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Friday, June 18, 1999
Hewlett-Packard Malaysia to issue RM160m bonds
KUALA LUMPUR--Hewlett-Packard Sales (Malaysia) has announced a RM160 million (US$42.1 million) bond issue to support a growing leasing business and aid its commitments to Multimedia Super Corridor-related initiatives.
This marks the first time a US multinational company is raising funds through local bonds in Malaysia and the first time Hewlett-Packard bonds are issued outside the United States.
The five-year fixed rate bonds will carry a semi-annual coupon rate of 7.9 percent per annum and are expected to be taken up largely by local institutional investors.
The bonds are guaranteed by Hewlett-Packard Company and have been given an AA1(s) rating by local rating company Rating Agency Malaysia.
The underwriters for the issue are Citibank (M) Berhad and RHB Sakura Merchant Bankers Bhd.
HPSM managing director Badlisham Ghazali said a "major portion" of the proceeds from the issue would be used to finance HPSM's leasing business.
Leasing currently accounts for less than a third of its revenue but is "growing fast", he said.
"Malaysian companies are beginning to realise the advantages of leasing, especially after the economic crisis caused severe cash flow problems for many of them," he said.
HPSM's bond issue is seen by the industry as a response to calls from the Malaysian government for foreign companies based here to help grow the local debt market.
The Finance Ministry reportedly estimates that bonds currently account for only one-third of outstanding loans worth a total RM400 billion (US$105 billion) in the financial system.
However, the company refuted suggestions that the issue was solely driven by desire to support government initiatives.
"We're not a bank, we need external funding for our operations,'' said Badlisham, who added that "the timing was purely coincidental."
HPSM's revenues are estimated to be in excess of RM500 million a year, about half of which are derived from the public sector.
In March, HPSM announced an injection of RM57 million into the company's operations.
Badlisham said proceeds from the bond issue will also help fund HPSM's participation in the Multimedia Super Corridor (MSC), Malaysia's hi-tech zone.
HPSM was part of a consortium recently that won a contract for electronic government --an MSC flagship application.
The contract is to develop and implement an automated desktop office system for the Prime Minister's Department. If successful, the experimental system is likely to be extended nationwide.
Badlisham said the system is scheduled for completion in 11 months, although the Prime Minister and 850 staff are all set to move into their new office in Putrajaya next week.
Besides electronic government, HPSM is known to be participating in bids for other MSC contracts. The MSC's three other main applications are telemedicine, smartschools and a national smartcard.
One analyst says the bond issue is a smart move and timely given the low interest rates, and signs of recovery in the economy. "Investors may turn to something more stable and less risky than equities and bonds are a viable alternative," she said.
"The income return from the bond coupon is also predictable. Most bonds in Malaysia are actually fixed-rate bonds. Bonds also give returns that are higher than a bank fixed-deposit account," she explained.
Hewlett Packard has a manufacturing plant in Penang which operates under a separate division and may not benefit from the proceeds. The company previously announced plans to invest a total of RM1.7 billion in the plant.
The funds could possibly be sourced internally from the company's large cash reserves. Hewlett-Packard Company has approximately US$5 billion in cash reserves, according to its latest financial figures.
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