Malaysia’s Global Sukuk Success

THE announcement to launch a global sukuk on May 19 was greeted with a lot of questions, doubts and scepticism. This was due to uncertainties caused by the sovereign debt crisis, particularly in Greece, Spain, Portugal and Ireland, which accentuated concerns over a double-dip recession.

Notwithstanding this, we went ahead with the launch after taking into consideration the factors in favour of Malaysia. These include the strong demand for good quality sovereign debt papers in the market; Malaysia’s credit risk spreads, which had narrowed considerably; the country’s good credit story supported by sound economic fundamentals; and clear economic transformation agenda under the New Economic Model.
It was a calculated and bold move. We were proven right when the issue was oversubscribed by nearly six times the initial size of US$1bil (RM3.25bil).

The issue was a huge success with a final sukuk size of US$1.25bil (RM4.06bil). It was Malaysia’s first in the international debt market after a lapse of eight years and was accorded emas, a special recognition given to foreign currency denominated issues in the Malaysian capital market.

The global sukuk has three objectives: to establish a new US dollar benchmark as pricing guidance for corporate fund raising, to profile Malaysia’s credit story in international capital markets, and to showcase the country as a global Islamic financial hub. The issue successfully met these objectives.

In line with Malaysia’s leadership in Islamic finance, the issue was structured as a syariah-based Ijara − an asset-based Islamic instrument, which pays sukuk-holders returns from the rental of 12 government-run hospitals.

The purchase price is equivalent to the proceeds raised by the special purpose vehicle – 1Malaysia Global Sukuk Sdn Bhd (the trustee/issuer).

It is a sale and lease-back arrangement, where the Federal Land Commissioner as the land owner of the 12 hospitals would sell the asset to the trustee which will lease the assets to the Government. Rentals received will be used to make periodic payments to sukuk investors.

Upon maturity, sukuk holders will be paid the redemption sum through the proceeds received from the Government as the obligor who will purchase the rights, interest, benefits and entitlements on the lease assets from the Trustee.

The sukuk was assigned a rating of A- by Standard and Poor’s and A3 by Moody’s. The credit ratings reflect Malaysia’s sovereign credit worthiness backed by a deep and liquid domestic capital market, a well-managed and resilient financial system, strong external position, net external creditor position as well as a diverse and competitive economy.

The global sukuk roadshows started off with a team lead by Second Finance Minister, who met investors in Jeddah, Riyadh, Abu Dhabi and Dubai. The second team led by the Finance Ministry secretary-general saw investors in Hong Kong, Singapore, London and finally in New York, where the sukuk size and pricing were finalised.

During the roadshows, the teams met investors in groups and also had one-on-one interactions with key investors. Investors raised questions on Malaysia’s fiscal sustainability, economic fundamentals as well as the reform agenda of the Government. The teams took the opportunity to explain Malaysia’s economic policies, the accommodative monetary policy as well as impressed upon the investors the reform agenda and growth prospects that will be realised through the New Economic Model.

Fundamentals intact

Investors were convinced that Malaysia’s fundamentals remained intact, with strong fiscal position and credible economic growth from enhanced reform initiatives under the New Economic Model.

These meetings were well-received and generated significant interest among investors in Asia, the Middle East, Europe and the United States, despite increased uncertainty and market volatility created by the debt crisis in Greece.

The high-level delegations were instrumental in raising Malaysia’s profile and entrenching its growth prospects among key investors and decision-makers.

As a result, the issue attracted bids from a diverse group of over 270 investors around the world with most bids from Asia and the Middle East.

The final distribution reflected the wide interest among global institutional investors for Malaysia’s debt papers.

It also reinforced Malaysia’s lead position in the global sukuk market, accounting for 65% of global outstanding sukuk.

The initial proposed size of the global sukuk was US$1bil, which was upsized to US$1.25bil after receiving bids of about six times over the initial cover, making it the largest global sovereign sukuk ever.

The five–year sukuk was priced on May 27 to yield 3.928%, the lowest yield for an Asian sovereign issue in the last five years.

In New York, where the pricing was to be decided, the global markets had turned volatile threatening to scuttle the whole exercise. However, with a strong order-book from Asia and the Middle East, a small window of opportunity appeared when the market stabilised.

Bold and quick decisions were made to capitalise on it. The price “whisper” began at around the Treasury+200 basis points range and the order-book started to fill up and demand momentum was sustained.

With such an encouraging order-book, the pricing guidance was issued at Treasury+190 basis points and finally the issue was priced to yield 3.928%.

The final pricing at Treasury+180 basis points was very competitive, given the uncertainty and volatility of markets caused by the ongoing Greek debt crisis.

The spread on the five-year sukuk due in June 2015 further narrowed by six basis points a day after listing, reflecting robust demand for Malaysia’s dollar debt.

It was challenging to launch and conclude the largest sovereign sukuk ever at the lowest price for an Asian sovereign issue in the last five years. Despite the volatile markets, there was overwhelming response to the global sukuk, reflecting investor confidence in Malaysia’s credit story and growth prospects.

We must sustain this confidence by implementing all reform measures, however painful it may be in the short term. We must sacrifice for the greater good of the nation in the long run.

The success of the global emas sukuk is indeed an international recognition and endorsement of Malaysia’s credit story and confidence in the reform agenda of the New Economic Model under the leadership of Prime Minister Najib Tun Razak.

“Our sukuk offering was priced at the lowest yield achieved by an Asian sovereign in the past five years notwithstanding volatile market conditions. We also had wider investors base from Asia, the Middle East, Europe and the US. This is a great achievement for Malaysia.”

Intra Corporate Buy-in of Sports Toto Shares

So why is this happening?

Was it in the light that they believed that Ascot will get the Sports betting licence?

The licence is gone for now...........

If so, will this purchase continue?

So far this is the status of purchase.

BCorp and its unlisted indirect subsidiaries, Inter-Pacific Capital Sdn Bhd (IPC), Inter-Pacific Securities Sdn Bhd (IPS) and Bizurai Bijak (M) Sdn Bhd have bought 56.74 million of 10 sen shares in Berjaya Sports Toto Bhd (BToto) from the open market.

The companies bought the shares, which represent 4.24 per cent equity in BToto between June 25 2009 and June 24 2010, for RM247.93 million or at an average acquisition price of RM4.37 per share.

"The acquisitions have enabled the BCorp group to step up its interest in BToto via purchases in the open market, in a gaming company with good financial performance and dividend track record which provides lucrative yield to investors," the company told Bursa Malaysia yesterday.

3A Resources Berhad-Just Visiting

I took this write up from a blog.

It surely gives you a background of what has happened at 3A Resources Berhad.

Just read it and if you think it is time to enter, do so.

" You can't hit all the balls pitched to you, I guess. A good friend asked me to look up 3A two weeks back. I said, I don't even know what they did. I did looked it up, its principal activities were manufacturing and selling of food and beverage ingredients. That didn't look too exciting, although I did note that it was a growth based company, having been moved to the Main Board from Mesdaq.

But without further information, the stock was looking quite expensive at 80 sen. Now that the news is out, you wished you had some at 80 sen. Gawd, they placed out 20% new shares to Wilmar International. What a platform!!! I think that is like placing shares to Warren Buffett, seriously. Wilmar has done so well in palm oil, and has made waves moving to China with an upcoming listing in HK. Their China vehicle will focus on food, water and related industries. It will take a huge person to bet against Wilmar. But, you cannot hit all balls pitched to you, particularly when you have no idea what was happening. Good job on those who managed to buy early.

3A Resources Berhad was incorporated in1977 as a family business producing soy sauce. In 1989, the family business was incorporated into San Soon Seng Food Industries. 3A listed on the on MESDAQ on 13/8/2002 and subsequently moved the Main Board of the Bursa Malaysia on 18/6/2008.
3A is one of the leading ingredients manufacturers in the food and beverages industry. All the products manufactured by the subsidiary have been certified as HALAL by the Islamic Development Department of Malaysia. It is also ISO9001 certified by the Standard Industrial Research Institute Malaysia for its quality management system.

Aside from its main products, the company also has two additional products, namely caramel powder and hydrolyzed vegetable protein powder. Currently, the group exports approximately 30% of its group sales to 25 countries. Three A's latest product is glucose -based powder, maltodextrin, which is used in infant milk powder and 3-in-1 instant beverage. This product was previously imported from the US, Thailand, China and Europe. Its customers include multinational corporations in Malaysia such as an American supplier of chili sauces to food chains in Malaysia and Hong Kong based Lee Kum Kee group which produces oyster sauces.

The new glucose plant is already running at about 40-50% capacity, since its completion in 4Q08. Aside from additional external sales, the availability of  glucose means the company is now running its maltodextrin plant at almost full capacity. Previously, limited feedstock had kept production at just about half of its 1,200 tonne per month capacity.

3A has made very good inroads into this relatively new market. Its  maltodextrin plant is the only one in Malaysia and has been operational since  mid-2007. Maltodextrin is a white powder with little sweetness, has a bland taste and is widely used as fillers or bulking agent.

In particular, the company has been quite successful in tapping into the 3-in- 1 dry beverage mixes market segment. Prior to 3A’s entry into the market, all of the maltodextrin consumed locally is imported. The company’s proximity to end-user companies gives it a strong home ground advantage. Its maltodextrin is also competitively priced against those imported from the US and Europe.

Aside from 3-in-1 mixes, 3A is also eyeing other segments of the maltodextrin market, such as the infant milk powder industry. Following positive feedback from end-users, both local and in the region, the company is now planning to set up another maltodextrin plant capable of producing up to 2,000 tonne per month.

If all goes to plan, the new plant will be operational by 4Q2010 – and will underpin growth in 2011-2012. As a stopgap measure, 3A intends to upgrade its existing maltodextrin plant, which would boost output up to 1,500 tonnes per month, to cater to rising demand.

Additional feedstock requirement for the new maltodextrin plant was already taken into account when 3A was building its glucose plant last year. The glucose plant, with current capacity of 7,000 tonne per month can easily be upgraded to produce up to 12,000 tonne per month with the incurrence of just a small additional capex.
The Proposed Private Placement will entail the issuance of up to 20% of the issued and paid-up share capital of 3A. Based on the issued and paid-up share capital of 3A as at 30 September 2009 of RM61,600,003 comprising 308,000,019 ordinary shares of RM0.20 each ("3A Shares"), a total of up to 61,600,003 3A Shares ("Placement Shares") may be issued pursuant to the Proposed Private Placement.

The Placement Shares are proposed to be placed out at an indicative issue price of RM0.75 per Placement Share. The issue price of RM0.75, represents a discount of approximately 12.63% to the five (5)-day WAMP up to 02 October 2009 of RM0.8584.The Placement Shares are proposed to be placed out to strategic third party investors, namely Wilmar International Limited ("Wilmar" or “Investor”). Wilmar has given a letter stating that it is interested to subscribe for 61,600,000 Placement Shares at RM0.75 per Placement Share. Upon the completion of the Proposed Private Placement, Wilmar will emerge as new substantial shareholder of the Company with equity shareholdings of 16.67%.

The Proposed Private Placement is to enable 3A and Wilmar to collectively venture into any future overseas investments.

Selangor Water Assets -Towards Resolution?

After close to  two-year deadlock, there appears that the proposed consolidation of water assets in Selangor could  finally be concluded soon, writes Tee Lin Say in the online-STAR.

The main question now is, who will control the special purpose vehicle (SPV) that will oversee the operations and maintenance (O&M) portion of the state’s water industry.

Recently, there have been strong indications that all the parties are close to agreeing on pricing, and are now in the midst of ironing out the O&M issues. Sources believe that the Selangor government and Pengurusan Aset Air Bhd (PAAB) will jointly pay for the acquisition of the state’s water assets and liabilities at over one-time book value.

The Federal Government’s share of the acquisition price will approximately be equivalent to one-time book value of the assets, while the state government will pay the rest. This could mean that PAAB will own the assets, while the Selangor government will end up with a stake in the management of the assets.

Another burning question is whether the SPV will have private sector participation. As it stands, the state’s water assets are parked under four concessionaires – Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), Syarikat Pengeluar Air Selangor Sdn Bhd (Splash), Puncak Niaga (M) Sdn Bhd and Konsortium Abbas Sdn Bhd (Abass).

Currently, the state government has considerable clout over Selangor’s water supply chain via its listed investment arm, Kumpulan Perangsang Selangor Bhd (KPS), which owns 55% of Konsortium Abbas and 30% of Splash. It also owns a 30% stake in Syabas, the state’s water distribution company.

Says one observer: “While the state shall definitely lead the SPV, it only has Konsortium Abass, and hence will not be able to go full-scale. Perhaps, it could outsource some parts to Gamuda Water Sdn Bhd or Sungai Harmoni Sdn Bhd.” Gamuda Water belongs to Gamuda, while Sungai Harmoni is owned by Taliworks Corp Bhd.

Another observer disagrees, pointing out that it will not cost much for the state to set up an O&M unit.

“Why would they want to share the profits? After all, it is the O&M portion which has the attractive margins. Since they are already buying over the assets of the concessions, maybe they can just buy over some of the O&M units, for instance Gamuda Water or Sungai Harmoni,” he conjectures.

An AmResearch analyst says these latest development implies that Splash’ offer in March for the consolidation of Selangor’s water industry at RM10.75bil may have prodded both the Federal and state governments to expedite consolidation talks.

“More importantly, it validates our earlier conviction that the Selangor government remains very much in contention to lead the consolidation of water assets within the state,” adds the analyst.

Gamuda launched the takeover offer via Splash, its 40% associate. That proposal was shot down as it was seen to be not in line with the regulatory framework for the industry.

According to the AmResearch analyst, based on the Splash offer, the implied valuation for Puncak Niaga and KPS is estimated at close to RM4.50 per share and RM1.88 per share respectively.

“We caution that nothing has been finalised as yet. Any deal would not be consummated until the issue of control over the SPV has been resolved. More importantly, we hold the view that the Selangor government is unlikely to consent to any purchase of Puncak’s water assets unless it secures control over water distribution rights in Selangor,” he adds. Owned by the Ministry of Finance, PAAB was set up in May 2006 to restructure and consolidate the country’s fragmented water sector, with the intent of making the state concessionaires asset-light.

The state and federal governments had been in a stalemate over the last two years over who should consolidate Selangor’s water assets and control over the supply and distribution.

In June 2009, the state government made an offer of RM9.22bil, or one-time book value, for the water-related equity, assets and liabilities of the four water companies. However, the parties could not come to an agreement. Gamuda then stepped in with its offer, which may have helped bring the standoff closer to an end.

Will KPS shareholders still have to wait for Godot?