The Government of Malaysia on April 21 priced the world’s first sovereign US dollar sustainability sukuk amounting to US$800 million, setting a new benchmark, as well as, reinforcing the country’s global leadership in Islamic finance and its position as the world’s largest sukuk market. The transaction also marked the sovereign's return to the offshore debt market after an absence of five years, having priced a dual-tranche sukuk totaling US$1.5 billion in April 2016.
The 10-year trust certificates were priced at par with a yield of 2.070%, representing a spread of 50bp over the US treasuries. The offering attracted an order book of over US$4.4 billion from 175 accounts. In terms of geographical distribution, 55% of the sukuk was distributed in Asia, including 10% in Malaysia, 33% in EMEA and 12% in the United States. By type of investors, fund and asset managers, and insurance companies accounted for 67% of the paper, while central banks, sovereigns, supranationals and agencies bought 18%, bank treasury 14%, and private banks, corporates and other investors 1%.
In addition to the sustainability sukuk, Malaysia also raised US$500 million in conventional sukuk for 30 years, which was also priced at par with a yield of 3.075% – or equivalent to a spread of 80bp over the US treasuries. This tranche generated a total demand in excess of US$3.9 billion from 180 accounts with 46% of the issuance allocated in Asia, including 6% in Malaysia, 33% in EMEA and 21% in the US. Fund and asset managers, and insurance companies bought 83% of the sukuk, bank treasury 10%, central bank and sovereigns, supranationals and agencies 4%, and private banks, corporates and other investors 3%.
The yields and the spreads are the lowest ever achieved by Malaysia for a US dollar sukuk issuance, according to the Ministry of Finance (MoF), driven by the strong demand, which enabled the sovereign to upsize the overall amount of the transaction from US$1 billion to US$1.3 billion. “This demonstrates the market’s confidence in Malaysia’s economic recovery and growth prospects, despite a challenging past year due to the Covid-19 pandemic,” the MoF says in a statement.
In executing the Reg S/144A transaction, the deal’s joint bookrunners and lead managers – CIMB, HSBC and J.P. Morgan – arranged a global investor call and a series of fixed-income investor calls across Asia, the Middle East, Europe and the US commencing on April 19. The sustainability sukuk is issued via a special purpose vehicle, Malaysia Wakala Sukuk Berhad, and based on Malaysia’s newly-established Sustainable Development Goal (SDG) sukuk framework, which was assessed by. Sustainalytics. The framework is aligned with the four core components of the Social Bond Principles 2020, the Green Bond Principles 2018 and the Asean Sustainability Bond Standards.
The proceeds from the sustainability sukuk will be used for eligible social and green projects aligned to the United Nation SDG agenda. This will enable Malaysia to not only meet its commitments as a responsible nation and signatory to the Paris Agreement, but also further its efforts to advance its people’s socio-economic well-being. It is also a testament to the government’s efforts in combating climate change as well as accelerating the transition towards a more resilient and inclusive economy, in line with Malaysia’s Shared Prosperity Vision 2030.
This sukuk is likewise unique as its underlying assets are sustainable assets, being vouchers representing travel entitlement on Malaysia’s Light Rail Transit (LRT), Mass Rapid Transit (MRT) and KL Monorail networks.
HSBC Amanah Malaysia and J.P. Morgan acted as the joint SDG structuring agents, while the sustainability sukuk’s Shariah structure has been approved by the board Shariah committee of CIMB Islamic Bank and HSBC global Shariah supervisory committee. Islamic Corporation for the Development of the Private Sector, meanwhile, acted as co-manager for the transaction.
Malaysia’s latest sukuk offering underpins the issuance momentum, which is expected to continue for the rest of the year, according to a Fitch Ratings report issued on April 21. It says this will be supported by intact investor appetite for sukuk and as issuers seek to diversify funding and meet upcoming maturities.
Total global outstanding sukuk, according to Fitch, reached US$715.2 billion in the first quarter of 2021, which was 3% higher than in the fourth quarter of 2020. Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan reached US$9.9 billion in the first three months of this year – similar to levels in the last quarter of 2020.