KUALA LUMPUR: 1Malaysia Development Bhd (1MDB) is marketing a yen-denominated loan guaranteed by Japan Bank for International Cooperation (JBIC) 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 (RM8.2 billion), the person said. It is seeking other, mostly Japanese lenders to join in syndication, according to the person.
"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 yesterday.
"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 initial public offer (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 amortisation 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 will 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.
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 yesterday.
Fitch Ratings Ltd cut its outlook for Malaysia's credit rating to "negative" in July.
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, Chua said in a report yesterday.
While debt ceilings can be raised with Parliamentary approval, rating companies may react negatively to an increase without a corresponding fiscal plan, he 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.
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 Bank Negara Malaysia's website. Bloomberg