Asia debt markets turn to Tenaga

Asia debt markets turn to Tenaga

Dow Jones, Singapore

The Asian debt markets are this week turning their eyes to Tenaga Nasional Bhd., Malaysia's national power utility, as a gauge of sentiment toward international bonds.

"I wouldn't be surprised if we see other issuers check the market this week. The market's looking a bit better but it's still very tentative," said one syndicate banker.

Tenaga, 81 percent owned by the Malaysian government, heads out on roadshows Monday for a minimum US$250 million bond offering to refinance the early repayment of $607.55 million in 2007 bonds.

Marketing kicks off in Hong Kong Monday, moves to Singapore on Tuesday and wraps up in London on Wednesday, with pricing expected shortly thereafter.

Lead managers are Barclays Capital, Commerce International Merchant Bankers Bhd., and Credit Suisse First Boston. The three are also in charge of the buyback offer.

The size of the deal will depend on the extent of the buyback -- Tenaga was seeking to repay a minimum of $300 million of bonds early -- but given the spread Tenaga is offering, bankers expect the takeup to be substantial and talk is now of a bond of up to $500 million.

"I think the exchange portion should go well. You'd be crazy not to accept the offer. And the new deal should have some natural demand," said a banker not involved in the deal.

"By extending tenors, you are going to get a pretty decent pickup."

Tenaga is offering to repay the $107.55 million of 7.200 percent notes due April 29, 2007 and $500 million of 7.625 percent notes also due April 29, 2007 at a spread of 15 basis points over U.S. Treasurys.

When this offer lapses at the end of Monday, Tenaga will pay a price 3 points lower.

Tenaga -- which has over 30 billion ringgit in debt with about half denominated in foreign currencies -- has said it embarked on the exercise as part of a long-term effort to manage its liabilities.

Market talk suggested investors are being shown levels of 125- 130 basis points over U.S. Treasurys, or around 80-85 basis points over the London Interbank Offered Rate, although that differential is expected to shrink to closer to 75 bps over Libor if demand proves strong.

"I'd say fair value is at 68-70 basis points (over Libor) but in this market, you may have to offer a little more," said a banker

Tenaga's 2011 bonds are currently trading around 50 bps over Libor while its 2025 paper is around 105 basis points over.

Standard & Poor's Ratings Services has assigned a BBB rating to the unsecured note offering while Moody's Investors Service has ranked the bond at Baa2.

Tenaga's bond will be only the third Asian international offering since mid March when the markets turned sour amid worries over U.S. interest rates.

Many had hoped Indonesia's $1 billion bond, priced April 13, would reopen the market. In the event, that bond traded down shortly after pricing.

Meanwhile, rival bankers said Deutsche Bank AG's $150 million floating-rate note for Hong Kong's Dah Sing Bank Ltd. was the wrong structure and too small to be representative of real market demand.

That bond, said by the German bank to be "comfortably oversubscribed", saw some selling in New York hours Friday after pricing at 60 basis points over the Libor and by Monday morning was at 61-58 basis points over.

The deal -- smoothed by a couple of lead orders -- sold 34 percent to Asia, 45 percent to Europe and 21 percent to offshore U.S. investors.

By investor type, 53 percent went to banks, 14 percent to retail buyers and 33 percent to funds.