Which deals stood out in the Triple A Islamic Finance Awards 2017?
After three consecutive years of decline, the global sukuk market saw a rebound in issuance activity in 2016. The total volume last year amounted to US$74.8 billion, representing an increase of 13.2% from US$66.1 billion in 2015. It was still way below its peak in 2012 when total issuance reached US$131.2 billion.
Following historical trends, Malaysia continued to be the main driver for sukuk issuance in 2016, accounting for US$34.7 billion, or a market share of 46.4%, followed by Indonesia with US$7.4 billion (9.9%) and the United Arab Emirates with US$6.7 billion (9%).
Total issuance from the Gulf Cooperation Council (GCC) countries amounted to US$19.6 billion, up from US$18 billion in 2015, driven by sovereign offerings. This indicated that sukuk remain an important source of funding in financing the GCC’s budget shortfall amid low oil prices and export earnings.
While sovereign issuances remained a large chunk of the global sukuk market in 2016, it was the corporate sector that accounted for the largest share of issuance activity during the year with US$47.3 billion or 63.2%. The sovereigns contributed 31.3%, followed by supranationals with 3.1% and government-related entities 2.5%.
Innovation was the hallmark of the sukuk market in 2016, which saw the utilization of new underlying assets, the launch of new asset classes, and new structures that contributed to the further development of the Islamic finance market.
Among the issuers, the Government of Malaysia again stood out, winning the honours in The Asset Triple A Islamic Finance Awards 2017 for Islamic deal of the year, Best sukuk and Best sovereign sukuk with a deal using a unique combination of underlying assets.
Pricing a dual-tranche offering amounting to US$1.5 billion in April, it became the first sovereign to access the global sukuk market without utilizing physical assets, such as land and buildings or commodity murabaha. The transaction was structured under the Shariah principle of wakala with the underlying assets comprising vouchers representing entitlement to a specified number of travel units and Shariah-compliant shares.
The other sovereign winner out of Asia was the Islamic Republic of Pakistan, whose US$1 billion offering in October achieved its lowest pricing ever as it paid no new issue premium, resulting in a lower funding cost.
Innovation also defined the Best exchangeable sukuk for Khazanah Nasional through a special purpose vehicle, Bagan Capital. The US$398.8 million deal marked the first ever US dollar-denominated exchangeable sukuk offering with a non-Shariah compliant reference stock at issuance and the first ever sukuk in the world to offer exposure to the growing water utility sector in China. It was also the only equity-linked transaction to achieve above 40% exchange premium in Asia-Pacific, outside of Japan, in 2016.
A prevalent theme in the Malaysian sukuk market in 2016 was the issuance of government-guaranteed offerings, best represented by DanaInfra Nasional. The dual-tranche 4.5-billion-ringgit murabaha sukuk was the largest government-guaranteed issuance last year and was upsized from the initial target of four billion ringgit on the back of strong demand for the public tranche.
Sime Darby won the Best equity deal for its US$571.2 million primary placement, representing the largest Shariah-compliant equity offering in Malaysia. The company also won the accolade for Best corporate hybrid sukuk for its 2.2-billion-ringgit perpetual sukuk, which was the largest sukuk issuance globally by a non-bank entity.
Winning the Best corporate sukuk was the US$750 million transaction for TNB Global Ventures Capital – the first ever sukuk in Asia to use rights to services in relation to electricity distribution as the underlying assets. It was also the largest and lowest priced Asian corporate US dollar sukuk in 2016.
Malaysia’s national mortgage corporation Cagamas has an interesting story as it is committed to enhancing liquidity in the sukuk market by promoting secondary market trading activities for corporate sukuk. The strategy included re-opening initiatives and one deal that stood out, winning the Best local currency sukuk, was the 375-million-ringgit, three-year sukuk, which attracted a strong demand from both local and foreign investors and achieved a lower cost of funding.
A big winner in project finance was the deal for Lebuhraya DUKE Fasa 3 whose 3.64-billion-ringgit transaction represented Malaysia’s first sukuk offering based on the Shariah principle of wakala bi al-istithmar to fund the development and construction of an expressway. It was also the largest ringgit-denominated greenfield toll road project financing (in nominal value) to date.
Capping the Most innovative accolade itself was the 5.54-billion-ringgit murabaha sukuk for Sarawak Hidro – the first hybrid project finance sukuk of its kind and largest ringgit issuance in 2016.
From the Middle East, the outstanding deals include the US$1.5 billion trust certificates for Islamic Development Bank, which was chosen as the Best supranational sukuk. Noor Bank of United Arab Emirates won the Best bank capital sukuk for its US$500 million tier perpetual mudaraba sukuk.
The winner for Best ship financing is National Shipping Company of Saudi Arabia for its dual-currency murabaha facility, while KNPC Clean Fuels Project Financing’s 1.2-billion-Kuwaiti dinar is the Best green financing.
16 May 2017