Busy week for Malaysian debt issuers

Public Bank prices, Southern Bank launches and MISC postpones.

After months of inactivity, Malaysian debt issuers have returned to the forefront of the dollar markets, with the pricing of a debut issue by Public Bank yesterday (Tuesday) and impending launch of a debut issue by Southern Bank on Thursday.

However, the schedule for a $1 billion five and 10-year issue by Malaysia International Shipping Corp (MISC) is being revised. The Baa1/BBB+ rated group was due to start roadshows in Singapore today with Barclays and Citigroup acting as lead managers. Presentations have now been postponed and no new timetable has yet been fixed.

In the meantime, Barclays and Citigroup have priced a $350 million tier 2 issue for Public Bank at the very tight end of the deal's indicative range. With an issue price of 99.716%, the 10 non call five deal has a coupon of 5.625% to yield 160bp over Treasuries, or 103bp over Libor.

On a like-for-like basis, specialists estimate that Public Bank has priced about 3bp through its nearest comparable Malayan Banking Berhad (Maybank). The latter has a July 2012 deal outstanding, which is callable in 2007. Yesterday it was trading at about 4.66% to yield 173bp over two-year Treasuries, or 76bp over Libor.

Public Bank's new deal matures in September 2014 and has a call option after five years and three months in September 2009. Specialists say there is roughly 30bp on the Libor curve between July 2007 and September 2009.

Public Bank has a subordinated debt rating of Baa1/BBB+ compared to a Baa1/BBB subordinated rating for Maybank. Where senior ratings are concerned, Public Bank is the only Malaysian financial entity to hold the full sovereign rating of Baa1/A- from Moody's and Standard & Poor's.

Despite the one notch differential on the S&P side, specialists say investors would not have been willing to accept a bigger pricing differential between the two banks since Public Bank is so much smaller than Maybank. "Public Bank has fantastic credit ratios, but at the end of the day it is less than half the size of Maybank in terms of assets and does not have a government ownership cushion," says one observer. "Investors made adjustments for this."

However, the deal's reception does show that the country's fourth largest bank by assets is just as popular with debt investors as it is with equity investors. Public Bank has historically had the highest foreign ownership of any stock in Malaysia, currently accounting for over 10% of all equity investment in the domestic stock market.

Its debt issue was similarly well received, with books closing four times subscribed. About 80 investors participated in the deal, which had a split of 15% Europe, 85% Asia.

Analysts say investors have typically preferred Public Bank to other Malaysian banks because it has been able to combine high loan growth with low NPL ratios. At the end of 2003, Public Bank had assets of M$64.64 billion ($17 billion) compared to M$160.95 billion ($42 billion) at the much larger Maybank

However, Public Bank reported an NPL level of only 3.2% on a three-month past due basis at the end of 2003 compared to an 11.6% ratio for Maybank and a 9% industry average. By the end of the first quarter of 2004, it had further reduced the ratio to 2.8%.

Similarly, the bank recently reported it had achieved 5.8% quarter-on-quarter loan growth compared to a 1% industry average. Superior credit ratios stem from its SME focus and this has meant it has been able to achieve high net interest margins - 4.02% at the end of 2003 compared to 2.93% at Maybank.

Public Bank's standing with investors also been bolstered by measures to re-balance its capital ratios. This has included the issuance of the new tier 2 bond and progressive re-purchase of up to 10% of the company's its share capital, which will reduce its tier 1 ratio and improve ROE.

At the end of 2003, the bank reported an overall CAR of 19.4% of which tier 1 equity comprised 17.6%. At the end of 2003, ROE stood at 14.8% rising to 16.1% at the end of the first quarter.

Bankers conclude that credit markets remain difficult, but believe Public Bank has been well received because it offers diversification from the wall-to-wall Korean borrowers the market has been faced with all year. The positive momentum it has generated should also feed through to Southern Bank, which sets off on roadshows this Thursday for a $200 million tier 2 deal.

With Goldman Sachs as lead manager, presentations will begin in Singapore followed by Hong Kong on Friday and London at the beginning of next week. Southern Bank was assigned subordinated debt ratings of Baa3/BBB- yesterday from Moody's and Fitch.

This means the bank has a one notch differential from Fitch over Eon Bank, which is likely to be its main comparable. The latter has a Baa3/BB+ subordinated debt rating and a $225 million 5.375% January 2014 deal outstanding that was trading yesterday at about 165bp over Libor.

Southern Bank is Malaysia's ninth largest by assets and is about half the size of Public Bank, with M$30.9 billion ($8.1 billion) in assets as of end March 2004.

At the same time, both its NIM and NPLs are better than Maybank. At the end of March, the bank recorded a three-month NPL ratio of 7.2%, slightly below the industry average and a NIM of 2.95%.

ROE stood at 12.5% and CAR at 11.5% of which tier 1 accounted for 8.6%.

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