What new initiatives is EXIM Bank currently involved in?
ALI: There are currently two main initiatives we're involved in. Number one is to build business. We have started to benchmark our business growth. We have experienced a turnaround in recent years and weâ€™ve been working on putting the house in order. We have had some bad experiences in the past, which is why the government called my team and me in to turn around this bank. About 2-3 years was spent on rebuilding the Bank, which involved putting the processes, the governance, and the people back in order. That process has just about finished and last year we started to grow the business. So going forward, the two big initiatives are to have sustainable business growth and to put in place the optimal funding structure. The optimal funding structure is to ensure that we can have enough capital and funding to support the growth that we are looking at.
What has been the reaction of potential buyers to the recent $500m bond announcement? What are you specifically targeting funds from the bond sale for?
ALI: On the 7th of June we floated the bond. It was part of a $1.5 billion MTN Program on Regulation S. The bond was a $500m piece at 5.5 years. The book order was 6 times and we closed the deal at treasury plus 218; all in all it translated into a 2.89% coupon. That was the first initiative that I was talking about when I mentioned that we were looking for stable funding that matches the maturity tenor of our loan assets. Insofar as the support of EXIM to Malaysian exporters is concerned, we are exposed mostly on project loans related to construction because Malaysians are known to export construction capabilities overseas. By construction capabilities Iâ€™m referring to the concessions of highways, power, water, etc. Usually, these are loans that stretch up to 7 years and beyond. Therefore, on average our loan book is 7 years. The first piece of our loan assets funding came from our internal equity, which now stands at $900m; another portion of the funding came from bilateral loans, which we secured from international banks. These bilateral loans are short; on average theyâ€™re one year. So, we were sitting on a six-year gap.Â Going forward we are thinking about raising funding. In order to achieve this we must keep 2 objectives in mind, one is to have it done at the most optimal pricing because pricing matters. If we can raise the funding at optimal pricing then we will be able to pass that on to Malaysian exporters that we support and ensure that they become competitive when they price and bid for projects overseas. The second objective relates more to the tenor. After assessing the situation we decided to go the bond way. Iâ€™m glad to say that it worked based on the book order and the yield of the coupon that we managed to close. Though this process is finished for us at the moment, itâ€™s not going to be the one and only time that we're going to access the bond market.
The MTN Program is valued at $1.5bn while the recent bond sale was worth $500m. What is the timeline for raising the remaining funds?
ALI: We will only tap the market for funding if there is a need. These bonds are meant to fund the lending that we are targeting. We've been growing our business ever since we went back to the market. We were not known to be growing our business because from 2008 until late 2010 we were quite busy fixing house. However, since early 2011 we have grown 23% per year and we are still going strong through the first half of this year. We are still registering twenty plus percent growth. Whatever we have raised is to be used solely to fund the lending that we are targeting.
We are glad that we have managed to be on the radar.Â I think the first issuance of the bond was a testament to the fact that investors at large are quite receptive to EXIM Bank. We are a Bank with a specific role mandated by the government and therefore we are very much relevant to the economic agenda of Malaysia. The management of the Bank would like the Bank to play a more significant role in the development of Malaysia. Because we are a trading nation, export is the way to enhance development in the long-term. Additionally, we are fortunate that Malaysian exporters are not short of options. The financial system in Malaysia is quite advanced and deregulated but there will always be a need for someone like EXIM Bank. EXIM Bank covers a niche in the economy comprised of those companies not covered by the commercial banks. We are indeed relevant and we will become more significant as time goes on.
In terms of loan amounts and loan volume, what was the 2011 figure and what do you expect for this year?
ALI: In 2011, we approved $1.3 billion of loans. Our target in 2011 for disbursal was $317 million, which we achieved. In 2012, the loan approval we're targeting is $2 billion and we are targeting $570m disbursement. So far it's been good and after the first 6 months we are more than half way there.
What are your growth and expansion plans?
ALI: We don't work in the domestic market. We are owned by the government and the mandate that's entrusted to us is to support Malaysian businesses outside of Malaysia. In this regard, our target has been to grow our books. Furthermore, it is important for us to stay relevant to the economy and to be significant in terms of our asset size. We measure our relevance in terms of how much we lend to Malaysians as a proportion of the GDP of Malaysia. Weâ€™ve been monitoring this figure, and at the moment our asset size is just under 1% of GDP. We benchmark ourselves against the Korean and Chinese EXIM Banks. We know that for us to be significant, we need to get to the 3% mark. We still have a long way to go; I think slowly but surely we're going to get there. In order to get there our growth target must be at least 25% year on year.
In which regions do you see the biggest growth potential for EXIM Bank?
ALI: Naturally, the focus of Malaysian exporters is more toward Asia. In fact, as of today, 60% of our books are concentrated in Asia. Half of that is in Southeast Asia. We are quite driven by construction. In this regard we are not the same as other commercial banks because the regions we go to are more by default rather than by design. By that I mean, we will support Malaysians that go outside of Malaysia, but insofar as the countries they go to and in which industry, this is more driven by them. They will compete at the place and in the industry they know they can compete best. At the moment, we know that Malaysian construction and contractors are very much in demand in this part of the world, especially in the less developed countries. Many of the less developed countries in the region look up to Malaysia as a model with regard to how we invested in our infrastructure (roads, ports, airports, power, etc.). We are proof that once these key elements of a countryâ€™s infrastructure are built, economic activity soon follows. Additionally, because we were able to do it as well as we have, Malaysian contractors and construction workers are in high demand throughout Asia. Of course, we support these contractors, which is why we are more concentrated on Asia, and more specifically, Southeast Asia. Some of our focus is also on the Middle East. We used to have 20% exposure in the Middle East prior to the Arab Spring. Of late, we have seen some more stability in the region, however we are not where we used to be. For this reason, we are looking to grow our books there. When we talk about growing our books it is important for us to ensure that things are stable and sustainable. Today, we are very much driven by risk management. In the past, we would go into projects alone. However, this has changed and we now try to partner with commercial banks and other export credit agencies, which includes other EXIM banks, before we take on large projects. We have entered into several deals in the Middle East with some Japanese banks, other ECAs and other EXIM banks, including EFIC Australia.
We measure our relevance in terms of how much we lend to Malaysians as a proportion of the GDP of Malaysia. Weâ€™ve been monitoring this figure, and at the moment our asset size is just under 1% of GDP. We benchmark ourselves against the Korean and Chinese EXIM Banks. We know that for us to be significant, we need to get to the 3% mark. We still have a long way to go; I think slowly but surely we're going to get there. In order to get there our growth target must be at least 25% year on year.
What are the key challenges facing Malaysian exporters?
ALI: When you talk about exporters, there are two categories: those that are based in Malaysia and produce their products here but export their products outside our border and those that physically leave the country to setup base in another country. For those that export their goods overseas, the biggest challenge is the default rates of the buyers. Malaysian exporters are known to be dealing with first world countries to which they sell things like commodity products: palm oil, rubber, tea etc. We used to export these commodities mostly to first world countries, China and India. However, lately weâ€™ve seen that things arenâ€™t going very well in the first world and developed countries. There have been issues with both the US and European buyers including default of payment. Default of buyers from these regions has become the biggest problem for Malaysian exporters. With regard to the second category, those Malaysian companies that have gone outside the borders of Malaysia to setup base in other countries, the biggest problems they face are market risks as well as political risks. Many of these companies are taking over concession jobs and engaging in property development outside Malaysia. We have had experiences where we supported companies with development projects in the Middle East and things did not turn out well for them. This was the case for several companies working in Libya and it remains to be a problem in places that are not politically stable.
There's been an increase in protectionist sentiment around the world. Have Malaysian exporters felt any impact from this? Will that sentiment continue to grow or is it something that will pass?
ALI: Thatâ€™s something we have to deal with. From time to time any country will act to protect their self-interests. However, in view of the world becoming more global, as much as one wants to protect their turf, there will be concessions that will have to be made along the way. This simply means that there are more challenges when working together. I think it's unwise for anyone to invest in a country alone. It is important for there to be local interest as well. For example, Malaysians going into a country should find a local partner and those coming into Malaysia should do the same. For financers and bankers the same is true. If we support a Malaysian company going into another country, we should be working together with local banks, should they show interest.
How do Malaysian exporters compare to their counterparts in the region?
ALI: It all depends on the place they end up. In some countries Malaysians will have an advantage. The competitive advantage is getting them through the door. If there were no real competitive advantage, then the doors would be closed to Malaysians. However, this is not the case.