BIX ARTICLE
Malaysia To Issue Samurai Bond
Nov 12, 2018
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The Japanese Government has agreed to guarantee the JPY200 billion (RM7.4bill) 10-year Samurai bond issuance of Malaysia government at 0.65% coupon which was announced during Malaysia’s 2019 budget This article will look into what is Samurai bond and what is the advantage/disadvantage in issuing Samurai Bond.
This offer may look attractive with its 0.65% coupon which is much lower than Malaysia Government Securities (MGS) 10-year maturing 6/2028 coupon 3.73%.
However, Malaysia need to repay back the principal at the end of maturity in Japanese Yen and there is no guarantee that the level of the yen will remain the same 10 years later. Even if the government hedge the future currency exchange, the premium government paid may resulted in the effective interest to exceed current MGS coupon level. Nonetheless, there are other attractive feature of issuing Samurai Bond besides its attractive low coupon.
What is a ‘Samurai bond’?
Samurai bonds give issuers the ability to access investment capital available in Japan. The proceeds from the issuance of Samurai bonds can be used by non-Japanese companies to break into the Japanese market, or it can be converted into the issuing company's local currency to be used on existing operations.
Why Malaysia issuing Samurai Bond?
This news is significant as some of the Malaysia’s foreign denominated government guarantee (GG) bond are issued at 5.99% coupon which is much higher compared to local currency GG bond such as 10-year Prasarana GG bond below last traded at 4.39%.
Source: BIX Malaysia
Looking at liquidity and demand for Malaysia Samurai Bond, the Japanese government has agreed to guarantee the issuance through its Japan Bank for International Corporation. Therefore, Japan’s local investor bear not much risk from holding government guarantee samurai bond other than its own sovereign risk. Its is expected the issuance of Malaysia Samurai Bond will be accepted with open arms by the local Japanese investors and other foreign investors in the Japanese bond market.
The benefit of issuing Samurai Bond for Malaysia is the access to the bigger investor base and relatively low interest rate. However, Malaysia as an issuer must be careful of the currency risk. Malaysia as an issuer need to repay back the principal at the end of maturity in Japanese yen and there is no guarantee that the level of Yen will remain the same 10 years later. This mean Malaysia may need to pay more than expected if the Japanese yen strengthen 10 years later when the bond reach maturity.
Advantages and Disadvantages of Samurai Bond
Advantages | Disadvantages |
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Is this Malaysia’s first time issuing Samurai Bond?
Other foreign bonds include Kangaroo bonds, Maple bonds, Matador bonds, Yankee bonds, and Bulldog bonds.
For more information on Malaysia’s government guarantee bond and sukuk, this can be found using BIX SEARCH tools in BIX Malaysia website (www.bixmalaysia.com) using 2 easy steps below:
- Click the BIX SEARCH function on the front page
- Filter the rating function to Government Guaranteed
Disclaimer
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