Before the summer break, market participants had been expecting the government to time its benchmark euro-denominated deal to coincide with the IMF's annual meeting, scheduled to be held this year in Dubai from September 20 to 22. This timing was viewed particularly auspicious for the deal, since the IMF platform would give it greater international prominence, while Dubai lies right at the heart of the world's Islamic investor base.
However, Malaysian government officials are said to have decided to make the deal the swan song of Prime Minister Mahathir Mohamad, who is scheduled to make his final budget presentation to parliament on September 12. This is when he is now expected to announce firm plans for a deal, making October the earliest possible launch date.
But a lot is said to depend on the government's plans for an issue by Penerbangan Malaysia Berhad, the parent company of Malaysian Airlines System Berhad. Credit Suisse First Boston and Morgan Stanley were initially mandated for a dollar deal of up to $750 million, which would carry a full government guarantee.
However, the deal was put on hold earlier in the summer and rumours then emerged of a euro-denominated Islamic transaction similar to that proposed by the government. Bankers now believe this is unlikely and say that it would make far more sense for the group's balance sheet if it were to issue in dollars. The main question is whether it comes before the government, pushing back the Sukuk deal to November.
And although the latter deal has been mooted to be up to Eu1 billion in size, market participants conclude that Eu500 million to Eu600 million makes more sense. Firstly, the Islamic investor base remains relatively untested for sizeable transactions and secondly larger sized euro-denominated deals from Asian credits have generally struggled to find a wide enough investor base.
"But there would be demand for a reasonably sized deal," one banker comments. "Middle Eastern investors hold euros and European banks have appetite for Malaysian credit."
The frontrunner for the deal remains HSBC, largely by dint of its existing track record. In June 2002, the bank completed the world's first Islamic global bond for the Malaysian government and since then has also beefed up its trading of Islamic securities in Kuala Lumpur.
This time round it is bidding in tandem with CIMB. Virtually all the major contenders have tied up with a local firm, with the exception of Citigroup, which is currently bidding on its own and said to be the second frontrunner along with JPMorgan.
The others include Barclays with ECM Libra, Credit Suisse First Boston with Arab Malaysian Bank, JPMorgan with Bank Islam, and UBS with RHB Bank.
The government's original deal was a five-year Shariah compliant transaction issued in the name of Malaysia Global Sukuk. One of the most successful and innovative bond deals of 2002, it managed to price flat to the sovereign's theoretical credit curve and attract a total of 51 investors, of whom 27 were new to the Malaysian credit.