KUALA LUMPUR: Japan has offered a lower rate of less than 0.5 per cent for Malaysia’s potential second tranche of its Samurai bonds.
Finance Minister Lim Guan Eng said this was lower than the 0.6 per cent charged on Malaysia’s maiden Samurai bonds issued six months ago.
The government plans to issue the second tranche of the bonds early next year with the help of Japan Bank for International Cooperation (JBIC).
Lim said the size would be fixed after further discussions with JBIC.
“The government is pleased with the trust which has been built by Prime Minister Tun Dr Mahathir Mohamad with the Japanese government via JBIC, which has once again offered to guarantee an additional tranche of Samurai bond with an even lower interest rate of less than 0.5 per cent, compared to the previous rate of 0.63 per cent,” he said when tabling the 2020 Budget here today.
Malaysia had on March 15 this year issued 200 billion yen of 10-year Samurai bond at an annual coupon rate of 0.63 per cent, which was oversubscribed by more than 1.6 times at ¥324.7 billion.
The issuance was guaranteed by JBIC under its Guarantee and Acquisition toward Tokyo Market Enhancement (GATE) programme, sold only to Japanese qualified institutional investors.
The Ministry of Finance said the issuance marked the largest 10-year single tranche Samurai bonds either in public format or in JBIC-guaranteed format.
“The transaction re-establishes Malaysia’s strong standing with the Japanese investor base, while securing long-term financing from the Japanese market,” it added.
MIDF Research head of research Mohd Redza Abdul Rahman said the lower coupon rate will be lighter on the government’s debt service expenses, considering the Malaysia Government Securities (MGS) is currently issued at coupon rate above 3.0 per cent.
“Whilst this comes with foreign exchange risk from movement of Yen-MYR currency rate , should this risk can be mitigated , the cheaper financing rate from samurai bond would provide a great financing avenue for the government,” he told the New Straits Times today.
The Asian Strategy and Leadership Institute Centre of Public Policy Studies chairman Tan Sri Ramon Navaratnam said the lower rate will have a favorable impact on overall country’s debt.
“Although it (debt) may not rise too much, we need to find out whether the low interest rate is subjected to conditions for the input of the Japanese goods and services that may not be subjected to open competition,” he told the New Straits Times today.
Navaratnam said the bond should not be tight-aide relating to the input of the Japanese goods and services.
“We need to examine the condition of the Samurai Bonds. If the condition is used to buy Japanese goods and services with higher price, then we will pay lower interest,” he said.
AmBank Group chief economist Anthony Dass said the fiscal deficit/GDP at -3.2 per cent requires RM51.7 billion in financing.
“With the incoming maturities at RM73.4bil, the estimate the gross issuance of government bonds will be around RM125 billion.
“Our estimation does not take into consideration of the switch auction that can trim maturities in 2020 and any potential new issuance of Samurai Bonds,” he said.
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said the lower rate will ease the government’s burden in servicing debt charges.
“The bond’s proceeds will use to fund the budget expenditure. More importantly, the money will be used to fund development project that not only help to increase the country’s capacity but also generate income,” he said.