Asia’s dollar sukuk market looks set for a boost from the entry of Cagamas Bhd., Malaysia’s biggest corporate debt issuer.
The state-owned mortgage provider asked banks to pitch for a combined Shariah-compliant and non-Islamic program, three people familiar with the deal said. Top-rated Cagamas has issued RM265.6 billion ringgit (US$88 billion) of securities in Malaysia since its inception in 1986 and accounts for 22% of AAA debt outstanding, according to the company’s annual report citing data from the end of 2012.
Cagamas would become only the fourth Asian company to tap the dollar Islamic bond market after Malaysia’s Sime Darby Bhd., Petroliam Nasional Bhd. and Japan’s Nomura Holdings Inc. Sime Darby ended a two-year drought in issuance in January, when it got orders for 11 times the US$800 million raised. The Persian Gulf currently dominates U.S. currency sukuk offerings, with sales totaling US$6.7 billion this year.
“Cagamas’s plan to sell dollar bonds would add more color to the Malaysian dollar yield curve,” Ray Choy, regional head of fixed-income research in Kuala Lumpur at RHB Research Institute Sdn., a unit of RHB Capital Bhd., said in an interview yesterday. “It will improve market liquidity.”
Chung Chee Leong
The company will use the proceeds to buy loans and debt from Malaysian financial institutions, assets that could back its bond offerings, said the people who asked not to be named as the information is private. Chief Executive Officer Chung Chee Leong declined to comment when contacted by telephone on May 21.
“They won’t have an issue selling dollar debt,” Fariza Taib, a fixed-income manager overseeing RM1 billion at Kuala Lumpur-based Asian Islamic Investment Management Bhd., said in a May 21 interview. “Cagamas is looked at in the likes of Khazanah Nasional Bhd., the sovereign wealth fund.”
Sime Darby, the world’s biggest palm-oil producer, sold five- and 10-year Shariah-compliant notes, while Petroliam Nasional’s debt matures in August 2014. Nomura’s securities have already expired. The government only has three dollar sovereign notes outstanding, which are all Islamic, and come due in 2015, 2016 and 2021.
The yield on Sime Darby’s 3.29%, 10-year sukuk increased 25 basis points, or 0.25 percentage point, to 3.58% this month, according to data compiled by Bloomberg. The rate on Malaysia’s 4.646% securities due July 2021 climbed 20 basis points to 3%, the highest since March 26.
Sime’s Darby’s debt is rated A by Standard & Poor’s and Fitch Ratings, their sixth-highest investment grades and one level above the sovereign. The Kuala Lumpur-based firm is 35% owned by Permodalan Nasional Bhd., the state asset- management company.
Sales of Islamic bonds, which pay returns on assets to comply with the Koran’s ban on interest, have fallen this year as average yields climbed from a record low.
Global issuance dropped 7.7% to US$15.4 billion from a year earlier, after reaching an all-time high of US$46.5 billion in 2012, data compiled by Bloomberg show. Yields rose 38 basis points to 3.19 percent in 2013, below the five-year average of 5.95%, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. They touched an unprecedented low of 2.67% on Jan. 10.
The difference between the average yield and the London interbank offered rate narrowed two basis points in 2013 to 180, according to HSBC. The debt returned 1.3 percent this year. Bonds in emerging markets declined 0.5 percent, according to JPMorgan Chase & Co.’s EMBI Global Index.
Companies in the Southeast Asian nation that have government links are spearheading dollar sukuk sales in the region. Export-Import Bank ofMalaysia Bhd. plans to sell its first Islamic bonds denominated in the U.S. currency in June, two people familiar with the deal, who asked not to be named as the information is private, said in March.
Seven firms from the six-member Gulf Cooperation Council have sold Shariah-compliant dollar notes this year. The latest offering was from Dar Al Arkan Real Estate Development Co., a property developer in Saudi Arabia.
The sale this month attracted orders exceeding US$1.6 billion for the US$450 million of five-year debt on offer, according to a company statement released yesterday. The securities were issued at a coupon rate of 5.75%.
Malaysia has also attracted foreign issuers such as General Electric Co. of the U.S. and Jeddah, Saudi Arabia-based Islamic Development Bank, who have listed their debt in the world’s biggest Islamic bond market.
The Bloomberg Malaysian Sukuk Ex-MYR Index of global Shariah-compliant notes, which includes securities of GE, Sime Darby, Khazanah, and IDB, rose 0.2% to 111.942 this year, and reached a record of 112.627 on May 8.
Cagamas was formed to boost home ownership and mortgages for Malaysia’s 29 million people. It posted a 6.5% drop in net profit to RM413.2 million in the 12 months ended Dec. 31, 2012, with assets totaling RM23.3 billion, according to its annual report.
“A dollar sukuk from an Asian country would be snapped up quickly, more so if it’s from Cagamas,” Azdini Nor Azman, the Kuala Lumpur-based head of fixed-income investment at Bank Muamalat Malaysia Bhd., said in an interview yesterday. “It will help improve trading volume in the dollar sukuk market.”