This article first appeared in The Edge Financial Daily, on February 25, 2016.

KUALA LUMPUR: Khazanah Nasional Bhd is seeking to raise US$750 million (RM3.17 billion) from the issuance of a five-year US dollar-denominated straight sukuk, proceeds of which will be used to refinance Penerbangan Malaysia Bhd’s US$1 billion guaranteed notes maturing this year.

In a statement yesterday, Khazanah said the sukuk was priced at a profit rate of 3.035%, following an accelerated bookbuilding which attracted demand of 1.5 times book size from financial institutions, asset management companies, statutory bodies and insurance companies.

Khazanah’s inaugural US dollar-denominated straight sukuk is being issued via special-purpose vehicle Danga Capital Bhd.

“Despite challenging market conditions, Khazanah achieved its target issue size at a spread of 178 basis points above prevailing five-year US Treasuries.

“Capitalising on low US Treasury yields, Khazanah was able to refinance these notes which are guaranteed by the government of Malaysia at a savings of 2.59% per year against the current 5.625% coupon, while simultaneously reducing the Malaysian government’s contingent liability,” it added.

The US dollar sukuk, which is structured under the syariah principle of Wakalah1 compliant shares and syariah-compliant commodities, will be listed on Bursa Malaysia (under an exempt regime), Labuan International Financial Exchange Inc and Singapore Exchange Securities Trading Ltd.

CIMB and DBS Bank Ltd are the joint global coordinators, while CIMB, DBS Bank and Standard Chartered Bank are joint bookrunners for this US dollar sukuk offering. CIMB Islamic acted as the sole syariah adviser for the transaction.