KUALA LUMPUR (July 24): Malaysia raised US$1.5 billion, or over RM6 billion, from a global sukuk issue that investors eagerly snapped up and helped to keep the government’s borrowing costs low.
The offering, comprising US$850 million 5.75-year and US$650 million 10-year trust certificates, was oversubscribed 4.7 times, according to the Ministry of Finance. The Islamic bonds are based on assets with rights to services within Malaysia’s urban public rail transportation network.
“The issuance reaffirms Malaysia’s presence in the international financial market by maintaining the sovereign benchmark curve,” the ministry said. “The strong demand reflects continued investor confidence in Malaysia’s fiscal and economic reform agenda.”
Roadshows marketing the paper attracted more than 140 high-quality international investors, including sovereign wealth funds, official institutions, asset managers, financial institutions, insurance companies, and pension funds.
The offering achieved the tightest ever spreads for Malaysia’s global sukuk. Relative to comparable US Treasury, the 5.75-year paper was priced at a spread of 15 basis points (bps) with annual profit rate of 4.612%, while the 10-year issue landed at a spread of 25bps to yield 4.949% per year.
“The strong oversubscription with the tightest ever spreads, reflects global investors' continued confidence in Malaysia’s economic prospects and policy credibility,” said Finance Minister II Datuk Seri Amir Hamzah Azizan.
The latest issuance also comes at a time when Malaysia is grappling with ballooning subsidy bill from surging oil prices, threatening to derail the government's efforts to shrink its fiscal deficit. Under Malaysia’s fiscal laws, any borrowings to plug the shortfall in budget spending are only to finance development expenditure. The government’s operating expenditure, meanwhile, has to be funded by revenue.
Malaysia’s fiscal efforts “continue to resonate with high-quality investors despite a challenging global environment,” Amir Hamzah added.
Proceeds from the issuance will be utilised for the government's general shariah-compliant purposes, including the financing of development expenditure, the refinancing of existing obligations, or both.
Both tranches were assigned ratings of A3 by Moody's Investors Service and A- by S&P Global Ratings, in line with Malaysia's sovereign credit ratings and stable outlook.
CIMB Group Holdings Bhd (KL:CIMB), HSBC, JPMorgan and Standard Chartered were the joint lead managers and joint bookrunners.
The transaction set a new benchmark yield curve for future Malaysian corporate issuances seeking access to international debt capital markets, creating an important pricing reference for the market, according to CIMB, the sole local bank on the deal.