Soon after leading Pakatan Harapan to victory in the 14th General Election in May, Tun Dr Mahathir Mohamad, in his first official overseas visit as prime minister, visited Tokyo.
As the architect of Malaysia’s “Look East” policy in the 1980s, it seemed apt at the time that his return to power would see him travelling to a country that is not only close to his heart, but has also contributed immensely to Malaysia’s economic development over the last 30 years.
Granted, the trip was planned well ahead of the national polls, but Dr Mahathir has since visited Japan two more times. His comeback as Malaysia’s leader was also good news for Tokyo diplomacy, which had been looking for support, particularly among neighbours in Southeast Asia, against China’s rising influence in the region.
There was another pressing agenda for Dr Mahathir that June, and in subsequent visits to Tokyo. The PH government had inherited massive debts, to the tune of RM1 trillion, from the previous Barisan Nasional government.
Foremost among them were the 1Malaysia Development Bhd (1MDB) bonds with interest of six per cent. Trimming down that burden on the national coffers was a top priority.
A meeting with Japanese premier Shinzo Abe presented an opportunity to seek Japan’s assistance in the form of soft loans. Abe responded positively, but no definitive agreement was signed.
Back home, some critics jumped on this as a sign of rejection from Japan, but their knee-jerk reaction proved premature.
By November, Finance Minister Lim Guan Eng announced when tabling the 2019 Budget that the Japanese government had offered to guarantee 200 billion yen or RM7.4 billion of Samurai bond issuance with a 10-year tenure, which is expected to be issued before March this year.
. The bonds will allow the Malaysian government to pay all-inclusive indicative coupon rates of less than 0.65 per cent per annum, instead of six per cent for the 1MDB bonds.
Yesterday, another milestone was reached with the appointment of banks to arrange the bond issue. Mizuho Bank (Malaysia) Bhd, HSBC Bank Malaysia Bhd as well as Daiwa Capital Markets Ltd, in partnership with Affin Hwang Investment Bank, were selected from six proposals shortlisted.
In total, the Finance Ministry received 27 proposals for the bond-raising exercise, a strong endorsement among financial institutions for the credit-worthiness of the proposed arrangement.
Lim said the samurai bonds demonstrated the Japanese government’s confidence in the leadership of Dr Mahathir and was a mark of the intimate relationship between the two countries. This is certainly the case. The samurai bond issuance also has significant geopolitical implications. It signals our reduced financial dependence on China loans taken by the previous government.
The Asian superpower has faced criticism for its “debt-trap” diplomacy, offering loans with often secretive terms, to finance large infrastructure projects that would ultimately benefit Chinese investments and companies.
With Malaysia’s precedence, other countries could also consider more favourable financing arrangements and terms when dealing with China.
At the same time, other international bond markets could offer themselves as viable financing alternatives.
Japan has already offered Malaysia more tranches of the Samurai bond, which we should seriously consider if this maiden issuance proves successful.