Report: Samurai bonds to cost 4% if currency swap taken into account

Lim Guan Eng.

PETALING JAYA: Malaysia’s 200 billion yen (RM7.3 billion) 10-year samurai bond issuance would carry an effective cost of “nearly 4%” if the cost involved in the cross-currency swap is accounted for, said The Edge, quoting Finance Minister Lim Guan Eng.

Lim also said the rate was lower than the rate applicable to bond issuance during the BN’s administration in 2012 when Goldman Sachs-issued bonds on behalf of 1MDB.

“I agree that we have to calculate the cost of the bonds after the currency swap, which is almost similar to MGS (Malaysian Government Securities) at nearly 4%.

“In comparison, Goldman Sachs had issued (a 10-year) US$1.75 billion for 1MDB at a coupon rate of 5.99% and that is before currency swap. If after the swap, it would be nearly 10%,” Lim was quoted as saying.

Lim made reference to the US$1.75 billion bonds issued by 1MDB’s unit, 1MDB Energy Ltd, through an offer dated May 18, 2012, which had an interest rate of 5.99% per year and were redeemable in 2022. Goldman Sachs was the arranger and underwriter.

The bond was one of the three series of bonds totalling US$6.5 billion issued by the investment bank on behalf of 1MDB, with total fees of US$600 million.

Lim was responding to questions in Parliament as to why the government did not issue ringgit-denominated Malaysia Government Securities (MGS) at a coupon rate of 4% as the yen is known for its high volatility.

The minister added that the government believed that the ringgit, and not just the yen, can appreciate over the years. The 10-year tenure samurai bonds provided space for the government to manouevre, in light of currency fluctuations.

However, Lim did not make it clear why the MGS was not the preferred option to raise funds by the current government compared with the samurai bonds, considering the similar final annual costs.

Bank Negara Malaysia data showed that the conventional 10-year MGS ending August 2029 currently has a coupon rate of 3.885%, with trading yields between 3.78% and 3.8%.

Earlier, Tajuddin Abdul Rahman (BN-Pasir Salak) had questioned the additional terms and conditions imposed on Malaysia by the Japanese government in the issuance of the samurai bonds, claiming that “while one hand gives, another takes”.

Tajuddin raised the sale of the 16% stake in IHH Healthcare Bhd by Khazanah Nasional Bhd to Japan firm Mitsui Co & Ltd for RM8.42 billion, saying that the asset was worth retaining.

“From the offers made by Japan, (the offers and the rate) were reasonable,” said Lim.

The 10-year samurai bonds was oversubscribed at 1.6 times or 324.7 billion yen over the 200 billion yen offered in February this year.

Excluding the cross-currency swap, the cost for the samurai bonds consists of a 0.53% coupon rate, together with a 0.1% guarantee fee to Japan Bank for International Co-operation, a Japanese government institution. - FMT