Another sign that Malaysian corporates are leading the global sukuk market is the successful closing of Tenaga Nasional Berhad's 4.85 billion ringgit ($1.55 billion) sukuk which was oversubscribed by over 4 times.
Tenaga Nasional, which is Malaysia's largest power company, issued the sukuk which has a 20-year tranched tenor through a special purpose vehicle (SPV), Manjung Island Energy. The issuance, which is rated AAA by local rating agencies, RAM Rating Services and Malaysian Rating Corporation (MARC), is the first foray into the debt market for the power company since 2004.
According to IFR, a unit of Thomson Reuters, the sukuk offering had an order book in excess of RM23 billion and was priced 3.8-4.9 percent, which was "at or below the tight ends of final guidance."
Tenaga announced in July that it would go to the market to raise up to RM5 billion and according to Tenaga Chief Executive Officer Che Khalib Mohamed Noh, the proceeds of the sukuk will be used to finance the construction of a coal-fired Manjung Power Plant in the state of Perak. He aims to raise the company's power generation capacity to meet rising demand for electricity in Peninsular Malaysia.
Tenaga last week reported a huge slump in its net profit for the year ended August 31 2011 by 84.3 percent to RM499.5 million, its lowest in 13 years. Last year the group reported net profit of RM3.2 billion.
According to Noh, the reason for the profit slump was because of the fact that the power utility had to fork out more funds for alternative energy supplies including oil, distillates and coal to offset the shortage of natural gas which usually accounts for 60 percent of the feedstock of the power industry in Malaysia. He warned that the third and fourth quarters of this year would be difficult because of the gas situation. At the same time demand for electricity is expected to increase by 4-5 percent in 2012.
This is the second major sukuk issued by a Malaysian power company in the last few months. In July, Sarawak Energy Berhad issued a RM3 billion sukuk offering with tenors of 5, 10 and 15 years respectively.
It also follows the CNY500 million Wakala sukuk issued in October in the Chinese offshore market by Khazanah Nasional Berhad, the investment arm of the Malaysian Foreign Ministry and effectively the country's main sovereign wealth fund (SWF); and the dual tranche of $2 billion Wakala (agency) sukuk issued by the Wakala Global Sukuk Berhad on behalf of the Malaysian government, who is also the obligor, in July this year -- the third Malaysian sovereign global sukuk offering in the last 11 years. It enhanced its reputation as the world's most proactive and innovative SWF sukuk originator, with a landmark 3-year benchmark offshore RMB500 million (RM246 million) sukuk issuance under Malaysia's Emas or "Gold" sukuk label, which denotes qualifying foreign currency denominated bonds and Sukuk originated from Malaysia.
The 3-year Wakala sukuk offering, which is due in 2014 and was issued under the Malaysia International Islamic Financial Centre (MIFC) initiative, was offered via a Malaysian-incorporated special purpose vehicle (SPV), Danga Capital Berhad, and is pursuant to the SPV's multi-currency Islamic Securities Program established on Feb. 10, 2009. Khazanah last year issued its first offering under the program, an offshore SGD1.5 billion issuance to part finance the acquisition of the Pantai Healthcare Group in Singapore.
This latest Khazanah sukuk offering, which is the first ever Chinese Yuan Islamic trust certificates issuance and which was jointly lead managed by Bank of China International, CIMB of Malaysia, and The Royal Bank of Scotland, was priced at the tightest end of the price guidance at 2.90 percent. The fact that the offering was oversubscribed 3.6 times suggests robust demand for AAA-rated sukuk from Malaysian and regional investors despite volatile global market conditions. Indeed Khazanah had to upsize the sukuk from an earlier announced size of CNY300 million to CNY500 million. One important facet of the Khazanah sukuk is that the pricing will set a competitive benchmark for offshore Chinese Yuan denominated securities.
A revealing feature of sovereign and quasi-sovereign AAA-rated sukuk issuances by Malaysian entities is the uncanny tight pricing of the offerings especially in today's difficult market. The $2 billion Malaysian sovereign sukuk issued in July comprised a 5-year $1.2 billion tranche which matures on 6 July 2016 and a 10-year $800 million tranche which matures on 6 July 2021.
The yield for the sovereign Malaysia sukuk 5-year tranche was almost similar to the Khazanah CNY offering at 2.991 percent with a spread of CT5 + 145bps; and for the 10-year tranche was 4.646 percent with a spread of CT10 + 165bps respectively. The spread mentioned is not against LIBOR (London Interbank Offered Rate) but against the US Treasury, so the swap equivalent against the LIBOR will be different that is lower.
Khazanah is confident that this latest offshore sukuk demonstrates its "continued commitment toward the expansion of Islamic finance in line with the Malaysian government's agenda to establish Malaysia as an Islamic finance hub. It also attests to Khazanah's continued effort to push the envelope on transaction innovation and the competitive positioning for Islamic structures."
The Khazanah sukuk indeed pioneers a new Chinese yuan capital market product which caters for both conventional and Islamic investors, and could pave the way for a spate of similar issuances by both domestic Chinese and international issuers.
The sukuk, which matures in 2014, will be listed on Bursa Malaysia (Exempt Regime) and Labuan International Financial Exchange (LFX).
The transaction attracted a diverse group of investors comprising 35 local and international financial institutions, asset management companies, private banks and statutory bodies from Malaysia, Singapore, Hong Kong, the Middle East and Europe. According to Khazanah, in terms of geographical allocation, the trust certificates were allocated to investors from Malaysia (37 percent); Singapore (30 percent); Hong Kong (26 percent); Europe (6 percent); and the Middle East (1 percent). There was strong participation from Islamic accounts which comprised 20 percent of the uptake.
The uptake of Middle East investors at only 1 percent is disappointing, given that Malaysia through the MIFC is trying to promote Kuala Lumpur as a major sukuk origination domicile and investment hub. In fact, given the uncertainty in some of the Arab Spring countries and the continuing turmoil in countries such as Syria and Yemen, potential sukuk issuers from the Gulf Cooperation Council (GCC) and the MENA region have been looking to Malaysia to issue sukuk.
In September, Kuwait-based Gulf Investment Corporation (GIC) successfully closed a RM750 million sukuk Wakala bi Istithmar under its existing 20-year RM3.5bil ($1.18 billion) medium term notes program in the Malaysian market. Other foreign issuers that have originated Sukuk in Malaysia include the World Bank and its private sector funding arm, the International Finance Corporation (IFC), Nomura of Japan ($$100 million), The RM100 million Sukuk Al-Ijarah issued by Islamic Development Bank and the RM500 million 10-year sukuk issued by the National Bank of Abu Dhabi.
In early October, another GCC entity, Abu Dhabi National Energy Company (TAQA) confirmed that it "is setting up a RM3.5 billion sukuk program (in Malaysia) to diversify funding sources". Mohammed Mubaideen, investor relations manager, TAQA, confirmed that "the (issuance) process is in early stages and that any issuance will be subject to market conditions. TAQA would like to diversify its sources of funding. The Malaysian market has great potential and is one of the markets that we are looking at."
In October also, Kuveyt Turk Participation bank, started the road show for its proposed 5-year $350 million Sukuk Al-Ijara issuance in Kuala Lumpur, Malaysia, indicating the that issuers from the Middle East, largely from the Gulf Cooperation Council (GCC) countries and now Turkey for the first time, are turning to investors in Malaysia and Asia to raise their funding requirements. These developments have elevated Malaysia as the preferred domicile choice to raise funds through sukuk issuance.
In the other direction, Bahrain-based Islamic investment bank, Elaf Bank, recently confirmed that it has secured a number of sukuk mandates worth at least $1.5 billion from three Malaysian firms to be launched in the first quarter of 2012.
© Arab News 2011
