Malaysia’s trade finance company plans to tap Islamic investors for the first time with a debut dollar sukuk, taking advantage of a retreat in borrowing costs from a two-year high.
Export-Import Bank of Malaysia Bhd started marketing in Asia, Europe and the Middle East earlier this month as part of a US$1 billion programme. "The response is good and we are looking to enter the market as soon as possible," chief executive officer Datuk Adissadikin Ali said in an interview yesterday, declining to be more specific on the timing and size.
The sale helps fill a void for dollar-denominated corporate sukuk in Asia where only Sime Darby Bhd, the world’s biggest palm-oil producer, state-owned oil company Petroliam Nasional Bhd and Japan’s Nomura Holdings Inc have sold such bonds since 2009. Gulf Cooperation Council issuers raised US$5.5 billion from local and US currency Islamic notes since September 18, when the Federal Reserve unexpectedly refrained from cutting stimulus.
"I will definitely look at the new issue as Exim is with Petronas by far the best way to play the sovereign risk in Malaysia," Sergey Dergachev, who helps manage US$8.5 billion of emerging-market debt at Union Investment Privatfonds in Frankfurt, said in an October 8 interview. "Sukuk issuance is just now kicking in, mostly from the GCC."
The lender is raising funds as it seeks to boost the proportion of Shariah loans to Malaysian companies operating overseas and plans to increase such financing to 30 per cent of the total in two years from 20 per cent now, Exim Bank’s CEO Adissadikin said.
Average yields on global Islamic bonds, which pay returns on assets to comply with the Koran’s ban on interest, dropped 12 basis points since September 18 to 3.91 per cent, down from a two-year high of 4.29 per cent on September 6, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
Borrowing costs on Petronas’ 4.25 per cent notes due August 2014 fell below one per cent on September 20 for the first time since the debt was sold in 2009, data compiled by Bloomberg show. The debt yielded one per cent today. The yield on Sime Darby’s 2.053 per cent Islamic dollar bonds maturing in 2018 declined 64 basis points, or 0.64 percentage point, to 2.82 per cent from this year’s peak on June 24. The Nomura sukuk already matured.
Exim Bank, which is state owned and rated the fourth-lowest investment grade, is offering the sukuk as part of a multicurrency program rated A3 by Moody’s Investors Service and A- by Fitch Ratings, the same ranking as the sovereign.
"For diversification purposes among my sukuks, a Malaysian high-quality name like Exim fits very well," Dergachev said.
The GCC, which includes the United Arab Emirates and Qatar, is helping revive global sales of Islamic bonds this quarter. Saudi Arabia’s General Authority of Civil Aviation, Ras Al Khaimah and Al-Hilal Bank in the U.A.E. are among other issuers that completed sales since mid-September.
Global sales of Shariah-compliant debt fell 21 per cent in 2013 from a year earlier to US$30.3 billion, while offerings from the GCC dropped 11 per cent to US$16.4 billion, according to data compiled by Bloomberg. ACWA Power International, a developer of generation facilities in Saudi Arabia, which is also a GCC member, plans to issue US$800 million of sukuk in 2013.
While Exim Bank’s dollar sukuk offers investors a new credit to look at from a diversification point of view, Albaraka Banking Group BSC won’t be participating in the offering due to plentiful GCC supply, said Malek Khodr Temsah, vice-president of treasury and investment at the Bahrain-based lender.
"Given the plethora of primary market activity from regional borrowers, global sukuk investors have been able to cherry pick which credits to get involved in," Temsah said in an October 8 interview. "We are conserving our liquidity for some upcoming regional sukuk issues."
Fariza Taib, head of Islamic bond and local-currency investment at Kuala Lumpur-based Asian Islamic Investment Management Sdn, said she’d be keen to look at Exim Bank’s sukuk if it offers a spread of 180 to 200 basis points more than similar-maturity US Treasuries.
Five-year US government notes yielded 1.46 per cent today and 10-year bonds 2.69 per cent, according to data compiled by Bloomberg.
"If the pricing is right, demand will be good," Fariza, who oversees RM1 billion, said in an interview yesterday. "Exim Bank offers an opportunity for diversification as most dollar bond issuance has been Middle- Eastern-centric."
The extra yield investors demand to hold global Islamic bonds over the London interbank offered rate was little changed at 208 basis points from the end of September, when the spread narrowed six basis points, according to the HSBC/Nasdaq index. The notes posted a 0.3 per cent loss this year, while JPMorgan Chase & Co.’s EMBI Global Index shows emerging-market debt declined 6.7 per cent.
The yield on Malaysia’s 3.928 per cent sovereign sukuk maturing in June 2015 was little changed at 1.37 per cent today, down from 2013’s peak of 1.61 per cent on September 6.
Exim Bank’s new bond issue will be its second foray into the international debt market. The company sold US$500 million of five-year non-Shariah-compliant notes in May 2012 at a coupon rate of 2.875 per cent. Those bonds due in 2017 last yielded 2.76 per cent, according to data compiled by Bloomberg.
"We would be keen on the sukuk as it’s 100 percent owned by the government," Jesse Liew, head of global sukuk at BNP Paribas Investment Partners Malaysia, who manages 554 million euros (US$748 million), said in an October 8 interview in Kuala Lumpur. "Exim Bank has a high likelihood of getting government support in any adverse event."-- Bloomberg