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.