCG matrix-like analysis is too simplistic.
And, he is only enriching foreign and crony consulting firms. That to be revealed in a future posting.
When everyone else fear, it is opportunity. Off course, as Malaysia had always done before, it will be cautiously ... cautiously ...
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