Thursday 28 Mar 2024
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KUALA LUMPUR: 1Malaysia Development Bhd (1MDB), the sovereign wealth fund which rose from the ashes of the Terengganu Investment Authority (TIA), is expected to raise RM3 billion via a bond issuance as early as next week.

It is learnt that the debt papers, which would be government-guaranteed, with a tenure of 30 years, are being arranged by AmInvestment Bank Bhd. They have an indicative price of close to Malaysian Government Securities (MGS) plus 50 basis points (bps).

“The RM3 billion is expected to be issued next year, with book building likely to start next week or early January, as most dealers are away. The pricing guidance is around 50 bps above MGS,” a source said.

There are no 30-year MGS but the yields are likely to be extrapolated from the current range of MGS papers that vary from three to 20 years. At the moment, the longest tenure of current MGS in the market is a 20-year programme, maturing on Sept 15, 2008, with a coupon rate of 5.248%.

An industry observer said the issuance would see wide interest from investors.

“Everybody in town would be interested to take up the papers, due to the large size of the issuance, and as the papers are government-guaranteed,” she said.

The proceeds from 1MDB second debt issuance is expected to help it fund its foray into the energy sector in Sarawak together with Chinese companies.

The first RM5 billion issuance, maturing in May 2039, was issued at a coupon rate of 5.75%. The indicative pricing of the upcoming issuance is likely to be similar to a previous 30-year issuance.

But sources said the new issue is likely to be on a book-building process to ensure as many bids as possible come in to drive the price down.

AmInvestment Bank was the sole arranger of the papers, which were the first 30-year bonds to be issued in Malaysia. It was fully guaranteed by the government and issued in eight tranches.

The 1MDB bond issue, however, is a talking point among bankers as it was done via a private placement and its pricing in the secondary market is not clear.

In a recent interview with The Edge, 1MDB managing director Shahrol Halmi had noted, however, the bonds had been issued in a “very challenging credit market”.

“We acted on professional advice from world-class international investment banks that were also supported by local investment banks to secure the most competitive terms possible given the prevailing weak market conditions,” he had said.

He had also said placement of the papers had been market-driven, and arranged by leading investment bankers who placed the bonds to reputable institutions of international standing, known for their prudence at competitive rates.

So far, 1MDB has formed a US$2.5 billion (RM8.6 billion) joint-venture company (JVC) with PetroSaudi International Ltd in September that is aimed at bringing in foreign direct investments from the Middle East.

According to 1MDB’s website, the JVC’s objective is to find, explore and take part in business and economic opportunities which could enhance and promote future prosperity and long-term sustainable economic development here, and actively invest in the renewable energy sector.

1MDB was established earlier this year, as an expansion of TIA, which was formed in March 2009 to manage Terengganu’s oil royalty and invest in high-impact projects in the state. It had raised RM5 billion from the debt market and was to have been injected with an additional RM6 billion from the securitisation of future annual oil royalty the Terengganu state received from Petronas.

However, after it raised RM5 billion, TIA was unable to continue to function as it was initially conceptualised, following a fallout between the federal and state governments. It was then made into a federal entity and was subsequently turned into 1MDB, a sovereign wealth fund aimed at channelling investments into the whole country.

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