Khazanah looks at international bond market

Malaysia''s newly energized investment agency contemplates the international bond markets.

Khazanah Nasional, the government investment agency overseen by Malaysia's Ministry of Finance, is seeking to become more involved in the international bond markets, according to CEO Azman Mokhtar.

"As we're going to become more active internationally, then we would naturally want to match the funding of our assets from a currency standpoint," says Mokhtar. "So we will be borrowing more foreign currency and perhaps we'll go to the international bond markets as well."

Mokhtar gives no indication of the timing of a potential issue, but is prepared to say that Khazanah is looking to get a rating from the international agencies. "We'll be exploring the possibility of an international rating in the future, although we do already have a local rating with Rating Agency Malaysia (RAM), which provides some transparency," he comments.

Key to a possible bond deal will be the extent of Khazanah's international investment activities. It is understood that, at present, Khazanah is more concerned with its domestic investments, which include RM60 billion ($15.8 billion) worth of stakes in listed companies such as Tenaga Nasional, Telekom Malaysia, Proton and MAS.

However, Khazanah did make a joint bid, albeit unsuccessfully, with Maybank for Bank Permata of Indonesia earlier this quarter, showing that if international investment opportunities arise in the near term, it will look to deploy its capital. Deals such as this would thus be the catalyst for international bond issuance.

Khazanah has been an active issuer in the domestic markets, but has never come to the international markets in its own name before. However, with the new mandate given to Khazanah by Prime Minister Badawi earlier this year, it will start to have more scope for developing a regional investment strategy.

"We should be investing in sectors and geographies where we think there's a certain natural affinity," says Mokhtar. "It's fair to assume that the immediate region where there is growth - in Asean, China and India - these are natural markets for us. In a way this is building on centuries of trading links. The Middle East, as well, has many natural advantages for us."

Mokhtar is a dynamic young CEO with a background in finance and consulting and has been at the helm of Khazanah for little over a year. He has been given the mandate to shake up the agency, making it a force for change in both economic and social terms.

Khazanah will be following in the footsteps of another Southeast Asian investment agency, Temasek, when it goes to the rating agencies and international markets. Temasek last month was awarded a triple A rating from Moody's and Standard & Poor's, in anticipation of its inaugural bond deal.

However, recent reports suggest that that deal - on the cards since February this year - has been delayed into 2005 over concerns over the cost of funds and the lack of suitable investments that would necessitate US dollar financing.

(For more on Khazanah and its activities in the international markets, please see the forthcoming November edition of FinanceAsia magazine.)

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