Khazanah in non-guaranteed first

The Malaysia government investment agency taps the market for the first time without its government guarantee.

Khazanah, the investment holding company of the government of Malaysia raised RM1 billion ($263 million) through an issue of five-year bonds on Friday. The deal is the first time that Khazanah has come to market without a government guarantee.

The bonds carry a coupon of 1% and were priced to yield 3.7% all in. Despite the lack of guarantee they were still rated AAA by Rating Agency of Malaysia (RAM). "In view of the strategic importance of Khazanah to the Government, RAM believes that support should be forthcoming in times of need," says Kelly Chan, an analyst with RAM in Kuala Lumpur. "Furthermore, the sheer size of Khazanah's investments provide it with flexibility for refinancing should the need materialise."

Investors clearly felt comfortable with the issue, which was over subscribed 2.8 times. Joint lead managers and joint bookrunners on the deal were CIMB and RHB Sakura Merchant Bankers. According to the joint leads, demand for the issue came from a diverse range of banks, insurance companies, asset managers as well as companies.

The proceeds from the issue will be used to repay bank loans and Islamic bonds that Khazanah had issued in the previous five years.

Khazanah is a vehicle through which the government and the Ministry of Finance manage its commercial interests. Khazanah is rather like Temasek in Singapore, in that its dual mission is to make as much money as possible for the government while also fostering Malaysian companies, particularly in the high tech arena. Its holdings include investments in Tenaga Nasional (power), MISC (shipping) EON (auto distribution) and RHB (banking).

The company was also selected to be the vehicle through the government would issue bonds to stimulate the local Ringitt bond market, which the government wanted to develop in the aftermath of the Asian financial crisis. "We are pleased with the very positive demand for the bonds," says Tan Sri Dato Mohd Sheriff Mohd Kassim, managing director of Khazanah, "which clearly reflect the strong interest and confidence shown by investors… given the pricing and expected yields."

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