Southern Bank mandates Goldman

One of Malaysia''s smaller lenders prepares a debut dollar deal.

Southern Bank Berhad (SBB), Malaysia's ninth largest lender is planning to raise about $150 million from a lower tier 2 subordinated debt deal. Goldman Sachs is mandated for the offering, which is aimed to re-balance the bank's capital ratio following a special issue of Bumiputra shares.

The Ministry of Finance approved a 280.2 million Bumiputra share issue at the end of April and on completion at M$1.74 per share, the transaction will boost the bank's CAR by just over 2%. At the end of 2003, the bank reported an overall CAR of 11.8% of which tier 1 capital comprised 8.77%.

The subordinated debt transaction is not believed to be imminent and like other deals in the pipeline awaits an improvement in Asian secondary market spread performance following US rate hike-inspired selling pressure. Two other Malaysian banks have also expressed interest in the dollar subordinated debt market with Public Bank mandating a $250 million to $350 million deal to Barclays and Citigroup last October and Hong Leong talking about a $150 million deal, which has never been mandated.

The most relevant pricing benchmark for SBB will be Eon Bank, since the two banks share the same A2 rating from Rating Agency Malaysia (RAM). Eon issued a $225 million 10 non-call five lower tier 2 deal in January this year on a coupon of 5.375% to yield 5.41% or 245bp over Treasuries. Yesterday (Wednesday) the Baa3-rated deal was trading at 200bp over Treasuries to yield 5.9%.

SBB recently announced that net income for 2003 rose to M$347.7 million up from M$291.7 million the year before. The bank has an asset base of $29.7 billion and recorded a net interest margin of 2.95% for 2003 and ROE of 12.5%.

Its weak spot is its NPL ratio, which ranks as the third highest of the major Malaysian banks behind Affin Holdings and AMMB. At the end of 2003, NPLs stood at 10.2% on a three-month past due basis.