May 27, 2010

Malaysia's Sukuk Foray Overseas


Malaysia plans to sell a benchmark-sized 5-year US dollar sukuk at 190 basis points over US Treasuries, pushing ahead with its first global bond in eight years, sources involved in the deal said.

Malaysia is looking to raise US$1 billion (RM3.3 billion) from the sale and the order book, following a global roadshow. It has already drawn interest of US$3.25 billion, they said.

Final pricing could take place later today in London or New York, one of the sources said.

Malaysia’s ijara sukuk, the fourth sovereign global bond in the region this year, comes as global financial markets wrestle with the impact of Europe’s debt crisis.

“Timing is not exactly perfect but there is actually no perfect timing,” said a fixed-income analyst with a Malaysian bank. “I expect they’ll come out with a relatively interesting pricing level.”

Market reaction to the Greek crisis has already impacted new issues in Asia.

The government held investor meetings in Hong Kong last Thursday, Jeddah on Saturday, Riyadh on Sunday and London and Dubai on Monday.

It concluded the roadshow in New York yesterday but held talks with Middle East investors after that, another source with direct knowledge of the deal said.

CIMB, HSBC Holdings and Barclays are 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.

The sale of Islamic bonds allows Malaysia to tap a wider investment base, although investors can demand a higher return on sukuk because of the lack of a secondary market.

Prime Minister Najib Razak said on May 19 that the deal was designed to set a pricing benchmark for future sukuk and conventional bond issues.

Malaysia last tapped the global bond market in 2002 when it raised US$600 million from the sale of its first international sukuk.

This month, Saudi Electricity Co raised 7 billion riyals from a 7-year sukuk at 95 basis points above Saudi Interbank Offered Rate (Sibor).

The yield on the issue was below the 160 bps above Sibor at which the Gulf’s largest power utility priced its previous sukuk issue of the same size. — Reuters

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