DAY 1
SESSION 6 |
Moderator:
|
Mahmoud Abushamma Managing director HSBC Amanah |
|
Panel:
|
Mohd Rasheed Khan Senior counsel Azmi & Associates |
|
|
Mohd Izani Ghani Senior vice president Khazanah Nasional |
|
|
Vince Cook CEO The Islamic Bank of Asia |
|
|
Koh Boon Sian Chief financial officer Ranhill Utilities |
Mahmoud Abushamma started off by asking the panelists on their experiences on their first issuance of Sukuk. Mohd Rasheed Khan said the first Sukuk by Shell MDS was in 1990. The next day, Sarawak Shell launched Sukuk worth RM560 million (US$161.41 million) under Musharakah.
Sarawak Shell wanted to expand one of its oil producing fields and the company was prepared to provide a minimum guaranteed income under Musharakah. The guaranteed income was in the changes to the crude oil price. Under the terms of the agreement, the bondholders would enjoy a guaranteed income every six months, and if there were price changes during that period, the bondholders would receive additional payments. Over the course of eight years, the crude oil price increased and the bondholders received their payments.
Mohd Izani Ghani said Khazanah Nasional had successfully launched the world’s first exchangeable Sukuk in September 2006 and it had one issuance in each 2007 and 2008. The process for Khazanah’s first Sukuk started between 12 and 18 months before the issuance and they had to keep the structure under wraps as the investee companies thought the time was not right to launch due to the market conditions prevailing then.
Izani said three factors ensure the success of a launch. Firstly, planning is important and issuers need to know when to hit the market.
Another is timing. When Khazanah wanted to launch its third Sukuk on the 4th March 2008, all its advisers said that the market was too turbulent and general elections were scheduled to be held on the 8th March. However, Khazanah launched the Sukuk on the 5th March at 5pm when the local market improved and the Hong Kong Stock Exchange had rebounded at about 4pm, and closed the book within three hours at about 8pm with a RM6 billion (US$1.73 billion) order book. Finally, issuers need guts to get the deals done.
Koh Boon Sian said Ranhill Utilities did the first holistic privatization in Malaysia when it privatized the Johor State Water Works in February 2000. It was a challenge for Ranhill Utilities as the market was not receptive at the time. However, the company managed to raise serial bonds BAIDs amounting to RM780 million (US$224.85 million).
The key and unique aspect about water concession is the long gestation period and the key factor that drives the repayment of the profit of the Islamic bond is water tariffs, which are sensitive being a social commodity. The challenge is that the state government chose not to revise the tariff for Ranhill Utilities and that had an impact on the company’s repayment.
Koh said the recent move by the Malaysian federal government to introduce the Water Services Industry Act is good as the government is the best party to raise bonds as the cost of funding is low and the benefit will be passed back to the consumers and hence, there is a lower tariff.
Mahmoud then posed a question to Vince Cook regarding Middle Easterners views on the new structures created such as Musharakah and the exchangeable Sukuk. According to Cook, there are four different perspectives on what makes an Islamic issue coming from this region successful.
Firstly, he said, The Islamic Bank of Asia (TIBA) had raised US$250 million from the Middle East and had firsthand experience. Cook said raising US$250 million in equity from a bank is much easier than raising US$250 million in debt in the Gulf Cooperation Council (GCC) due to current market conditions.
Secondly, he said, few Islamic syndications have run smoothly or have seen some degree of restructuring, changing price or structures in order to get the deal completed in the current market environment. TIBA is structuring merger-and-acquisition type of equities or private placements. TIBA is creating more Shariah compliant vehicles in order to add to product innovation.
Reminding issuers of some key factors, Cook said targeting is critical and an issuer will get a much better transaction if he looks for a strategic investor from the GCC or at the equity level.
Flexibility is another key factor and for an issuer who wants specific investors in his list, he must design his terms and conditions around those investors and not rely on the previous day’s benchmark.