MALAYSIA appears to have paid a ''Mahathir'' premium for its recent US$1 billion global bond.
Initially, Dr Mahathir Mohamad, the Malaysian prime minister, saw the launch of the global bond as a sign of foreign investors' confidence in the way he had handled the economic stabilisation. Moreover, Malaysia would defy the influence of the rating agencies, particularly Moody's Investor Services, by tapping the foreign money without a credit upgrade.
Instead of allowing the book-building process to determine the size of its sovereign bond, Malaysia started out by telling the markets that it intended to raise US$2 billion. Only three days after this announcement, it increased the size to US$3 billion. The result was disastrous.
Institutional investors in Asia and Europe responded well to the Malaysian issue, but there was a lacklustre interest from the US institutional investors. This was predictable, given the periodic fist-fights between Mahathir and the Americans, notably during the Asia crisis.
Malaysia ended up having to reduce the size of its bond to only US$1 billion. It also paid 80 basis points higher than it should have to at 330 basis points above US treasuries.
The Malaysian experience has spoiled the sovereign bond markets. Still, if Thailand is to issue a global bond, the ''Chuan'' premium, you can bet, should certainly be less than the Mahathir premium.

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