Sarawak turns on the tap for an additional $200 million.

Free from the spectre of First Silicon, Sarawak heads back to the market to top up its 10-year benchmark.

The Malaysian State of Sarawak priced an additional $200 million tap of its original $600 million 10-year Reg S bond late Thursday (July 22). The Baa1/A- notes were issued via special purpose issuance entity Sarawak International and are backed by a letter of support from the Sarawak state government's investment policy arm, SGOS Capital Holdings.

The Deutsche Bank led deal is said to have picked up tremendous momentum on the back of a $100 million lead order out of Singapore. Pricing was fixed at 99.834% on a coupon of 5.50% to yield 5.52%. This equates to a spread of 139bp over 10-year Treasuries, or 93bp over swaps. Fees were 42.5bp

This means the new deal offered only a slim 1bp premium to the secondary market trading level of original deal. This was launched in late July at an issue price of 99.016% to yield 5.62% or 139bp over Treasuries and 95bp over swaps.

At the time the new deal priced, it was trading at 138bp over Treasuries or 92bp over swaps, to yield 5.51%.

The order book closed two-times oversubscribed. In total 20 accounts were allocated subscriptions to the deal, with the majority placed in Singapore. The Lion City accounted for 60% of the total book, with Hong Kong taking 20%, the rest of Asia 5% and Europe the remaining 15%.

Bankers say that Sarawak had initial approval to raise up to $800 million in July, but opted to raise slightly less. However, as the original deal passed its 40-day seasoning period, the bond began to garner inquiries from a number of US-based investors.

According to Reg-S conventions, US-based investors are restricted from holding bonds until the completion of the 40-day seasoning period. This is said to have provided the catalyst for a return to the market to top up the original deal.

When the first deal was announced, the primary concern for most investors was whether funds were being on-lent to First Silicon - a wafer chip manufacturer based in Sarawak that has been haemorrhaging money from state coffers since it opened in 2001.

However the original deal has traded up from its re-offer price and maintained a stable secondary market performance. In truth, on a stand-alone basis Sarawak is seen as a comparatively resilient credit reporting an operating surplus of about 50% of revenues since 2000, driven primarily by its extensive oil and natural gas reserves.

The new deal is also subject to the 40-day season regulation.