The Sultanate of Brunei is to tap the international markets for the first time with a syndicated loan offering on behalf of the Ministry of Finance. As had been widely anticipated, the deal will be lead managed by ABN AMRO, BNP Paribas and HSBC.
BNP Paribas will also act as facility agent on the $250 million deal, due to price at some point within the next week.
The tenor of the transaction is for five years - using a bullet structure - with the option to extend for another five years. Similarly, if the deal is oversubscribed, the issuer may decide to borrow more than the initial $250 million.
The loan is the most conclusive evidence to date of Brunei's determination to establish itself within the international financial community. It is believed the Sultanate has also examined the possibility of a bond deal via ABN AMRO, and both Morgan Stanley and HSBC among others have talked to the government about ratings advisory work.
However, although the government is keen to promote the Brunei International Finance Centre (BIFC), established late in 2000, as a tax-neutral offshore haven for Islamic finance, it eventually opted for a loan. Some believe it did so because it does not want to open up its finances to the kind of public scrutiny demanded by the rating agencies and international bond investors.
A syndicated loan will not require the same level of disclosure, but does at least give the state some international exposure and develop closer commercial banking relationships. But a sovereign bond benchmark remains the next goal for Brunei in its quest to develop a domestic capital market and add more diversity to an economy dependent on oil and gas production.
Dato Selamat, deputy finance minister, admitted as much when he spoke to FinanceAsia magazine in August, although would not been drawn on an international bond. "Brunei is interested in looking into domestic bond issues, particularly treasury issues, so that we can establish a domestic capital market to strengthen the BIFC and International Islamic Money Market," he said. "We are not contemplating any international bond issues right now, but we are contemplating a sovereign rating."
