Proud Malaysia edges towards mainstream<\/p>\n
By Nelson Graves<\/p>\n
KUALA LUMPUR (Reuters): Defiant Malaysia has taken a major
\nstep towards rejoining the global financial mainstream with a
\nUS$1 billion bond but some investors remain wary towards a
\ncountry that burned them last year with capital controls.<\/p>\n
Malaysia sold $1 billion in 10-year global bonds on Wednesday,
\nits first sovereign issue in nine years.<\/p>\n
Demand for the issue was about $3 billion.<\/p>\n
But Kuala Lumpur, which had initially targeted $2 billion,
\ndecided to trim the offer given \"widened spreads and the
\npotential for continued unstable market conditions,\" Finance
\nMinister Daim Zainuddin said.<\/p>\n
Flush with foreign reserves and official loans for its
\nrecovery program, Malaysia is not desperate for money.<\/p>\n
Emerging market debt spreads widened after the U.S. Federal
\nReserve last week indicated a change in bias towards higher
\ninterest rates, prompting Malaysia to trim the offer.<\/p>\n
\"The timing was slightly off,\" a dealer with a Malaysian bank
\nsaid. \"Firmer U.S. rates were not expected when the timing was
\nplanned. It would have been great a month ago.\"<\/p>\n
The issue marked Malaysia's successful return to the global
\ncapital markets after a year of uneasy relations.<\/p>\n
Kuala Lumpur canceled a $2 billion bond offer last year after
\nsovereign downgradings by Standard & Poor's and Moody's.<\/p>\n
Prime Minister Mahathir Mohamad later attacked the rating
\nagencies, calling them \"greedy and arrogant\", and then thumbed
\nhis nose at foreign portfolio investors by slapping controls on
\ncapital flows and pegging the ringgit currency.<\/p>\n
Many of those investors had doubted Malaysia's ability to tap
\nthe global capital market. \"Today's successful issue proved them
\nwrong,\" Second Finance Minister Mustapa Mohamed said.<\/p>\n
Malaysia's economy is expected to rebound this year after its
\nfirst recession in 13 years in 1998.<\/p>\n
International reserves equal to 6.5 months of retained
\nimports, a burgeoning trade surplus and a bull run on the stock
\nmarket lured investors to its benchmark bond.<\/p>\n
The oversubscription reflected \"the confidence of investors in
\nMalaysia's credit standing and strong prospects of economic
\nrecovery\", Daim said.<\/p>\n
The issue was priced at 330 basis points above comparable U.S.
\nTreasuries to yield 8.862 percent. Malaysia had targeted a spread
\nof about 225 points.<\/p>\n
\"For a country which is not under an IMF package, our
\nperformance is not too bad,\" said K. Sree Kumar, executive
\ndirector of KAF Refco Futures Sdn Bhd in Kuala Lumpur.<\/p>\n
The spread had narrowed to 300 points by Thursday morning, 20
\npoints inside of a 2006 global bond issued by state-owned oil
\ncompany Petroliam Nasional Bhd.<\/p>\n
But South Korea's 2008 global bond, viewed as the benchmark
\nfor Malaysia, was at 225 basis points. That deal was trading
\nclose to 200 points over Treasuries before the Fed's shift.<\/p>\n
Bond dealers attributed the differential between the Malaysia
\nand Korean bonds to lingering concerns over Malaysia's economic
\npolicy and the tense political outlook.<\/p>\n
\"It's a good start,\" said Patrick Tan of ABN Amro Asia Equity
\nResearch in Kuala Lumpur. \"The spread over Korea's bond suggests
\nperception is still cautious at the moment.\"<\/p>\n
Mahathir's fulminations against foreigners and the capital
\ncontrols have left a bad taste in many investors' mouths. The
\njailing of former finance minister Anwar Ibrahim, who stands
\ntrial for a second time next month, still rankles many.<\/p>\n
Duff & Phelps said this week that \"uncertainty regarding the
\nfuture of Malaysia's economic policies continues to constrain the
\nratings\".<\/p>\n
Financier George Soros, long a thorn in Mahathir's side, was
\nblunt last week: \"I am very much concerned by the lack of
\ndemocracy in Malaysia.\"<\/p>\n
\"Either you like Malaysia or you won't have anything to do
\nwith it,\" said a bond trader in Singapore.<\/p>\n
\"People are polarized. Some say it is a basket case and they
\nwill not touch Malaysia because of Mahathir. Others like the fact
\nit is under control,\" the trader said.<\/p>",
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