Malaysian Air parent debt to yield more than Petronas

Malaysian Air parent debt to yield more than Petronas

Bloomberg, Singapore

Penerbangan Malaysia Bhd., majority owner of the country's
biggest airline, plans to price $1 billion of bonds at a higher
yield than the dollar debt sold by Petroliam Nasional Bhd., the
nation's oil company.

Penerbangan Malaysia is seeking to price the 10-year bonds,
which are guaranteed by the government, yielding about 35 basis
points more than the mid-swap rate, an e-mail sent to investors
by one of the sale's arrangers said. That's equivalent to about
83 basis points more than Treasuries, or 5 basis points higher
than the current yield on Petroliam Nasional's bonds of similar
maturity. A basis point is 0.01 percentage point.

State-owned Penerbangan Malaysia's bonds, which have the same
debt ratings as the government, may attract investors seeking to
invest in Southeast Asia's third-largest economy. This is the
first overseas bond sale by the company, which leases planes to
Malaysian Airline Bhd. as part of a plan introduced in March 2003
to turn around the carrier following six years of losses.

"It's a proxy to Malaysian government bonds," said Clifford
Lau, a portfolio manager at a portfolio manager at Paramerica
Fixed Income (Asia) Ltd. in Singapore who hasn't decided if he'll
participate in the sale. "It will attract enough demand from
investors."

Kuala Lumpur-based Penerbangan Malaysia, which owns about 69
percent of Malaysian Airline, plans to set terms at the end of
this week. Citigroup Inc., CIMB Bhd. and HSBC Holdings Plc are
underwriting the sale.

Penerbangan Malaysia, which agreed in December 2003 to buy six
A380 jets valued at US$1.6 billion, leases planes to Malaysian
Airline System Bhd. as part of a plan introduced in March 2003 to
turn around the carrier following six years of losses. The
government guarantee on the bonds will ease concern that airline
industry losses may lead to a default.

Penerbangan Malaysia's bonds were given a rating of A- by
Standard & Poor's and A3 by Moody's Investors Service. The
country's debt ratings were raised to their highest levels since
the Asian financial crisis of 1997 and 1998 during the past two
years.

State-owned Petroliam Nasional, or Petronas, has an A1 rating
that's two levels higher from Moody's and the same rating as the
government from S&P. State-owned Petronas' 7.75 percent bonds due
in August 2015 were bid yielding 78 basis points more than
Treasuries as of 3:08 p.m. in Singapore, according to data
provided by JPMorgan Chase & Co.

Penerbangan Malaysia, wholly owned by state-investment company
Khazanah Nasional Bhd., is marketing the securities to investors
in London and New York today, after promoting the sale in
Singapore, Hong Kong and Boston since Oct. 13.

Malaysian Air in August reported a loss of 280.7 million
ringgit ($74 million) in the quarter ended June 30 after record
oil prices boosted its fuel costs. Chairman Munir Abdul Majid
said the airline will implement a program to conserve fuel, carry
more passengers and cargo per flight, and boost profit by 1
billion ringgit after five years.

Penerbangan Malaysia will use money raised from the bond sale
to purchase aircraft, refinance debt and fund Malaysian Airline's
operations, according to sale documents.