The transaction will be split into a five-year and a 10-year tranche and will be issued as part of the borrowerÆs M$3 billion medium-term note (MTN) programme. Price guidance is to be confirmed but the books will formally open on Wednesday and close on Friday. One source says he hopes the pricing will take place before the end of the week.
The same source disputes reports that the deal had been postponed, saying the bank has only just received approvals to issue from Bank of Negara, the Ministry of Finance and Malaysia's Securities Commission. Thus it would not have been possible to price the offering earlier.
The announcement follows a non-deal roadshow two weeks ago, which reportedly garnered considerable investor interest. Since most foreign issuers will price at a certain spread over Malaysian Treasuries or swap spreads, and as Kexim is theoretically higher-rated than the sovereign, investors should be able to enjoy attractive returns.
However, the transaction has been threatened by a significant widening in the cross-currency swap levels following news of a number of international and Asian issuers looking to borrow in Malaysia. This avenue of funding was tapped in January by Kuwait-based Gulf Investment Corporation which priced a successful M$1 billion deal with the help of ABN AMRO, Standard Chartered and RHB. In this region, several Korean borrowers, including the National Agricultural Cooperative Federation (NACF), are planning to follow suit to take advantage of favourable funding levels versus dollar-denominated debt, at relatively long maturities.
ôThe number of news articles hailing a flood of Korean supply, combined with other potential international issuers coming to market, caused the swap spreads to move. The anticipation of KeximÆs own deal also played a role (in the spread widening),ö says a source close to the deal. Last week the swap basis widened by 20bp-30bp, but the market now seems to have stabilised.
ôWe saw a strong reaction 10 days ago with volatility persisting for some time, but the market seems to have accepted that supply is finite and driven by the swap levels. If these widen too much, the supply will disappear. Moreover, Kexim secured $150 million through a private placement transaction last week, illustrating that alternatives do exist. That also seems to have calmed the market,ö continues the source.
However, swap levels and interest rates may still move before Friday. ôThe swap market and the bond spread are key risks this week, and their levels will determine whether Kexim can achieve the size and maturity that it wishes,ö the source says. ôKexim could still pull the deal, but at this stage there is demand for both the swap and the bonds at levels that are acceptable to the borrower, although it obviously won't be at the levels that prevailed three weeks ago."
For other issuers planning ringgit deals, there is a further concern.
ôI think the swap basis will settle down and remain at relatively attractive levels for issuers. But the question is how many more times this market will be able to do $200 million to $300 million worth of swaps. Liquidity is a concern for future offshore borrowers,ö says the source.
In any case, Malaysia is still in focus and the market remains open for now.
Korean issuers have turned their attention to the ringgit market as spreads in the dollar market widened to levels which they regarded as unacceptable. Malaysia can provide long-term funding at competitive rates.
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