Business

Tuesday August 18, 2009

More giants to tap dollar bonds?

By JAGDEV SINGH SIDHU


Successful US$4.5bil bonds and sukuk issue by Petronas to lead the way

PETALING JAYA: The successful issuance of US$4.5bil conventional bonds and sukuk by Petroliam Nasional Bhd (Petronas) could see large companies tapping the dollar bond market.

Analysts said large companies with high enough credit ratings and were well-known internationally would attract sufficient interest.

“Investors are still picky and concerned. They are picking well-established names and Petronas is one of them,” said Malaysian Rating Corp Bhd vice-president of fixed income research Wan Murezani Wan Mohamad.

“The concern right now is for capital preservation.’’

Petronas’ US$1.5bil sukuk and US$3bil conventional bonds made their debut on Bursa Malaysia and Labuan International Financial Exchange (LFX) respectively on Aug 14. Both securities have a tenure of five and 10 years respectively.

Wan Murezani ... ‘Investors are picking well-established names.’

The bonds by Petronas were the largest issuance in Asia over the past five years and the second largest in Asian history. The size of the offering was increased due to high demand. The order book of US$19bil was the largest reported order book ever for an Asian transaction.

The money raised for Petronas was to fund its capital expenditure and operations.

Petronas sold US$4.5bil of bonds at a yield of 162.5 basis points above US treasuries.

Liquidity in the global markets continue to rise on historical low interest rates and huge stimulus programmes initiated by governments to lift economies from a terrible recession that has gripped much of the world.

“As for ringgit-denominated bonds, demand is skewing to AA and above,’’ said Wan Murezani.

A fixed income analyst with a local investment bank said Petronas managed to raise a significant amount of money cheaply with the bond issue.

Although spreads have gone up recently, the price of Petronas’ dollar bonds has also risen.

The increase in spreads was explained by US treasuries rising at a faster rate than the Petronas bonds.

Analysts said that when a giant company such as Petronas made such a move to raise dollar-denominated bonds, it opened the doors for others to follow suit.

However, there is a slight caveat as there are not many companies in the country that have as strong a credit rating.

Furthermore, the deep and liquid ringgit bond market has been sufficient for many companies to raise their money.

“Malaysian credit is still well sought after,’’ said the analyst.

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