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Malaysia Sells Inaugural 30-Year Bonds to Yield 4.935 Percent

Malaysia sold its first 30-year bonds, its longest maturity, as the Southeast Asian nation seeks to set a new benchmark for the local debt market.

The 2.5 billion ringgit ($776 million) of notes maturing September 2043 were priced to yield 4.935 percent, and attracted 6.1 billion ringgit of orders, central bank data released today show. The bid-to-cover ratio of 2.44 times compares with 1.62 for the debut 20-year Islamic debt sold by Bank Negara Malaysia last month on behalf of the treasury.

The Southeast Asian nation is extending its yield curve as it seeks to set a pricing gauge for companies raising funds under Prime Minister Najib Razak’s $444 billion development program to build roads, railways and power plants. Malaysia follows neighboring Thailand and Indonesia in issuing debt maturing in at least 30 years.

“The demand is remarkable and surpasses expectations when compared to last month’s 20-year Islamic” bonds, said Michael Chang, head of fixed income at MCIS Zurich Insurance Bhd. in Kuala Lumpur. “The orders show there’s still strong demand from onshore investors such as insurers and pension funds.”

Similar-maturity U.S. Treasuries pay 3.71 percent and 30-year Thai debt 4.6 percent, data compiled by Bloomberg show. Thailand sold 50-year bonds, Southeast Asia’s longest-maturity sovereign notes, in December 2010.

The maximum duration for government debt is 25 years in the Philippines and 15 in Vietnam, data compiled by Bloomberg show. Singapore’s 30-year bonds yielded 3.16 percent yesterday.

Spending Plan

In Malaysia, highway operator PLUS Bhd. and sovereign wealth fund 1Malaysia Development Bhd. are the only issuers of securities due in more than 25 years as Najib embarks on a 10-year spending plan to help achieve the status of a developed nation by 2020.

Malaysia had $314 billion of debt outstanding as of June 30, compared with $286 billion in Thailand, $118 billion in Indonesia and $95 billion in the Philippines, according an Asian Development Bank report released this week. Malaysia and Singapore spent 2.3 percent of their gross domestic product on infrastructure in 2011, compared with 1.5 percent in Thailand and 1.6 percent in the Philippines, the report said.

The Najib government’s development spending contributed to one of the highest levels of debt in Southeast Asia at 53.3 percent of GDP, compared with 23 percent in Indonesia, 51.5 percent in the Philippines and 44.5 percent in Thailand, according to data compiled by Bloomberg.

Default Risk

The cost of insuring Malaysia’s sovereign bonds against non-payment for five years using credit-default swaps dropped 28 basis points, or 0.28 percentage point, to 122 this month, according to data provider CMA default prices show.

Malaysia’s budget deficit is forecast to narrow to 4 percent of GDP in 2013 from 4.5 percent last year, according to the central bank’s annual report released in March.

The ringgit rebounded in September following four straight months of losses. The currency appreciated 1.8 percent this month to 3.2260 per dollar as of 2:46 p.m. in Kuala Lumpur today. That has help pare its 2013 loss to 5.2 percent loss.

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