Malaysia May Sell $1 Billion in Debt by Sept. 30 (Update3)

Malaysia plans to raise about $1 billion from its first sale of conventional dollar bonds in eight years, after drawing bids for five times the Islamic debt it offered last week, a finance ministry official said.

The government may hire the same banks, including CIMB Group Holdings Bhd. and HSBC Holdings Plc, to arrange the sale by Sept. 30, said the official, who declined to be named as the discussions are private. Malaysia raised $1.25 billion from its first Shariah-compliant dollar bond in eight years last week.

Malaysia is tapping the international market as the government increases development spending to boost an economy that emerged from its first recession in a decade in the fourth quarter. The sale of Islamic debt attracted $5.5 billion of orders, compared with the offer of $1 billion, reflecting appetite for emerging-market assets amid a debt crisis in Europe.

“If they issue a similar amount before September, it should be very well subscribed,” said Chia Tse Chern, director of fixed income at UOB Asset Management Ltd., a unit of Singapore’s second-largest bank. “Malaysia very rarely taps the market. There are only two high-grade sovereign issuers in Asia, Korea and Malaysia, so there is a scarcity value.”

Malaysia is rated A- by Standard & Poor’s and A3 by Moody’s Investors Service. CIMB Group and HSBC officials weren’t available to comment. UOB Asset Management, which manages about $15 billion in assets, bought Malaysia’s sukuk notes last week, said Chia.

Bond Yields

The yield on Malaysia’s 3.928 percent Islamic notes due June 2015 increased five basis points to 3.827 percent as of 1:56 p.m. in Kuala Lumpur, after falling 6.5 basis points yesterday, according to HSBC prices. The spread over similar- maturity U.S. Treasuries has narrowed to 175 basis points from 180 basis points when the bonds were sold on May 27.

The premium investors demand to hold bonds in developing nations over U.S. Treasuries narrowed 22 basis points last week to 325 basis points, according to JPMorgan Chase & Co.’s EMBI+ Index. A basis point is 0.01 percentage point.

Prime Minister Najib Razak, due to unveil a new five-year development plan this month, said he is confident the $195 billion economy will grow 6 percent in 2010. Malaysia had a budget deficit equivalent to 7 percent of gross domestic product last year, compared with 13.6 percent for Greece, 11.2 percent for Spain and 9.4 percent for Portugal.