A year is a long time in the capital markets and who better to demonstrate it than those consummate Financial politicians in Malaysia.
In December 1998 the government borrowed $1.25 billion and ¥11.6 billion from the 12 foreign banks in Malaysia. It cost 290 basis points over Libor.
A year later that quasi-bilateral arrangement was formalized into a syndicated loan from 26 banks and repriced at 120bp over Libor for the dollar portion and 107.5bp over Tibor for the yen tranche. Another nine months later and the loan, which matures in 2004, has been repriced again, at 52bp over Libor for both currencies, with the number of participating banks rising to 29.
So did the Malaysian treasury make a straightforward commercial renegotiation to take advantage of improved rates or were the goalposts moved and the banks held to ransom?
"When Malaysia's credit quality improved they saw a need to look at how they could refinance with something cheaper and remove some of the covenants which were no longer commercial requirements," says Jerry Yeo, head of capital markets at lead-arranger HSBC Malaysia. His reasoning would seem to point to the First view-point and by and large the loan participants seem to have taken the repricing in their stride.