The recent 5-year $1.5 billion Sukuk Al-Ijarah (leasing sukuk) issued by Malaysian state oil company, Petroliam Nasional Bhd (Petronas), marks a new era of bond and sukuk (Islamic securities) issuance in the country.
From now on, all foreign currency denominated issuances -- both conventional and Islamic bonds -- will be designated the "Emas" (gold) symbol, which, according to Bank Negara Malaysia, the central bank, will provide greater visibility to the Malaysian market for the raising of funds by local and foreign corporations and symbolizes "universal value and security".
"In Malaysia, the sukuk component has grown to be larger than its conventional counterpart. Malaysia is currently the global leader in sukuk issuance, accounting for 62 percent (or an estimated $152.8 billion) of total global sukuk outstanding. Given the growing maturity of our bond market, it is timely that Malaysia should offer its own brand proposition to distinguish foreign currency denominated bonds and sukuk originating from Malaysia in the global capital market. This is something that is being used in different parts of the world like Maple in Canada, Kangaroo in Australia, and Shogun and Samurai in Japan. "This issuance showcases Malaysia's credentials as a center of origination not only for ringgit bonds and sukuk, but also for the issuance of foreign currency-denominated bonds and sukuk," stressed Bank Negara.
The Petronas sukuk was part of a total $1.5 billion bond package issued by the oil utility comprising a $3 billion conventional bond and a $1.5 billion sukuk, which in total was the single largest US dollar issuance by an Asian entity outside Japan this year. The issue is also the largest international US dollar sukuk since the $1.5 billion Dubai Ports issue in 2007.
Although the Petronas bond package was well received and oversubscribed five times attracting $19 billion in total orders, and sold to a wide investor basis in Asia, the Middle East and Europe, some investors, especially in the Middle East, were surprised at the way the sukuk was marketed.
The original target for the Sukuk was between $500 million and $1 billion, which was marketed at a certain price in certain markets at the lower end of its initial price guidance, but as the size of the issue increased the pricing also tightened. So the impression was that some investors "were sucked in" to the subscription of the issue at the higher pricing.
Indeed, the sukuk were traded at wider spreads at 172/182 bps over US Treasuries on the following few days after issuance, dragging the Petronas issuance down. The reasons for this widening, according to bankers in Malaysia, were due to weak US jobs and services figures, the large size of the issue and the aggressive pricing.
Demand for papers issued by the Malaysian state-owned oil company is normally high, but it was even heavier this time round given the dearth of top investment grade issuances both in the conventional bond and sukuk markets. Some Malaysian bankers have defended the Petronas strategy stressing that market conditions to a large extent still dictate pricing and yields.
The Petronas Emas $1.5 billion sukuk together with the 4 billion ringgit Sukuk Al-Musharaka issued by Cagamas MBS earlier this year are listed on Bursa Malaysia, the local stock exchange, for the first time, as well as on the Labuan International Financial Exchange (LFX) and the Luxembourg Stock Exchange.
The sukuk issue has been assigned a rating of "A1" by Moody's Investors Service, its fifth highest investment-grade rating, and "A- (A minus)" by Standard & Poor.
The Petronas sukuk was lead arranged by Morgan Stanley, CIMB Bank Bhd and Citigroup Inc. and priced to yield 162.5 basis points (bps) over comparable US Treasuries. Some 60 percent of the investors in the Petronas sukuk were from Asia; 34 percent from Europe and the Middle East; and the rest from the United States.
The $1.5 billion Petronas sukuk was marketed in Abu Dhabi, London, Singapore, Hong Kong and New York. The 60 percent uptake from Asia augurs well for top-rated sukuk issuances originating out of the region, because there is a critical mass of investors with the potential of further widening the investor base in the region, which reduces any dependency on investors from the Middle East, especially the GCC countries, Europe and the US.
Not surprisingly, issuers and arrangers talk confidently about Asia leading the global sukuk market over the next few years.
By Mushtak Parker
© Arab News 2009
