Goldman-Arranged Bond Sale Stings Najib Before Malaysia Election

ARCHIVES 2013

By admin-s On May 2, 2013

(Bloomberg) – “The private placement raised too many red flags, coming so close to the election date”

Malaysian Prime Minister Najib Razak is facing calls before a weekend election to justify a $3 billion bond placement by the sovereign-wealth fund he leads, with opponents saying the deal was unnecessary and mispriced.

Goldman (GS) Sachs Group Inc. arranged the March 19 sale of 10- year debt by 1Malaysia Development Bhd., also known as 1MDB, and the notes were priced to yield 4.4 percent, 141 basis points more than sovereign Islamic dollar bonds due July 2021 were yielding at that time. The 1MDB yield was 3.76 percent today, giving investors who were in at the start a return of 5.7 percent for the six weeks since the debt was issued. U.S. Treasuries gained 1.43 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,” said Wong Chen, a 44-year-old corporate lawyer and a parliamentary candidate from the opposition National Justice Party. “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.”

Najib is chairman of the board of advisors of 1MDB and the March bond sale has given candidates opposing him in the May 5 polls ammunition to criticize the fund, with Wong calling for more transparency. The accusations are part of a smear campaign before the voting, according to a government spokesman, who’s not authorized to be named. Recent opinion polls suggest that the election will be tight with the opposition alliance having gained support in recent months, Bank of America Merrill Lynch said in a report published today.

‘Timely Completion’

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.

The fund will not elaborate further on the sale, said Shahriza Embi, a spokeswoman. 1MDB Chief Executive Officer Mohd Hazem Abd Rahman was not available to comment. Goldman spokesman Edward Naylor declined to discuss details of the March bond sale.

Goldman was selected for the placement after arranging a $1.75 billion bond issue 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.