The Sarawak government is going offshore through the Labuan International Financial Exchange (LFX) to raise US$600 million (RM2.25 billion) for meeting the requirements of financing of government agencies and projects in the state.

This is by way of what has been decribed as a primary listing of US$600 million guaranteed notes issued by Sarawak International Incorporated, a wholly-owned subsidiary of the SGOS Capital Holdings Sdn Bhd, wholly-owned by the State Financial Secretary, Sarawak.

It is a 10-year guaranteed notes due 2015 bearing an interest rate of 5.5 per cent per annum which is said to be lower than Malaysian banks' base lending rate. Interestingly, the notes have been rated B-aa1 by Moody's Investors Services Limited and A- by Standard and Poor's Rating Services.

Disclosing this in a media statement today, LFX board chairperson Yusli Mohamed Yusuf, who is also Bursa Malaysia (KLSE) CEO, said the US$600m notes, bringing LFX's total market capitalisation to date to RM12.09 billion (RM45.3 billion), is the second issuance by the Sarawak government after the US$350 million (RM1.3125 billion) Sukuk Trust Certificates issued by Sarawak Sukuk Inc early this year.

In other words, within a period of about eight months the Sarawak government has gone offshore to raise a total of US$950 million or the equivalent of RM3.562 billion for its requirements. However, it has yet to publicly give any details on how the money will be utilised or how the released portion of the money was dispersed and where the balance will go.

On the US$600 million notes, Yusli said the net proceeds of the issue of the notes will be on-lent by the special purpose company Sarawak International Incorporated (SII) to SGOS 'principally for the financing of other government agencies and projects of the state of Sarawak.'

SGOS' main activity is that of holding strategic assets of the Sarawak government. A letter of support has been issued by the Sarawak government to support the obligations of SGOS.

Replacement loans

Malaysiakini learnt from sources that the offshore loans are partly to replace the more expensive loans taken earlier by the state-owned capital-intensive high-tech manufacturing project 1st Silicon (Malaysia) Sdn Bhd, to take up additional equity in Bintulu Port Sdn Bhd, for roads and bridges and for the construction of a new RM300 million state assembly building and a new mega convention centre costing about RM400 million in Kuching.

Recently, when disclosing that the state government would be raising US dollar bonds for development projects, Sarawak Chief Minister Abdul Taib Mahmud promised he would give details of the projects once the money has been successfully raised.

A state government team is going on a road show to Singapore, Hong Kong and London to raise the bonds.

Deutsche Bank AG is the sole lead manager and sole bookrunner for the issue of the notes,which the LFX board chairperson said was oversubscribed by three times, while UBS Limited and RHB (L) Limited are the co-managers.

Opposition parties, especially DAP, have said the borrowings are going to see every Sarawakian, including every child, shouldering a new debt burden for many years.

DAP Bandar Kuching MP Chong Chieng Jen recently called for 1st Silicon's loss-making wafer fab to be closed to stop what he suggested is the financial haemorrhaging taking place as well as put an end to the 'extravagant spending' on the new legislative assembly complex.

State government leaders as well as top executives of 1st Silicon have insisted the wafer project started in1998 could still make money, saying under a new business plan, a steady growth in income from sales indicates that possibly by 2007 it could cover operating cost and that profits could actually come sooner than expected after that.

On the new state assembly building, legislators from the ruling coalition have rejected the notion that the new assembly building will be a 'white elephant'.

"It will stand as a symbol of parliamentary democracy and serve many useful purposes," they said.

TONY THIEN is malaysiakini's Sarawak-based stringer.