Talks on 2nd Samurai bond grind to a halt

Present govt has instead opted to raise funds by borrowing locally through domestic bond market to fund virus relief efforts


THE proposed second yen-denominated sovereign bond issuance or Samurai bond has hit a snag after the government announced it would not raise money by selling foreign currency bonds, sources say.

It is understood that talks on the bond offering, which had been agreed to by Japan’s Prime Minister (PM) Shinzo Abe last year, have stalled as the government has no immediate need to seek financing abroad. The issuance of the second Samurai bond was due to be finalised in the first quarter of this year.

Some details of the foreign bond sale had been announced in September last year at the end of former PM Tun Dr Mahathir Mohamad’s working visit to Kyoto, Japan.

Both governments had then agreed on a second tranche of Samurai bonds at an interest rate of 0.5% for 10 years, to be guaranteed by the Japan Bank for International Cooperation (JBIC). The deal had also secured Cabinet approval in principle under the Pakatan Harapan administration.

However, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz last Friday said the present government, led by PM Tan Sri Muhyiddin Yassin, has no plans to tap the international debt market to fund coronavirus relief efforts as there is adequate liquidity domestically.

The government has instead opted to raise funds by borrowing locally through the domestic bond market, Tengku Zafrul said. In 2019, the government raised RM135.2 billion in gross debt made up largely of domestic borrowings at 94.5% and 5.5% foreign borrowings (Samurai bonds).

Over 60% of the funds raised were used to repay debt. The rest were allotted for development expenditure on infrastructure.

Current outstanding foreign currency debt is estimated at RM29.4 billion as at March 2020. Debts in foreign currencies are capped at RM35 billion under the External Loans Act 1963.

An official spokesperson for the Japanese embassy in Malaysia said the country remains ready for further cooperation on the issuance of a second Samurai bond, depending on Putrajaya’s request.

The Malaysian Reserve (TMR) first reported on Malaysia and Japan’s engagements for a second debt sale in August last year, following the success of the ¥200 billion (RM7.34 billion) 10-year Samurai bond issued in March.

Former Japanese Ambassador to Malaysia Dr Makio Miyagawa, in an interview then with TMR, said both Dr Mahathir and former Finance Minister Lim Guan Eng had expressed strong interest in issuing a second bond at a much cheaper rate.

Malaysia marked its return to the Japanese bond market after 30 years with the issuance of the Samurai bond as part of efforts to repay its hefty debt. With a coupon rate of 0.63% per annum, the bond was oversubscribed by more than 1.6 times at ¥324.7 billion.

Mizuho Bank Ltd, HSBC Bank Malaysia Bhd and Daiwa Capital Markets Ltd, in collaboration with Affin Hwang Investment Bank Bhd, acted as joint lead arrangers and bookrunners, with JBIC as the guarantor.

Japan, the world’s third-largest economy, is known for its ultra-low interest rates.