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Old Posted May 3, 2021, 8:50 AM
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Malaysia's first sukuk in five years overwhelmed, asserts status as world's biggest market
By Ayisy Yusof - April 23, 2021 @ 9:01am
Quote:
KUALA LUMPUR: Malaysia's first global sukuk issuance since 2016 has been an overwhelming success, with the US$1.3 billion offering oversubscribed by 6.4 times.

The offering, which is the world's first sovereign US dollar sustainability sukuk, reflected strong appetite for Malaysian debt and asserted the country's status as a global leader in Islamic finance, economists said.

The government initially targeted a size of US$1 billion but due to overwhelming demand, the sukuk was upsized to US$1.3 billion, the Finance Ministry (MoF) said in a statement today.

The issuance comprised a US$800 million 10-year Trust Certificates and a US$500 million 30-year Trust Certificates.

"The strong demand has also resulted in the lowest ever yield and spread for a US-dollar sukuk issuance by Malaysia, with the 10-year and 30-year Trust Certificates priced at 2.070 per cent (T + 50 basis points) and 3.075 per cent (T + 80 basis points) respectively," the MoF said.

More importantly, the MoF said this demonstrated the market's confidence in Malaysia's economic recovery and growth prospects, despite a challenging past year due to the Covid-19 pandemic.


Both tranches have been assigned a rating of A3 by Moody's Investors Service and A- by S&P Global Ratings.

The MoF said the sukuk was unique as its underlying assets were sustainable assets, being vouchers representing travel entitlement on Malaysia's Light Rail Transit, Mass Rapid Transit and KL Monorail networks.

As the first sovereign issuance with such assets in a sukuk structure, the issuance sets a new benchmark and showcases Malaysia's global leadership in Islamic finance, Finance Minister Tengku Datuk Seri Zafrul Aziz said.

This reinforced the country's position as the world's largest sukuk market, he added.

"We are extremely pleased and honoured by the investors' vote of confidence in our maiden sustainability sukuk issuance, which also reflects their belief in Malaysia's strong economic fundamentals and solid prospects for growth," Tengku Zafrul said.

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the oversubscription rate showed that the investors, be it domestic or foreign, were more than comfortable with the government's ability in managing its debt.

"In other words, the credit risks are fairly low and therefore, it make sense to purchase the sukuk. Obviously, the oversubscription rate is creditable," Afzanizam told the New Straits Times.

"We have seen ownership by the foreign investors in the Malaysian Government Securities have been steady at around 40 per cent. Therefore, the oversubscription rate indicates that Malaysian govvies looks favourable with interest rate differential with the US rates are obviously in favour of Malaysia's rate," he added.

Malaysian Rating Corp Bhd senior economist and head of research Firdaos Rosli said the warm response demonstrated ongoing strong appetite for Malaysian debt despite the spike in yields seen for local currency debt.

This was evidenced by the cumulative foreign inflows in the local bond market during May 2020 till March 2021, amounting to RM53.9 billion, the longest monthly streak on record.

"Malaysia continues to assert its position as a global leader in Islamic Finance and the world's largest sukuk market. Year-to-date, the total outstanding sukuk issued by Malaysia stood at US$286.8 billion or an equivalent of 39.6 per cent of global total outstanding. This put Malaysia well ahead of Saudi Arabia's US$163.7 billion and Indonesia's US$100.5 billion sukuk markets," Firdaos said.

Elaborating on the offering, the MoF said it issued via a special purpose vehicle, Malaysia Wakala Sukuk Bhd.

Subsequent to a virtual roadshow covering Asia, the Middle East, Europe and the US, the sukuk attracted a diverse group of investors.

The allocation was well-spread globally, with 55 per cent of the principal amount of the 10-year sukuk distributed to investors in Asia, 33 per cent to Europe, Middle-East and Africa (EMEA) and 12 per cent to the US.

Forty-six per cent of the principal amount of the 30-year sukuk was distributed to investors in Asia, 33 per cent to EMEA and 21 per cent to the United States.

By investor type, the distribution of the 10-year tranche was 67 per cent to fund managers and insurance companies, 18 per cent to central banks and governments, 14 per cent to banks and one per cent to others investors.

For the 30-year tranche, 83 per cent was to fund managers, 10 per cent to banks, four per cent to central banks and governments, and three per cent to other investors.
https://www.nst.com.my/business/2021...worlds-biggest

Quote:
Sukuk is the Arabic name for financial certificates, also commonly referred to as "sharia compliant" bonds. Sukuk are defined by the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) as "securities of equal denomination representing individual ownership interests in a portfolio of eligible existing or future assets." The Fiqh academy of the OIC legitimized the use of sukuk in February 1988.
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