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Malaysia may use gold to secure loan for 1 bln stg arms deal with BAE - report
05.09.2005, 12:04 AM

KUALA LUMPUR (AFX) - The government is considering an arms deal that calls for it to commit part of the country's gold reserves to help finance the purchase of warships and other defense equipment valued at roughly 1 bln stg from BAE Systems PLC, Wall Street Journal reported, citing people familiar with the matter.

Under the BAE-initiated proposal, the British defense contractor would arrange financing for the arms purchases with a loan secured by gold certificates issued by the Malaysian government, the newspaper cited the sources as saying.

Other aspects of the plan, such as the tenure of the proposed loan and the specific details of the equipment Malaysia intends to purchase, have not been finalized, it said.

But sources told the paper that the annual interest rate on a gold-secured borrowing could be as low as 0.5 pct.

A senior aide to Deputy Prime Minister Najib Abdul Razak, who also serves as defense minister, described the BAE plan as 'an unsolicited proposal that is being looked at' by the government, the report said.

'No decision has been taken and whatever purchase of defense equipment (Malaysia enters into) will take into consideration our financial position,' the aide was quoted as saying.

A spokesman for BAE Systems in London acknowledged that the company is in discussions with the Malaysian government over its defense requirements, but declined to elaborate or to discuss the arms-financing proposal, the Journal said.