Petronas: The deal that divided the market

Lawrence White

September 17, 2009

For most of 2009, Malaysian dealmakers had little to talk about. But when a landmark bond issue for Petronas, the country’s biggest corporate name, came to market in August, it more than made up for lost time. Lawrence White reports from Kuala Lumpur.

IT WAS THE deal that got the whole market talking again. Petronas, the Malaysian state oil company that accounts for more than 35% of the country’s GDP, issued a $4.5 billion combined Islamic and conventional bond deal in August that attracted staggering interest, widened after pricing, and left market participants sharply divided over the way it had been handled. The deal, which priced on August 5, consisted of a $3 billion 10-year tranche paying 162.5 basis points over the corresponding US treasury notes, and a $1.5 billion sukuk tranche offering the same spread over five-year treasuries. The bookrunners were CIMB, Citi and Morgan Stanley.

Badlisyah Abdul Ghani, chief executive of CIMB Islamic Bank, takes up the story. "Petronas was a repeat client for CIMB group, but this was their first sukuk deal in the global market and a benchmark transaction for them," he says. "They went out without a specified total, knowing that investors were very confident with the Petronas name and generated over $19 billion-worth of orders – including over $6 billion for the sukuk component."