1Malaysia Development Bhd is marketing a yen-denominated loan guaranteed by Japan Bank for International Cooperation as it seeks to cut borrowing costs, according to a person familiar with the matter.
The sovereign wealth fund chaired by Prime Minister Datuk Seri Najib Razak and known as 1MDB is taking advice from Goldman Sachs Group Inc and UBS AG on the facility worth the equivalent of US$2.5 billion, the person said. It is seeking other, mostly Japanese, lenders to join in syndication, according to the person, who asked not to be identified because the details are private.
"Borrowing costs on JBIC loans are generally lower than normal loans," Chua Hak Bin, a Singapore-based economist at Bank of America Corp, said in a telephone interview today. "It looks like 1MDB is taking active steps to reduce borrowing costs and move away from relying on the Malaysian government."
1MDB is seeking to lower financing expenses as it prepares for an IPO of its energy assets. The Kuala Lumpur-based fund, which has bought US$3.7 billion of such assets in the last two years, has total bonds and loans outstanding of RM30.9 billion, according to data compiled by Bloomberg. It had RM7.8 billion of debt at the end of March 2012, according to its latest annual report.
1MDB has started preliminary talks with bankers on the IPO and has yet to request formal proposals, the person said. The fund paid 8.5 times earnings before interest, taxes, depreciation and amortization for power assets from billionaire T. Ananda Krishnan and Genting Bhd last year. It got an extension last month on a US$1.9 billion bridge loan, giving it more time to sell the shares to repay debt.
The company plans to raise as much as US$2 billion from the IPO, the person said. This would make it Kuala Lumpur’s fourth- biggest to date and the largest since palm-oil producer Felda Global Ventures Holdings Bhd raised US$3.3 billion last year, according to Bloomberg-compiled data.
Malaysia’s Najib is the chairman of 1MDB’s advisory board. The company doesn’t comment on "market speculation," Shahriza Embi, the company’s senior vice president of corporate communications said in an e-mail today. Eddie Naylor, a Hong Kong-based spokesman for Goldman Sachs, declined to comment. Julie Yeo, a Singapore-based spokeswoman for UBS, wasn’t immediately available to comment.
Fitch Ratings Ltd cut its outlook for Malaysia’s credit rating to negative in July, citing weakening state finances. Public debt climbed to 54.6 per cent of gross domestic product in the second quarter, approaching the nation’s self-imposed 55 per cent ceiling, Bank of America’s Hak Bin said in a report today. While debt ceilings can be raised with parliamentary approval, rating companies may react negatively to an increase without a corresponding fiscal plan, Chua said.
1MDB came under scrutiny in parliament in July after hiring Goldman Sachs Inc to help manage US$6.5 billion of bond sales to fund expansion. The US bank made about US$500 million in commissions and trading gains, a person familiar with the matter said May 9.
Goldman’s fees for the three bond sales were about as much as Malaysia pays each month on its debt. Southeast Asia’s third- largest economy had RM502 billion of outstanding borrowings at the end of 2012 and debt servicing charges last year were RM19.5 billion, or almost US$500 million a month, according to data published on the central bank’s website.
1MDB was created in 2009 to invest oil royalties from the state of Terengganu. When Najib became Prime Minister that year, it became a national entity and its funding source was changed to government-backed debt instead of oil income.-- Bloomberg