Malaysian sovereign wealth fund Khazanah Nasional recently issued its sixth exchangeable Sukuk on the 3rd September 2014. The paper is the first internationally distributed Sukuk, structured based on Islamic principles of Mudarabah and Murabahah. NABILAH ANNUAR reports on the successful deal.
Auctioned only five days after the issuance of its RM1.5 billion (US$462.71 million) Islamic term notes program (see IFN Vol. 11 Iss. 35), Khazanah’s US$500 exchangeable Sukuk was still well-received managing to reap a demand of 1.6 times the book size. Exchangeable into shares of Tenaga Nasional, the country’s largest utility company, the paper was also the first negative yield transaction to be priced in Asia (excluding Japan) this year and Khazanah’s third, consecutively since 2012 . As a bonus, the Sukuk was priced at a 15% premium over the closing price of MYR12.40 (US$3.83), which was 38% of its year-to-date value and near its all-time high.
Speaking to IFN, Mohd Izani Ghani, the executive director and chief financial officer of Khazanah Nasional revealed that one of the key goals of the transaction was to lengthen the Sukuk tenor. “This was a significant challenge as the vast majority of equity-linked issuances in Asia come in a five-year tenor with an investor optional dissolution after the third year. By successfully marketing Khazanah’s credit profile and the attractive characteristics of Tenaga Nasional’s equity, the total tenor was extended to seven years from the customary five years and the optional dissolution date was increased to four years from the customary three years,” he said.
In addition to that, another adversity that was encountered by the obligor was the fact that the transaction came to market during a period of declining volatility and rising rates, which for many issuers would make a successful equity-linked transaction significantly more challenging. Nevertheless, due to Khazanah’s strong track-record, the offering still bode well in the debt capital markets. “The combination of Khazanah’s strong credit profile and the familiarity of the investor base with past Khazanah issuances enabled the transaction to overcome these headwinds to achieve a successful pricing,” affirmed Izani.
According to Khazanah, this particular Sukuk is the first internationally distributed Sukuk that is structured based on Islamic principles of Mudarabah and Murabahah, as its past issuances were based on the Musharakah and Wakalah structure. The Sukuk was unrated because equity-linked investors do not require a rated instrument as they are more focused on combination of credit characteristics and equity value. The standalone issuance was taken up by Asian (44%) and European (56%) investors, comprising of hedge funds (35%) and outright investors (65%).
3rd September 2014
|Purpose of issuance||For Khazanah’s Shariah-compliant general corporate purposes relating to its principal activities|
|Trustee||The Bank of New York Mellon|
|Investors put option||At end of year-4|
|Coupon rate/return||Zero / (0.05)%|
|Put/redemption price||99.80% / 99.65%|
|Maturity date||18th September 2021|
|Bookrunner||Deutsche Bank AG, Standard Chartered, CIMB|
|Governing law||English Law for Sukuk, Malaysian Law for Islamic documents|
|Legal advisors||Allen & Overy, Linklaters, Adnan Sundra & Low, Zaid Ibrahim & Co|
|Listing||Bursa Malaysia, Labuan International Financial Exchange, Singapore Stock Exchange|
|Underlying assets||Tenaga Nasional Shares|
|Shariah advisors||Deutsche Bank, Standard Chartered, CIMB|
|Structure||Sukuk Mudarabah and Sukuk Murabahah|
|Face value/minimum investment||US$100,000|