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NEWS UPDATES Asean Affairs        30  June 2011

Malaysia's successful sale

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Malaysia successfully concluded the sale in two tranches totaling US$2 billion (RM6.06bil) of sukuk wakala in the early hours of Wednesday in deals which saw a surprisingly high subscription rate given the uncertainties in the global credit markets and the gloomier global economic outlook.

The tranches a five-year US$1.2 billion tranche and a 10-year US$800 million tranche were nearly five times oversubscribed, attracting subscriptions of well over US$9 billion (RM27.27bil). Sukuk wakala are Islamic financial instruments based on an underlying wakala structure in which the debt is issued by a special purpose vehicle entitling holders to a return in proportion to their investment.

The oversubscription rate not only signalled that demand for sukuk may be returning in the aftermath of the Arab spring demonstrations and global financial crisis, but also demonstrated investor confidence in Malaysian credit.

Analysts pointed out that the yield for the 10-year tranche was a new reference point for longer-term sovereign and corporate issuances.

The five-year tranche has a coupon rate of 2.991% and the 10-year tranche of 4.646%. A person with knowledge of the sale said the sukuk were sold at 15 basis points lower than the earlier guidance due to the strong interest from investors.

The five-year tranche yielded 145 basis points more than US Treasuries while the 10-year tranche yielded 165 basis points more.

"This is the lowest yield ever in the entire history of Malaysia's issuance in the US dollar market and by global standards, the oversubscription rate is considered high due to the total size of the issuance," he said.

This compared favourably to Malaysia's issuance of a US$1.25 billion sukuk ijara in May 2010 with a rate of 3.928% percent

"The yield for the 10-year tranche will now become the reference point for later issuances either of sovereign or corporate debt originating from Malaysia or by other issuers largely because of the size of the tranche and the rarity of 10-year sukuk," he said, adding that this was also the first sovereign sukuk wakala ever to be issued.

He said the take-up rate for the sukuk issuance could also be due to the scarcity of the country's US dollar-denominated debt, which stood at US$4bil (both sukuk and conventional bonds) and this would become even smaller next month when US$1.75bil (RM5.3bil) worth of bonds matured.


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