Malayan Banking (Maybank, rated AAA by Rating Agency Malaysia, Baa1 by Moody’s, BBB+ by Fitch IBCA and BBB by Standard & Poor’s) was established in 1960 and was listed on the Malaysian stock exchange, Bursa Malaysia, in 1962.
It had a market capitalization of over RM45.6 billion (US$14.4 billion) as at the 26th February 2008. Malaysia’s largest financial services group offers a full range of services in commercial banking, investment banking, Islamic banking, insurance and Takaful, and fund management.
The transaction was jointly arranged and managed by Aseambankers Malaysia (Aseambankers), the investment banking arm of Maybank Group. Aseambankers identifies, structures and executes diverse and innovative public and private market transactions including mergers and acquisitions, divestitures, corporate restructuring, issuance of equity or debt capital, or a combination of these.
Transaction overview
After executing Maybank’s RM1 billion (US$316.6 million) Islamic subordinated debt issuance (the world’s first and the largest ringgit subordinated debt) in 2005, Aseambankers successfully brought another major landmark transaction to Maybank.
In April 2007, Aseambankers was appointed to jointly arrange and manage, on behalf of Maybank, the issuance of the world’s first Islamic US dollar subordinated bank capital Sukuk for US$300 million (US$ subordinated Sukuk) — a significant milestone for global Islamic debt capital that added depth to the Malaysian Islamic capital market (ICM) in line with the government’s aspirations to promote ICM.
The issuance was jointly lead managed by Aseambankers, The Hongkong and Shanghai Banking Corporation Limited, Offshore Banking Unit, Labuan and UBS (Labuan branch) acting through its business group, UBS Investment Bank.
The purpose of the financing program was part of Maybank’s ongoing capital base substitution exercise to further improve its overall cost of capital through re-balancing of its capital structure. The issuer for the transaction was MBB Sukuk Inc, a special purpose vehicle incorporated solely for the purpose of participating in the transactions with limited liability in Labuan, Malaysia.
The US$ subordinated Sukuk was structured on a 10 non-call, five-year basis and qualified as Tier-2 Capital under the existing capital adequacy regulations for Maybank.
As this was a subordinated issue, the ratings assigned were Baa1 by Moody’s Investor Services, BBB+ by S&P’s Rating Services and also BBB+ by Fitch Ratings. Proceeds raised from the US$ subordinated Sukuk were used to finance Maybank Group’s Islamic banking operations and for general Islamic banking purposes. Maybank also intended to use the proceeds to refinance the existing conventional US$ subordinated notes.
A focused investor road show strategy as well as Maybank’s sound credit technical were key to distribution success. Led by president and CEO Datuk Amirsham A Aziz, Maybank’s management team carried out comprehensive international road shows ahead of issuing the Sukuk, which began in Singapore on the 12th April 2007, before proceeding to Hong Kong on the 13th April, the Middle East on the 15th and 16th April and London on the 17th April, which yielded impressive results.
The offer for the US$ subordinated Sukuk received overwhelming response from international investors, resulting in over-subscription of more than seven times and amassed over a US$2.3 billion order book with a total of about 75 high-quality investors participating.
Strong appetite came from international investors across Asia (61%), the Middle East (15%) and Europe (24%). The US$ subordinated Sukuk were also offered outside the US to non-US persons in accordance with Regulation S under the United States Securities Act of 1993.
Investor Distribution Profile
It also achieved the tightest pricing ever achieved on a US$ issue from Malaysia to date and the second tightest pricing ever for a US$ sub-debt bank issue from Asia (ex-Japan).
Globally, the US$ subordinated Sukuk achieved the tightest pricing ever for a US$ Sukuk (excluding supranational issuers).
Financing plan and structure
(a) At Inception
The US$ subordinated Sukuk financing structure entailed establishment of two special purpose vehicle (SPV) companies incorporated in Labuan solely for the purpose of facilitating and ensuring the proposed Islamic financing structure is in compliance with the Shariah standards set by the Shariah scholars in the Gulf Cooperation Council (GCC) countries.
The GCC’s Shariah board also required that both the SPVs were orphan companies, i.e. not owned by Maybank.
Under the transaction, Maybank transferred beneficial ownership interests in a portfolio of assets (Sukuk assets which comprised Islamic financial assets such as Ijarah Islamic assets or other acceptable Shariah compliant assets).
MBB Sukuk would then issue the US$ subordinated Sukuk to investors, and proceeds from the issuance would be utilized to finance the purchase of the Sukuk assets. As the seller of the Sukuk assets, Maybank would then utilize these Sukuk proceeds to fund its Islamic finance operations or business activities.
The beneficial interest in the Sukuk assets shall be ultimately transferred in favor of MBB Sukuk, while the legal ownership should remain at Maybank. In essence, the sale and purchase of the Sukuk assets only reflected the transfer of the beneficial ownership and there would not be any physical movement of these Sukuk assets.
This effectively meant the MBB Sukuk held the Sukuk assets on trust for the benefit of the Sukuk holders who should also be the beneficial owners of the undivided fractional ownership of the Sukuk assets.
MBB Sukuk, under a management agreement, would appoint Maybank as a manager/wakeel to manage the Sukuk assets and payment agent for all collections related to the Sukuk assets and would then use these periodic payments as periodic Sukuk payments.
The US$ subordinated Sukuk incorporated a deed of purchase undertaking and deed of sale undertaking. Pursuant to the purchase undertaking issued in favor of MBB Sukuk, Maybank was required to purchase the US$ subordinated Sukuk upon maturity of dissolution for a price equivalent to outstanding principal, plus profits accrued and unpaid.
Conversely, MBB Sukuk would issue a sale undertaking in favor of Maybank granting Maybank the rights to purchase the US$ subordinated Sukuk at a prescribed price based on the agreed redemption date.
Maybank, in its capacity as manager, would collect any payments from the Sukuk assets. MBB Sukuk would forward these payments to Sukuk holders as periodic payments (profits). Any surplus income would be retained by Maybank as their fees. Any mismatch in the periodic payment would be financed by Maybank via a Shariah compliant liquidity facility pursuant to the management agreement.
(c) At maturity
On maturity date, under the terms of the deed of purchase undertaking, Maybank would undertake to acquire the Sukuk assets at their principal value, either at maturity date or upon an event of dissolution. MBB Sukuk would then utilize the proceeds from the sale of the Sukuk assets to repay the principal of the Sukuk to the Sukuk holders.
Achievements
The objectives and achievements for the issuances of the US$ subordinated Sukuk:
• An internationally Shariah compliant structure guaranteed access to a wider investors’ base. Hence, funds were raised at competitive rates which in turn translated into lower overall financing costs for Maybank;
• The internationally Shariah compliant structure also enhanced Maybank’s profiling among international investors;
• Fully supported the government of Malaysia’s objective to make the country an international financial center through issuing an internationally accepted debt instrument.
MBB Sukuk Inc
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