By P. Gunasegaram
A Sarawak government 15-year bond issued in June 2011 was considerably mispriced to get as much as 20% or some RM480 million of the bond value of RM2.4 billion upfront, sources said. This mirrors similar mispricing in bonds issued by 1Malaysia Development Bhd or 1MDB.
KiniBiz reported the mispricing of 1MDB bonds by as much as RM4 billion in a series of articles last week.
A check by KiniBiz shows the Sarawak bond, arranged by Goldman Sachs, was issued in three tranches by Equisar Sdn Bhd, a unit of the Sarawak state government, for money to be used for investments in strategic development projects in the Sarawak Corridor of Renewable Energy (SCORE), the Tanjung Manis Halal Hub and the development of the biotech sector.
The loan was on-lent to the holding company guarantor, SGOS Capital Holdings, according to bond documents.
The three tranches were for US$302 million, US$348 million and US$150 million. They mature in 2026 and carry a coupon rate of 6.63 percent.
The bonds were assigned an A- rating by Standard and Poors, effectively being guaranteed by a charge on Sarawak government assets via a floating charge which becomes a fixed charge on default. Legal disputes are under English jurisdiction.
The rating by S & P means that it is equivalent to that of Malaysia’s sovereign rating which implies that the bond should have a coupon of close to the Malaysian Government Securities (MGS) for a similar tenure. This, bond analysts said, was around 4.75 – 5 percent at the time of issue in June 2011, implying a valuation gap of 1.88 percentage points (188 basis points) compared to the actual coupon of 6.63 percent.
This translates to a mispricing of as much as 20% or US$160 million (RM480 million) on a bond issue of US800 million (RM2.4 billion then) on a 15-year tenure.
Analysts explained that those who obtained the bond at the favourable pricing can cash in their gains of as much as 20% simply by on-selling the bonds in the secondary market, implying a huge upfront gain of as much as RM480 million for the favoured.
Eventually, the people of Sarawak will pay for the mispricing because the state ends up paying far higher in interest charges over the 15 years. A 188 basis points higher interest rate results in almost RM680 million extra paid in interest charges over the period.
This will add on to the allegations of corruption in Sarawak where the chief minister Abdul Taib Mahmud is accused of abusing the control of state assets for the benefit of himself and his family.
Recently, a video released by NGO Global Witness showed members of his family apparently negotiating an illegal deal with a person the NGO posed as a possible investor in Sarawak land.
You must be logged in to post a comment.