BPIMB reticent on bond deals

The silence surrounding the latest infrastructure bonds from Malaysia''s new infrastructure bank is deafening.

Malaysia has always found it hard to finance its infrastructure. It is not that the money is not there, rather the way the money has been raised, used and allocated has consistently raised eyebrows and caused concern.

Recent examples include the Bakun Dam fiasco, the UEM purchase of Renong shares and the government bailout of the Kuala Lumpur monorail project.

As a response to the chaotic way that infrastructure is financed in Malaysia, the government set up the Bank Pembangunan & Infrastruktur Malaysia Berhad (BPIMB). In 1998 the bank was officially mandated to finance the country's infrastructure projects - many of which were stalled, delayed and mothballed due to the financial crisis.

In October 2000, BPIMB mandated Deutsche Bank to establish a RM5 billion ($1.3 billion), 25 year debt programe. Today, Monday November 6, BPIMB launched the first bond off that programme. The bond is RM1 billion in size and is split into two tranches - one with a 15-year tenor and one with a a 25-year tenor. The 15-year bonds have a coupon of 7% and the 25-year bonds have a coupon of 7.5%.


But that is all the information you are getting. BPIMB does not feel obliged to reveal what price the bonds were sold at, nor who bought the bonds. The price could have indicated the yield, which is a very important number. As this is the longest domestic bond in Malaysia, the yield of these bonds will be the benchmark from which all other bonds are priced - mostly at the long end, but it will have some effect in the middle part of the curve. It is of material interest to all participants in the Malaysian market.

If the bank does not want to reveal the price of the bonds it must be for a very good reason, although that reason is open to speculation - perhaps they were mispriced? Perhaps they weren't priced at all?

This leads us to who bought the bonds. Again, silence. The various representatives of the lead managers contacted by FinanceAsia.com would only say that financial institutions and insurance companies bought the bonds. They refused to say how many accounts took the deal; and they refused to say what the average ticket size of the allocations were.

Crucially, they also refused to reveal what percentage of the issue was taken by the Employees Provident Fund - the state pensions investor which dominates the local bond market. This would give an indication of how liquid the bond might be and therefore what kind of a benchmark the deal might become. There is also no comment on whether or not the bonds will be listed on the Kuala Lumpur Stock Exchange.

The proceeds of the issue and the note programme in general will be used for undisclosed projects. These could include the environmentally catastrophic Bakun Dam project, which analysts are saying might be restarted.

More detail please

So what we can glean from the information is ... well, not much. One suggestion is that one or two government linked accounts bought the bonds at an undisclosed - read discounted - price from an institution 99.84% owned by the government, for purposes unknown. Hardly the stuff of legends, and certainly not an episode that might suggest the local bond markets are developing in a positive way in Malaysia.

This makes it very strange that the lead managers of the deal should choose to praise it so much. Nazir Razak, chief executive of CIMB said: "With the successful launch of the 15-year and 25-year fixed interest rate bond issues, market participants will now have greater confidence in raising longer dated fixed rate funding, and investors in investing in longer dated securities, as there now exists benchmark reference pricing for up to 25 years." Well, perhaps you could share that pricing with us Mr Razak, before we share your confidence.

BPIMB's executive chairman, Tan sri Datuk Dr. Aris Othman observed: "With the issuance of the 15-year and 25-year notes, BPIMB's funding and lending activities will be better matched." The matches do not end with asset/liability. The style of lending that BPIMB will assume - secretive, government-directed and not done for profit - has already been matched by the style of its issuance programme.

This bond is little more than a government directed private placement, with no pricing details and a dearth of disclosure. How can such a bond be a benchmark issue?