ADB returns to Malaysia

Juan Limandibrata, ADBÆs assistant treasurer and head of funding discusses the supranationals newest Malaysian Ringgit deal and its plans to open up more markets in Asia.
Late last week (April 20) the Asian Development Bank (ADB) issued its second Malaysian ringgit bond, pricing a M$500 million five-year offering. Despite being the supranationalÆs second foray into the Malaysian domestic bond market the deal established a number of benchmarks that highlight the markets increasing sophistication.

The new deal, led by AmMerchant Bank of Malaysia, priced at 99.4%, and carries a semi-annual coupon of 4.265%.

Once again displaying AsiaÆs domestic investor appetite for ADBÆs triple-A rated credit, the deal generated both strong local and foreign demand. The total book closed at M$1.08 billion an oversubscription ratio of 2.15 times

In terms of distribution, 39% of the notes went to financial institutions, 16% to offshore companies and 45% to pension funds, insurance companies and fund managers.

ôWe are very excited to be able to return to the Malaysian market following our debut issue in 2004, which opened the Putra bond market in Malaysia,ö says Limandibrata. ôOf the five markets that we have opened since 2004, Malaysia is the first market that ADB has done a repeat issue.ö

The new deal is the first to be issued off of the ADBÆs newly established M$3.8 billion 15-year domestic MTN programme. ADB is the first supranational to have established such a programme in Malaysia.

ôWhen we last issued in Malaysia, we indicated that we were very keen to maintain a regular presence in that market. Given the depth of the Malaysian bond market, as one of the largest and most vibrant in the region, I think it is important to have established our MTN programme in Malaysia. The programme will allow ADB to maintain an active borrowing presence in Malaysia with the objective of developing a liquid yield curve.

ôThis is a first for the ADB in terms of an Asian currency MTN. We donÆt have any MTN programmes in any other Asian markets, so the establishment of this program is in itself quite a milestone for the ADB as well as for the Malaysian bond market. It demonstrates ADBÆs commitment and confidence in the ringgit bond marketö

Additionally, ADB completed a dollar/ringgit cross currency swap with Deutsche Bank in Labuan. This is the first time the offshore banking centre Labuan is being used to facilitate a cross border US$/M$ currency swap.

ôAlthough, we also completed a cross currency swap with our first ringgit issue, this time around we executed the swap through a full branch of Deutsche Bank in Labuan, rather than an offshore bank,ö say Limandibrata. ôThis is a milestone for the development of Labuan as a financial centre in line with the Malaysian governmentÆs policy and also helps to highlight the growing liquidity of the swap market in Malaysia.ö

With the completion of the ringgit deal, ADB has now raised almost $2 billion of its $5 billion funding requirement for 2006. This is considerably larger than in previous years, but Limandibrata expects the ADBÆs funding needs to remain around this level in the near future.

ôLast year we had unusually small funding needs because of loan pre-payments that we received from certain borrowers, but going forward we are expecting funding requirements of around $5 billion.ö

ôIn terms of the transactions we have brought to the market thus far this year, we completed two kangaroo deals, a Canadian dollar deal, and one New Zealand dollar eurodashi transaction along with several structured financings and of course this ringgit transaction.

ôWith respect to the Australian market, we established an MTN programme there which will allow us to take advantage of ongoing opportunities in that market. We believe that this platform will enable us to execute our bond issues on a more efficient basis, particularly in terms of documentation.

ôWith respect to the Canadian dollar deal, that was issued off of our global MTN programme, which permits ADB more flexibility to take advantage of the favourable opportunities that are available in the high grade space in various markets.

ôWe also plan to do our annual dollar benchmark issue this year, which is expected to be in the $1 billion range and with a 3 to 10 year maturity. Most likely that will come in the second half of the year. We will decide the appropriate timing based on market conditions and liquidity consideration.

ôRegionally, the demand for our local currency loans is growing, so we are expecting to increase our local currency bond issuance both in terms of volume as well as currency. Currently our pipeline includes possible local currency loans in new markets such as Kazakhstan, Indonesia, Pakistan and Vietnam. If the ADB approves these loans, which is expected later this year or early next year, then we will have to raise the required local currency funds via bond issues or cross currency swaps. New local currency demand in India and the Philippines will also require ADB to raise additional rupee and peso funds through new bond issues or cross currency swaps."
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