A broad cross-section of Malaysian issuers enjoyed an exceptional year in the international debt capital markets in 2004, reflecting the diversity and high number of new entrants that has characterised the Asian market this year. Adam Harper looks at the rude health of Malaysian issuance.
?Malaysia ? truly Asia? goes the catchy jingle that accompanies shots of beautiful rainforests in a TV advertisement encouraging tourists to visit the South-East Asian country.
If Malaysia is portrayed as the essence of Asia by its tourism bosses, then it can surely also lay claim to typifying a vigorous year for the Asian bond markets. And Malaysia's clutch of debut borrowers last year certainly gave many investors in Europe and the US their first exposure to the land of the Sumatran rhinoceros, Clouded leopard and Sun bear.
With the exception of 2002, when the sovereign and publicly owned Petronas tapped the market for $5.1bn out of a total $5.6bn in total, 2004 was Malaysia's biggest year of dollar issuance ever, with $2.87bn by early December, according to Dealogic.
What was remarkable about Malaysia's performance last year was that the volumes were achieved without the sovereign, Petronas or state controlled electricity generator Tenaga. Malaysia's year instead was built on a wide range of borrowers, many of them tapping the offshore markets for the first time ? a microcosm of the way the Asian market at large developed in 2004.
A microcosm of Asia
?Despite issuing more than $2bn in offshore markets last year, my colleagues on the syndicate desk continue to argue the scarcity of Malaysian paper,? says Steven Clayton, country head for Malaysia at Barclays Capital in Kuala Lumpur. ?There is a very strong bid for Malaysian paper.?
Barclays' Clayton adds that the increasing number of Malaysian issuers reflects an acceptance by Bank Negara Malaysia ? Malaysia's central bank ? that Malaysian companies will need to borrow offshore to finance expansion outside the country as its economy grows. Bank Negara does not allow Malaysian companies to use offshore borrowing to finance domestic assets ? such proceeds can only be used to fund growth outside Malaysia.
Offshore bonds were used to finance, or refinance, external acquisitions such as government controlled Malaysia International Shipping Corp's $1.1bn acquisition of American Eagle Tankers from Singapore's Neptune Orient Lines in July 2003. Having financed the acquisition with a bridge loan, Baa2/BBB+ rated MISC came to the bond market last July with a highly successful $1.1bn deal split between five and 10 year maturities and arranged by Barclays Capital and Citigroup.
Gaming and leisure group Genting, which operates the only licensed casino in Malaysia, became the first Malaysian company without any government ownership to tap the international bond markets in September via Citigroup and HSBC. Genting, rated BBB+, raised $1.8bn in orders for its $300m 10 year bond, which it increased from $300m to $350m.
Genting's decision to tap the offshore bond market coincides with its purchase of a £36m stake in the UK's Stanley Leisure as the companies team up to build casinos around the UK to take advantage of deregulation in the gambling sector. Genting also acquired Maxim's Casino in London in September and also took a 15% stake in London Clubs International, another UK casinos group.
Telekom Malaysia's slam-dunk
While the market welcomed Malaysia's new borrowers, it reserved the red carpet for Telekom Malaysia, the 44.16% government owned fixed-line and mobile telecommunications group. This reception was helped by Moody's decision to upgrade the company from Baa2 to A3 just as the bond was being marketed by leads Commerce International Merchant Bankers, Deutsche Bank and UBS in September.
This well timed, two notch ratings hike took Telekom above the Moody's element of the Baa1/A-/A- sovereign rating and gave the $500m 10 year bond unstoppable momentum. The security raised $10bn in orders and was priced through Petronas, long regarded by bankers as a proxy for the sovereign. At a spread of 112bp over 10 year US Treasuries, the bond was just 10bp outside where the leads claimed a new sovereign 10 year bond would be priced. Telekom said the 5.25% coupon was the cheapest paid by a Malaysian company since the Asian financial crisis in 1997.
In early December, Telekom agreed the $314m acquisition of Excelcomindo, the number three mobile operator in Indonesia and itself an issuer in the Asian bond market, in another example of Malaysian expansion overseas.
?Investors love Malaysia,? says Rod Sykes, head of debt capital markets for Asia at Merrill Lynch in Hong Kong. ?Notwithstanding all the flak that was thrown at it post-crisis, it has been a bastion of stability. From a credit perspective it has been continually moving in the right direction and a lot of the issuers are either great companies in their own right or in sectors investors like.?
More sub debt issuers to emerge
Four Malaysian banks tapped the offshore market for subordinated debt during 2004, with CIMB, Eon Bank, Public Bank and Southern Bank joining the Asian vogue for bank capital issuance. ?It was not so much that the Malaysian banks needed the money, it was to optimise their capital structure,? says Ewan Hahm, head of debt capital markets at ING in Hong Kong.
Barclays' Clayton says there are perhaps another two banks that could also enter the sub debt market in 2005. Of the 10 ?anchor banks' that were created as a result of government-initiated consolidation in 2000, Affin Holdings, Alliance Bank and Hong Leong Bank and have not issued bank capital offshore.
Not every deal bankers tried to bring from Malaysia was a success in 2004. High yield was the weakest area ? Ba3/BB- polyethylene and propylene producer Titan Petrochemicals and Polymers had to abandon its $300m seven year non-call four high yield bond in April after a lack of support from investors.
Clayton is optimistic that state owned investment firm Khazanah will tap the international market for the first time this year, as its Singapore-based counterpart Temasek is expected to do. Khazanah has assets of more than M$150bn ($39.4bn) and would be a much sought-after client for international banks. The company is also expected to issue an exchangeable bond.