atans1

M’sian soverign risk: 30 yrs on

In Financial competency, Malaysia on 05/01/2016 at 4:59 pm

In 1986 when I was taught the basics of investing in M’sia, there were M’sian govt US$ floating rate bonds that were really cheap because of a problem in the floatung rates bond mkt that was in addition to Dr M’s antics (e.g. he was alleged to tryto corner the tin market) and a recession which affected M’sia’s soverign rating.

Today The $3 billion debenture is a glaring reminder of the distrust around the fund. The instrument carries a letter of support from the Malaysian government but trades at just 86 cents on the dollar, indicating financial distress. That stands in stark contrast to two Abu Dhabi-backed 1MDB bonds, which have always traded above par.
Early redemption would also draw a line under the fund’s controversial relationship with Goldman Sachs.

1MDB hasn’t decided yet whether to buy back the bonds. Either way, if Kanda succeeds in his ambitious cleanup by completing the deals he has now agreed, 1MDB’s problems will not weigh as heavily directly on the finances of the government as many investors, analysts and politicians had feared.

http://blogs.reuters.com/breakingviews/2015/12/31/malaysia-scrubs-out-half-its-sovereign-fund-stain/

One thing remains the same, no money to buy those bonds then, and now. Would have made killing then and now.

  1. Carries 4.4% coupon so at 86, works out over 7% in yield. Nice yield with an explicit guarantee from a A- rated government. US$ 1million minimum certificate size is massive for a bond issue. The Goldman fees very suspicious cos bond issuance is a commoditised business – banks don’t make much out of it.

  2. Although having said that, the bond was issued in 2012 – that 4.4% coupon rate look suspiciously too low which means Goldman clawed back the yield via upfront fees.This could explain the huge fees. Also mean Goldman would not have been able to distribute the bonds without a steep discount, i.e. Goldman will have to pay away some of the fees to get the bonds off its books.

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