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Successful sukuk endorsement of Malaysia’s fundamentals

An example of sukuk issuances by country.

Syndicated News
Written by Syndicated News

KUALA LUMPUR — April 17, 2015: The success of Malaysia’s US$1.5 billion sukuk issuance, after a lapse of almost four years, has drawn positive response from international investors who have reaffirmed their confidence in the country’s long-term economic fundamentals.

In brushing off negative criticisms of the economy, analysts today concurred that sceptics were losing out on investment opportunities abound in Malaysia when the reality is that foreign appetite for Malaysia’s financial instruments, including Islamic bonds, remains strong.

The sukuk issued was oversubscribed, attracting an aggregate interest of over US$9 billion (RM32.8 billion) from a combined investor base of over 450 accounts.

The issuance consist of a US$1 billion (RM3.65 billion) 10-year and US$500 million (RM1.8 billion) 30-year benchmark Trust Certificates (sukuk).

“The 30-year tranche was oversubscribed by approximately six times. Considering that this is quite a long-dated instrument, it shows that international investors are optimistic of Malaysia’s long-term economic prospects,” said Inter-Pacific Research head of research Pong Teng Siew.

The 10-year tranche was oversubscribed by about six times. Pong said the oversubscription indicated that foreign appetite for Malaysian bonds remains strong.

“Malaysia’s success in the issuance and pricing of its global sukuk shows a clear demarcation between investors who believe in the long-term fundamentals of the economy and those with a very short-term investment horizon,” said MIDF Amanah Investment Bank head of research Zulkifli Hamzah.

Subscribers are clearly comfortable with the resilience of the Malaysian economy and the fiscal reform initiatives being pursued by the government, he said.

Fitch Ratings’ threat to downgrade Malaysia does not appear to have any bearing on the issuance, especially with regards to pricing.

“Sceptics are missing out on the opportunity to participate in the progress of the country, in its journey to become a high-income economy,” he opined.

Pong also said that the interest in Malaysian bonds came from the ringgit’s bright outlook as the currency’s weakening cycle had come to an end.

The ringgit opened higher at 3.6305/6335 today to the US dollar compared with yesterday’s close of 3.6520/6550.

The main reason weighing on the ringgit was the stronger US dollar due to reports saying that the Federal Reserve would raise interest rates soon.

“However, we believe an interest rates hike in the US will be unlikely given the weakening US economy,” he added.

Treasury secretary-general Tan Sri Dr. Mohd. Irwan Serigar Abdullah said the government was extremely pleased with the success of the deal and the confidence global investors have in Malaysia’s credit story.

The offering marked the country’s fourth US dollar-denominated sovereign global sukuk issuance, following its successful global sukuk issuances in 2002, 2010 and 2011.

The 10-year tranche was allocated to investors in the Middle-East (24 per cent), Asia (50 per cent), Europe (16 per cent) and the United States (10 per
cent) while the 30-year tranche was allocated to investors in the Middle-East (two per cent), Asia (50 per cent), Europe (19 per cent) and the United States (29 per cent).

The sukuk is expected to be assigned ratings of A- by Standard and Poor’s Ratings Services and A3 by Moody’s Investors Services Ltd. — Bernama

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