Malaysia successfully concluded the sale in two tranches totalling US$2bil (RM6.06bil) of sukuk wakala in the early hours of Wednesday in deals which saw a surprisingly high subscription rate given the uncertainties in the global credit markets and the gloomier global economic outlook.
The tranches a five-year US$1.2bil tranche and a 10-year US$800mil tranche were nearly five times oversubscribed, attracting subscriptions of well over US$9bil (RM27.27bil).
Sukuk wakala are Islamic financial instruments based on an underlying wakala structure in which the debt is issued by a special purpose vehicle entitling holders to a return in proportion to their investment.
The oversubscription rate not only signalled that demand for sukuk may be returning in the aftermath of the Arab spring demonstrations and global financial crisis, but also demonstrated investor confidence in Malaysian credit.
Analysts pointed out that the yield for the 10-year tranche was a new reference point for longer-term sovereign and corporate issuances.
The five-year tranche has a coupon rate of 2.991% and the 10-year tranche of 4.646%. A person with knowledge of the sale told StarBiz the sukuk were sold at 15 basis points lower than the earlier guidance due to the strong interest from investors.
According to Bloomberg, the five-year tranche yielded 145 basis points more than US Treasuries while the 10-year tranche yielded 165 basis points more.
“This is the lowest yield ever in the entire history of Malaysia's issuance in the US dollar market and by global standards, the oversubscription rate is considered high due to the total size of the issuance,” he said.
This compared favourably to Malaysia's issuance of a US$1.25bil sukuk ijara in May 2010 with a rate of 3.928%.
“The yield for the 10-year tranche will now become the reference point for later issuances either of sovereign or corporate debt originating from Malaysia or by other issuers largely because of the size of the tranche and the rarity of 10-year sukuk,” he said, adding that this was also the first sovereign sukuk wakala ever to be issued.
He said the take-up rate for the sukuk issuance could also be due to the scarcity of the country's US dollar-denominated debt, which stood at US$4bil (both sukuk and conventional bonds) and this would become even smaller next month when US$1.75bil (RM5.3bil) worth of bonds matured.
Hong Kong-based Societe Generale SA fixed income strategist Chong Wee Khoon said the sukuk issuance could be for the refinancing of the upcoming redemption of the bonds with a coupon rate of 7.5% next month.
“The 10-year tranche is likely to be used as a benchmark for other corporate sukuk pricing although the bulk of the sukuk issuance is at the shorter end of the curve,” he said.
Meanwhile, Hong Leong Asset Management Bhd executive director and chief executive officer Geoffrey Ng said in an email reply that investor interest in longer-dated sukuk generally meant there was strong demand for returns from US dollar-denominated issuances.
“The fact that the 10-year sukuk attracted a large allocation to Asian, US and European names mean that US dollar-based investors feel a yield return of 4.646% is generous given where interest (profit) rates are currently, especially the 10-year US Treasuries which now trades at 3.04%,” he said.
Ng said the oversubcription rate meant that general demand for syariah-compliant debt was far greater than supply and generated a scarcity premium.
“From an overall credit market perspective, the oversubscription rate tells us that investors are still confident of Malaysian credit,” he said.
However, due to the uncertainties in the United States and slower global growth, Ng said investors would likely remain invested in other government and high-grade corporate debt for diversification but demand an increase in overall yields.
“Hence, we expect credit spreads over US Treasuries to widen if economic growth expectations slow further,” he said.
A Finance Ministry statement said the sukuk was distributed to over 320 investors with Middle East investors taking up 29%, Malaysian investors taking up 27% while European investors took up 14% and US investors took up 8%.
The joint bookrunners and joint lead managers for the deal were CIMB, Citi, HSBC and Maybank.
The sukuk was assigned an A- long-term foreign currency preliminary issue rating by Standard & Poor's Ratings Services, while Moody's Investors Service gave the sukuk a provisional foreign currency rating of (P) A3.(The Star Online)
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