Wakalah Deal of the Year
Adnan Sundra & Low, Malaysia’s multi-award winning firm in Islamic finance and capital markets practice, recently advised the Ministry of Finance, the government of Malaysia and Malaysia Sovereign Sukuk (acting as a financing vehicle for the government of Malaysia), on Malaysia’s first international Shariah compliant offering of the year 2015, which was valued at US$1.5 billion. It was also the first 30-year sovereign Sukuk issued, and the first deal where rights to transportation services were used as an asset class.
The Sukuk was issued via Malaysia Sovereign Sukuk, an SPV. It employs a Shariah structure involving three asset classes, two of which are conventional Ijarah assets and commodity Murabahah, and the third being rights to transportation services as the new underlying asset.
Under the rights to transportation services leg, the government of Malaysia shall transfer, by way of a grant, the rights to services which include, but is not limited to, the right to participate in:
- the issuance of driving and vehicle licences and the provision of transfer of vehicle ownership services and other vehicle registration services in Malaysia, and
- the right to receive all revenues, distributions and other monies at any time payable in respect of the aforementioned services, and all other rights, benefits and entitlements in respect of or derived from such services.
Pursuant to the grant, Malaysia Sovereign Sukuk shall thereafter, by way of a sub-grant, transfer to the government of Malaysia the rights to services for a period equivalent to the tenor of the Sukuk in return for a fee, which shall be distributed to the holders of the Sukuk.
Using transportation rights as an underlying asset had its own set of challenges, with reference to the underlying legislation as well as the legal framework under which these types of rights may be granted/transferred. It was the key innovative feature from a legal perspective. From a Malaysian market perspective, the government has always been committed to promoting Malaysia as an Islamic finance hub. Some of these innovations have been driven by that principle.
The Reg S/144A Sukuk was split into a US$1 billion 10-year tranche and US$500 million 30-year offering. The 30-year tranche is the longest tenured Sukuk ever by a sovereign, and fulfilled Malaysia’s objective of making the issuance a new benchmark. The 10-year tranche was oversubscribed by almost seven times and the 30-year tranche was oversubscribed by approximately six times. Although the Sukuk issuance was one of the most prominent sales of bonds in Asia, it was also well distributed across Europe, the Middle East and the US attracting an aggregate interest of over US$9 billion from a combined investor base of over 450 accounts.
CIMB Investment Bank, The Hongkong and Shanghai Banking Corporation and Standard Chartered Bank are the joint bookrunners and joint lead managers for the issuance.
Summary of terms & conditions |
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Issuer |
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Obligor |
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Size of issue |
US$1 billion trust certificates due 2025 and US$500 million trust certificates due 2045 |
Purpose |
To be used by the government of Malaysia for Shariah compliant general purposes. |
Tenor |
10 years and 30 years |
Issuance price |
100% |
Profit rate |
3.043% for US$1 billion trust certificates due 2025 and 4.236% for US$500 million trust certificates due 2045 |
Currency |
US dollar |
Lead manager(s) |
CIMB Investment Bank, The Hongkong and Shanghai Bank Corporation and Standard Chartered Bank |
Principal advisor(s) |
Not applicable |
Governing law |
English law and Malaysian law |
Legal advisor(s)/counsel |
Adnan Sundra & Low acting for the issuer and the government of Malaysia. Zaid Ibrahim & Co acting for the managers. |
Listing |
Hong Kong Stock Exchange, Official List of Bursa Malaysia (Exempt Regime), Official List of Labuan International Financial Exchange |
Underlying assets |
Rights to transportation services, Ijarah assets and commodity Murabahah |
Rating |
‘A-’ by Standard & Poor’s Ratings Services and ‘A3’ by Moody’s Investors Service |
Shariah advisor(s) |
CIMB Investment Bank, The Hongkong and Shanghai Banking Corporation and Standard Chartered Bank |
Structure |
Wakalah Bil-Istithmar. The certificates are also known as Sukuk Ayyan Mutanawwiya (multi-asset Sukuk). |