Goldman’s Malaysian Bond Fees Would Face Scrutiny in Poll UpsetElffie Chew
Malaysia’s opposition coalition led by Anwar Ibrahim may ask Goldman Sachs Group Inc. to renegotiate terms on a $3 billion bond placement should it win the election this weekend.
The U.S. bank arranged the March 19 debt sale by 1Malaysia Development Bhd., a sovereign-wealth fund known as 1MDB headed by Prime Minister Najib Razak, whose political opponents have questioned the timing, cost and pricing of the issue. New York-based Goldman’s fees exceeded $200 million for arranging the placement and three other dollar bond sales totaling $6.35 billion by Malaysian issuers in the past two years, according to a person familiar with the matter.
“We are really focused on corporate governance and should we win, we will review all public deals,” Rafizi Ramli, strategic director at Anwar’s People’s Justice Party, said in an interview in Kuala Lumpur today. “The 1MDB transaction has been shrouded in secrecy. We would go back to the renegotiation table and see what would have been a fairer deal should there be any questionable part of the deal mix.”
The ruling National Front coalition is facing its fiercest challenge to date, after retaining power five years ago by the narrowest margin since Malaysia won independence from the U.K. in 1957. This is going to be the closest election Malaysia has had and there’s a possibility the opposition will win, Kishore Mahbubani, dean of the Lee Kuan Yew School of Public Policy at the National University of Singapore, told Bloomberg TV today.
The accusations over the 1MDB bond deal are part of a smear campaign before the May 5 vote, a government spokesman, who’s not authorized to be named, said yesterday. Rafizi said his alliance “has nothing against Goldman Sachs” and if elected would ensure there is proper governance in all its dealings.
Edward Naylor, a Goldman spokesman in Hong Kong, said yesterday the bank competes aggressively against a strong field of banks for business in Malaysia and applies the “same consistently high global standards of due diligence and business selection in connection with all securities offerings.” Naylor declined to discuss fees involved in the 1MDB bond placement and said today he had no further comments to make on the matter.
The debt placed in 1MDB’s March sale was priced to yield 4.4 percent, 141 basis points more than Malaysia’s sovereign Islamic dollar bonds due July 2021 were offering at that time. The yield has since fallen to 3.76 percent, giving investors who were in at the start a return of 5.7 percent for the six weeks they have held the securities. U.S. Treasuries gained 1.5 percent on average during the period, according to a Bank of America Merrill Lynch index.
“The private placement raised too many red flags, coming so close to the election date,” Wong Chen, a 44-year-old corporate lawyer and opposition parliamentary candidate, said yesterday in a Bloomberg interview. “They were rushing this out and they don’t know how to spend it. We don’t know who received this private placement and who they may sell it on to.”
1MDB considered all of its options in raising debt before the March sale and chose the Goldman-led structure to “ensure the timely completion of this economic initiative,” it said in an April 23 statement. The $3 billion will be used for investments in “strategic and important high-impact projects like energy and real estate,” which are part of a collaboration agreement between Malaysia and Abu Dhabi, it said.
1MDB Chief Executive Officer Mohd Hazem Abd Rahman was not available to comment by phone today and has yet to reply to an e-mail seeking clarification on the rationale for the March bond sale. The fund won’t be commenting, Shahriza Embi, a spokeswoman, said in an e-mail today.
Goldman was selected for the placement after arranging a $1.75 billion bond placement for 1MDB in May 2012, as well as having raised $1.6 billion in two offerings on behalf of the Sarawak state government in the past two years.
The May 2012 issue of 10-year debt was sold to yield 5.99 percent, 4.25 percentage points more than similar-maturity U.S. Treasuries offered at the time. Less than two months later, the Malaysian government paid a yield premium of 1.65 percentage points when it auctioned $800 million of Islamic notes.
The latest offering of 1MDB bonds was unrated at the time of the placement and graded A- by Standard & Poor’s on April 12, putting it on a par with Malaysia’s sovereign debt.