Deal of the Year, Malaysia, Most Innovative & Social Impact Deal of the Year
Malaysia’s strategic investment fund, Khazanah Nasional, on the 18th June successfully issued the first tranche of its responsible investment Sukuk program (First Sukuk Ihsan). At a periodic distribution rate of 4.3% per annum, the Sukuk incorporates a unique structure whereby the repayment is dependent on the eligible socially responsible investment (SRI) project’s ability to meet identified key performance indicators (KPIs). Speaking to Mohd Izani Ghani, the executive director and chief financial officer of the sovereign wealth fund, NABILAH ANNUAR has the exclusive.
Engineered according to the principle of Wakalah Bi Al-Istithmar, the first tranche adopts a structure which allows the issuer to utilize a combination of tangible assets and commodities that is asset-efficient and suitable for the deal. The Sukuk program, however, also provides for other Islamic principles to be used. According to Izani, the main purpose of the Sukuk program is to support Khazanah’s corporate and social responsibility (CSR) efforts. The proceeds from the First Sukuk Ihsan shall be utilized to fund Yayasan AMIR‘s Trust Schools program for 2015, whereby it is utilized to fund the roll-out of 20 schools. The Trust Schools program is an implementation model which focuses on school-wide transformation carried over the course of five years.
“Unlike a fixed-income instrument with fixed maturities and profit rates, the repayment of the First Sukuk Ihsan will be dependent on the eligible SRI project’s ability to meet identified KPIs. If the eligible SRI project successfully meets the targeted indicators, investors will not receive the original investment amount; the nominal value due under the First Sukuk Ihsan will be mandatorily reduced by 6.22% and the Sukukholders will be entitled to receive tax vouchers from Yayasan AMIR through Khazanah for an amount equal to the reduction in the nominal value of their respective Sukukholdings,” explained Izani.
Incorporating a unique ‘Pay for Success’ structure measured using a set of predetermined KPIs assessed over a five-year observation time frame, the First Sukuk Ihsan holders will forgo 6.22% of the nominal value due under the First Sukuk Ihsan at maturity (if these KPIs are met), as part of their social obligation in recognizing the positive social impact generated by Yayasan AMIR’s Trust Schools program for 2015. If these KPIs are not met, Sukukholders will be entitled to the nominal value due under issuance in full at maturity. The Sukukholders also have the right to waive their Sukuk holdings at any time during the tenure of the First Sukuk Ihsan, in which the waived amount will be matched with tax vouchers in return.
One of the challenges faced in the process of issuing the paper was investor comprehension and confidence. “As the first-of-its kind offering in Malaysia and potentially globally, the investors required more time to familiarize themselves with the structure and the mechanics of the Sukuk Ihsan. Targeted at corporates and agencies as part of their CSR, a two-day roadshow was organized to educate investors as some of them were not regular Sukuk investors and these entities required time to procure the necessary internal approvals.
As a Malaysian ringgit offering with a pioneering structure, the first tranche was earmarked to Malaysian investors and is the world’s first ringgit-denominated SRI Sukuk, creating a new asset class in the Malaysian Islamic finance industry. Relaying his conviction of this revolutionary structure, Izani said: “The Sukuk will act as a catalyst for other Malaysian companies to follow suit and serves as a benchmark for other issuers tapping the Malaysian Sukuk capital market for socially responsible financing in the future. This structure can be replicated for other initiatives such as affordable housing, health care, etc. The First Sukuk Ihsan is also a historic achievement in the development of Malaysia’s capital markets and will further enhance the country’s value proposition as a center for Islamic finance globally.”
Summary of terms & conditions |
|
Issuer |
Ihsan Sukuk |
Obligor |
Khazanah Nasional |
Principal advisor |
CIMB Investment Bank |
Shariah advisors |
Amanie Advisors and CIMB Islamic Bank |
Legal advisor |
Zaid Ibrahim & Co |
Purpose of the Sukuk program |
Funding Shariah compliant eligible SRI projects. |
Tenor |
25 years from the date of the first issue under the Sukuk program |
Rating |
‘AAA(s)’ by RAM |
Structure |
Wakalah Bi Al-Istithmar and/or such Islamic principles |
Governing law |
Laws of Malaysia |
Issue size of the first tranche |
RM100 million (US$26.62 million) in nominal value |
Lead manager and bookrunner |
CIMB Investment Bank |
Purpose of the First Sukuk Ihsan |
To fund Yayasan AMIR’s Trust Schools program for 2015, a not-for-profit foundation incorporated by Khazanah to improve accessibility of quality education in government schools through a public-private partnership with the Ministry of Education. |
Tenor |
Seven years |
Maturity date |
17th June 2022 |
Issue price |
100% |
Periodic distribution rate |
4.3% per annum |
Payment |
Annual basis |
Underlying assets |
Tangible assets and commodities |