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Story by The Wall Street Journal

Investors snapped up $5 billion of bonds from Malaysia’s state-owned oil giant to record Asia’s biggest debt offering so far this year, reflecting the continued hunt for high yields in emerging markets even as their economies turn down.

The bond sale by Petroliam Nasional Bhd., or Petronas, was the company’s first in six years and joins a rush by global oil companies raising cheap cash to help bolster balance sheets that have been rocked by a slide in energy prices.

The deal is notable too given Malaysia’s economy has come under severe strain in recent months driven by the global commodity selloff, with the currency being among the biggest losers in Asia and investors shedding holdings in the country. Adding to the pressure, state-owned investment firm 1Malaysia Development Bhd., laden with debt and struggling to repay its dues, has also cast a shadow over governance and debt management in the country.

But investors say that because Petronas is backed by the government, it makes it safer than other corporate-debt offerings. The company remains highly rated, has a stash of cash and overall leverage remains relatively low so far. The bonds priced above where its previous offering in 2009 is currently trading, with the seven-year, 10-year and 30-year tranches pricing at 3.125%, 3.5% and 4.5%, respectively.

Still, the company continues to face challenges with rating companyMoody’s Investors Service expecting earnings before interest to fall by 30% in 2015 if the price of Brent crude averages $55 a barrel. Moreover, almost 80% of the company’s earnings come from upstream operations including exploration and production of oil, a business adversely affected by falling oil prices. It also expects the company to raise more debt, with borrowing increasing by 35 billion ringgit ($9.47 billion) to 40 billion ringgit every year for the next two years.

Petronas pays a significant dividend to the Malaysian government, and a shortfall in its earnings could hit government revenues. Analysts at other rating companies say they could potentially downgrade Malaysia’s credit rating in coming months.

While investors hesitated buying the bond initially, especially as events preceding the deal sent the cost of insurance on Malaysia sovereign debt soaring, they put in orders of over $12 billion, bankers familiar with the deal said. The bonds were largely bought by U.S.-based fund managers and asset managers, with most investors picking up the longest tenor 30-year bonds.

Petronas priced three U.S. dollar-denominated bonds and one sukuk as part of the offering.