Tuesday, June 15, 2010
Sukuk gains ground
High demand, despite challenging market, shows confidence
KUALA LUMPUR: Foreign investors have given Malaysia a thumping vote of confidence via the largest US dollar sovereign sukuk to date, which attracted the attention of some 270 investors from around the world.
When books opened on May 27 for final pricing the total demand was for US$6bil.
Not only was the demand high, prompting Malaysia to increase the size to US$1.25bil from the original US$1bil, Malaysia also set a new benchmark with a record low yield of 3.87% for an emerging market sovereign in Asia.
The issuer, 1Malaysia Sukuk Global Bhd, is a special purpose vehicle set up and wholly-owned by the Government. With a 3.93% fixed-rate coupon and a yield of 3.87%, it is only the second bond to be issued by an emerging market country in the past five years to yield below 4%.
And this was achieved against a backdrop of a volatile and challenging global market environment.
Confidence in the market was severely shaken last November when Dubai World announced a six-month standstill on debt including a US$3.5bil sukuk issued by its real-estate subsidiary Nakheel. Then in recent weeks, international capital markets were rocked by the sovereign debt crisis in Europe as Greece and other European Union members struggled to honour their debts.
This came on top of four sukuk issuers who had defaulted within the past year – the International Investment Group and Investment Dar, both of Kuwait-Saudi conglomerate Saad Group and East Cameron Partners and an American oil and gas producer. In the face of these developments “it took a lot of courage to go out and take the leadership when no one else is testing the market”, a banker was reported as saying of Malaysia’s move.
And the country’s sovereign sukuk issuance came close on the heels of an announcement on May 19 by Qatar Islamic Bank of plans to carry out its first ever Islamic bond offering of up to US$750mil.
The huge demand and low coupon rate for Malaysia’s sovereign bond clearly reflects the confidence global investors have in the strong macro-economic fundamentals of the country and the “pro-active measures” undertaken by the Government.
Malaysia is a world leader and one of the largest issuers of sukuk, accounting for 47% (including both domestic and international bonds) of the world’s sukuk.
Analysts added that the robust performance of Malaysia’s sovereign sukuk reflected the strength of the country’s financial sector, capital market and external position.
The demand was also well spread among different institutions – banks bought 41%, asset and fund managers 36%, central banks and sovereign wealth funds 11%, insurance and pension funds 6%, private banks 3% and corporates 3%.
“Malaysia’s sovereign creditworthiness has been underpinned through the global crisis by its strong external position, deep and liquid domestic capital markets and a strong and well-managed financial system,” according to Moody’s analyst Aninda Mitra.
Dr Yeah Kim Leng, group chief economist at Rating Agency Malaysia Bhd, described the situation as a testimony to the strong global “investor appetite” for Malaysian assets.
“The successful placement is a positive signal of the strong confidence foreign investors have in the country’s ability to withstand the continuing global financial turmoil.”
The success of the Malaysia’s sukuk bond is even more significant given the adverse conditions in the international debt capital markets from the recent Dubai debacle and now the sovereign debt crisis in Europe. — Bernama
Malaysia’s RM4.17bil global sukuk rated A-
KUALA LUMPUR: Standard & Poor’s (S&P) Ratings Services yesterday assigned its A- long-term foreign currency issue rating to Malaysia’s US$1.25bil (RM4.17bil) global sukuk trust certificates due in 2015.
S&P said in a statement that the rating was based on the final offering memorandum dated May 27, 2010, and various agreements, undertakings and the declaration of trust, dated May 31, 2010.
The rating on the trust certificates of the issuer, 1Malaysia Sukuk Global Bhd (1Malaysia), reflected the strength of the transaction documentation, including the lease and purchase undertaking agreements.
Under these agreements, the sovereign as the lessee is obliged to make all payments needed to ensure that the issuer has funds sufficient to pay the certificate holders.
1Malaysia is a special purpose vehicle set up and wholly owned by the Government.
The sukuk is Malaysia’s first foray into the global debt markets since its last external bond issue in 2002 and it is the country’s second global sukuk.
The sovereign credit ratings on Malaysia were supported by strong external liquidity, net external creditor position, and a diversified and competitive economy. — Bernama
The ratings were constrained by sustained fiscal deficits, moderately high and increasing general government net debt and a moderately high level of contingent liabilities.
Opportunities in non-ringgit sukuk market
KUALA LUMPUR: Malaysia is ready to further expand the region’s non-ringgit sukuk market, said Deloitte global Islamic finance leader Daud Vicary Abdullah.
However, issues such as cross-border liquidity and currency must be addressed first, he said.
“Malaysia is already a regional leader in Islamic finance. It needs to maintain the status,” he said.
He said Singapore and Indonesia had gone big in the sector too and this would help expand the market further.
Malaysia tightens guidance on global sukuk offering
HONG KONG: Malaysia plans to sell a benchmark-sized five-year US dollar sukuk at 180–190 basis points (bps) over US Treasuries, pushing ahead with its first global bond in eight years, sources involved in the deal said.
The tightened guidance from an earlier 190 bps over comparable Treasuries indicates strong demand for the country’s paper, especially from investors in the Middle East and Asia, in otherwise choppy market conditions.
Malaysia was looking to raise US$1bil (RM3.3bil) from the sale and the order book, following a global roadshow, had already drawn interest of more than US$3bil, bankers said.
According to one of the sources, final pricing was due to take place later in London or New York.
The ijara sukuk is the fourth sovereign global bond in the region this year.
The Government held investor meetings in Hong Kong on May 20, Jeddah on Saturday, Riyadh on Sunday and London and Dubai on Monday. It concluded the roadshow in New York on Wednesday but held talks with Middle East investors after that, another source with direct knowledge of the deal said. — Reuters
Standard Chartered said in a note that given the scarcity of new issuances in the sukuk market for some time now and with dedicated Islamic funds looking to invest only in highly-rated sukuks, this paper should receive strong demand.
”All in all, we expect the Malaysia 2015 sukuk new issue to have upside of 15-18 bps given current market conditions and should sentiment improve further, we believe the sukuk could gain 25-30 bps, assuming current guidance holds,” the bank said.
CIMB, HSBC Holdings and Barclays are the deal managers.
Standard & Poor’s has given the sukuk an ‘A’ preliminary long-term issue rating and Moody’s has assigned an A3 foreign currency rating with a stable outlook. - Reuters
Govt delays decision on sukuk size and timing
Swings in emerging-market assets the reason, say sources
KUALA LUMPUR: Malaysia has delayed making a decision on the size and timing of its first sale of Islamic bonds in eight years due to unstable market conditions, say two people with direct knowledge of the plan.
The decision would not be made this week because of swings in emerging-market assets, said one of the people, who declined to be identified because discussions were private. Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah didn’t pick up calls to his mobile phone seeking comment.
The Government had planned to determine the final size of the sukuk notes this week after completing an international roadshow to promote the securities to investors in Asia, the Middle East, Europe and the US. Sales of sukuk rose 31% so far in 2010 from the same period of last year.
“It’s still a 50:50 chance that Malaysia will try to tap in such a shaky market,” said Sergey Dergachev, who helps manage about US$6bil of emerging-market debt at Union Investment in Frankfurt.
Emerging-market assets have slumped over the past month as the debt crisis in the European Union fuelled concern the global economic recovery will stall. The extra yield investors demand to hold debt of developing nations over US treasuries widened 25 basis points in the past week to 345 basis points yesterday, according to JPMorgan Chase & Co’s EMBI+ Index.
The sukuk deal was subject to stable market conditions and it would take time for Middle Eastern investors to process any purchases, said the other unnamed person with knowledge of the matter.
Malaysia is turning to the international debt market for the first time since 2002 as it aims to increase development spending and boost economic growth. Indonesia this month trimmed the size of its planned sales of Islamic and yen-denominated debt because of concern that Greece’s debt crisis would spread.
The MSCI Emerging-Markets Index has lost 17% from its April 15 high on concern Europe’s 750 billion euro (US$922bil) aid package for indebted nations would fail to prevent a global economic slowdown.
Malaysia Airports Holdings Bhd said in a statement to Bursa Malaysia on Tuesday that it was considering issuing ringgit- and dollar-denominated debt among “various options” to meet funding needs.
The company planned to issue US$500mil of conventional bonds and RM1bil of sukuk to finance its second low-cost carrier airport project, Reuters reported last Friday, citing unidentified people with knowledge of the deal.
State-owned Petroliam Nasional Bhd’s (Petronas) Islamic dollar bonds rose, snapping a five-day drop.
The yield on Petronas’ 4.25% sukuk due in August 2014 fell two basis points to 3.94%, according to Royal Bank of Scotland Group Plc. — Bloomberg