Malaysia said to pick banks for sale of US$2b Islamic bonds

[KUALA LUMPUR] Malaysia has picked three banks to arrange the sale of as much as US$2 billion of sovereign Islamic bonds, according to people familiar with the matter.

HSBC Holdings Plc, CIMB Group Holdings Bhd. and Standard Chartered Bank Plc were chosen, said the people who asked not be identified because the details are confidential, adding that the debt maturity will be around five years or more. Officials from the Prime Minister's and Second Finance Minister's offices didn't respond to phone calls seeking comment Thursday.

Malaysia is tapping global investors for the first time since 2011 before the Federal Reserve starts raising interest rates this year and as lawmkaers express concern about rising debt levels at the state investment fund 1Malaysia Development Bhd. Petroliam Nasional Bhd, the government-owned oil company, sold US$1.25 billion of five-year sukuk Wednesday to yield 2.707 per cent, or 135 basis points more than similar US debt.

The Southeast Asia nation has three sovereign Islamic bonds outstanding and has no conventional foreign-currency notes. A US$1.25 billion issue matures in June, while the others fall due in 2016 and 2021.

The yield on the 2.991 per cent securities due next year has climbed three basis points this week to 1.42 per cent, five basis points off a 14-month high reached on Monday, data compiled by Bloomberg show. The yield on the 4.646 per cent 2021 notes rose four basis points, or 0.04 percentage point, to 3.1 per cent.

Petroliam Nasional sold sukuk as part of a four-part offering totaling US$5 billion that included three tenors of conventional dollar-denominated securities.

Standard & Poor's, Moody's Investors Service and Fitch Ratings all rank Malaysia the fourth-lowest investment grade.

BLOOMBERG