Nasdaq: DanaInfra to drive ringgit bond supply

Nasdaq

SINGAPORE, March 26 (IFR) - Malaysian investors are gearing up for another deluge of government-guaranteed paper from DanaInfra Nasional as financing for the mega Pan-Borneo Highway finally takes shape.

The funding vehicle plans to sell up to M$13bn (US$3.4bn) of Islamic and conventional bonds to support the first phase of a M$30bn network of roads stretching a total of 2,325 kilometres - the distance from Beijing to Hanoi.

AmInvestment Bank, CIMB, Maybank and RHB are joint lead arrangers on the new programme, and are expected to be among the lead managers for the first issue.< /p>

DanaInfra held investor meetings recently to update potential bondholders on the progress of the project. The funding of the highway is expected to be done in phases, which will allow the agency to raise funds each time a milestone in construction is reached and payment is due. The first issuance could come as early as next month.

Construction of the first 1,060km stretch across the state of Sarawak, from Telok Melano in the west to the Sabah border at Merapok, has already started. That stage is scheduled for completion in early 2022.

The highway is just one of a number of infrastructure projects heading for Malaysia's bond market. Others include the US$13bn East Coast Rail Link, which will be 85% funded by Export-Import Bank of China and the balance through bonds.

Malaysia'sSecurities Commission has projected corporate bond issuance to hit M$100bn this year. While this is down on last year's M$124.9bn, the deep liquidity in the bond market has made it the first choice for major corporate issuers and infrastructure developers. In comparison, equity offerings last year totalled just M$21.7bn.

ROAD BLOCKS

Despite a comprehensive sovereign guarantee, DanaInfra faces challenges in attracting investors amid a glut of government-backed debt.

Some M$11.9bn of Islamic and conventional bonds, either guaranteed by the federal government or issued by government-owned companies, have hit the market over the last six months, including almost M$7bn in the first three months of this year. DanaInfra itself has issued M$7bn in two deals over the past four months to fund the MRT projects.

Bankers say investors are now closely examining the underlying purpose of each funding, with those backing critical national projects viewed more favourably. Although the Pan-Borneo Highway will not be a revenue-generating project, it is highly strategic to the federal government's agenda. As such, government support is seen as a given.

Bankers acknowledge that investors have little room for more government-guaranteed risk, which will put more pressure on DanaInfra to pay up.

"Investors are always asking bankers to bring more non-government-guaranteed paper to the market so they can diversify, but for a premium of another 10bp or more investors will still come into the deal," said one syndicate banker.

"Ultimately, it boils down to pricing and compensating the investors for the relative illiquidity in government-guaranteed bonds versus the Malaysian government bonds."

The funding also comes as Malaysians prepare for a general election that has to be held by August this year. The last general election in 2013 disrupted the flow of primary deals for weeks as it appeared to be a close race between the Barisan Nasional coalition, led by the dominant party UMNO, and the opposition parties.

Bankers expect no such disruption this year. Since winning the 2013 election, albeit with a narrow margin, UMNO leader and Prime Minister Najib Razak has strengthened his control over the party, leaving little doubt that he will win another term.