Corporate Finance: Deal of the Year
Sime Darby recently made its third comeback to the Sukuk market with a successful issuance of RM2.2 billion (US$546.94 million) perpetual Sukuk at a yield of 5.65%. Speaking to John Chong, CEO of Maybank Kim Eng Group and Maybank Investment Bank (Maybank IB), NURUL ABD HALIM provides a rundown of the hybrid transaction.
While the Ijarah structure was considered for the Sukuk, Sime Darby opted for the Wakalah Bi Al-Istithmar structure as the conglomerate, at the onset of the deal, was looking for an Islamic structure which qualifies for tax incentives, was accepted by a majority of local and international scholars and requires minimal allocation of its tangible assets — 33% of the value of the Wakalah portfolio involving Ijarah assets with the remainder comprising external commodities (Murabahah via a Tawarruq arrangement).
“The introduction of this innovative instrument injects greater market breadth, sophistication and investor portfolio diversification to the Sukuk markets,” explained Chong, adding that: “As a hybrid instrument with features of both debt and equity, issuances of perpetual Sukuk under the perpetual Sukuk program will give Sime Darby access to relatively cost-efficient funding which is non-dilutive compared to a traditional equity instrument.”
Serving as a dual fundraising and balance sheet management initiative, proceeds from the issuance will be allocated for the group’s working capital requirements, capital expenditure, investments, refinancing of debt obligations and Shariah compliant general corporate purposes.
“The transaction was launched amid volatile market conditions,” said Chong commenting on the challenges. By engaging with selected high-quality and real-money anchor investors, the Sukuk managed to generate a strong orderbook, enabling Sime Darby to print the RM2.2 billion facility with a tightened final yield of 5.65%. The final issue size was upsized from the initial RM1.5 billion (US$372.92 million), reflecting the market’s confidence in the Malaysia-based multinational corporation.
Summary of terms & conditions |
|
Issuer |
|
Size of issue |
RM2.2 billion (US$546.94 million) |
Mode of issue |
Bookbuilding |
Purpose |
Working capital requirements, general corporate purposes and/or to finance future investments and/or capital expenditure and/or to refinance debt obligations (whether in whole or part) of the Sime Darby Group, which are Shariah compliant. |
Tenor |
Perpetual non-call 10 years |
Initial periodic distribution rate |
5.65% per year (from issue date until first call date of 24th March 2026) |
Payment |
Semi-annual basis |
Currency |
Ringgit Malaysia |
Principal advisor, lead arranger, lead manager and bookrunner |
|
Governing law |
Laws of Malaysia |
Legal advisor(s)/counsel |
Zaid Ibrahim & Co (to the principal advisor, lead arranger, lead manager and bookrunner); Wong & Partners (to the issuer) |
Listing |
None |
Underlying assets |
Shariah compliant leasable assets including plantation land and their respective biological assets; Shariah compliant commodities and if applicable, Shariah compliant income-generating assets including Shariah compliant shares and tangible investment Sukuk. |
Rating |
‘AAIS’ (Malaysian Rating Corporation) |
Shariah advisor(s) |
|
Structure |
Wakalah Bi Al-Istithmar |
Tradability |
Tradable and transferrable, subject to Capital Markets and Services Act 2007 |
The highlights of the transaction include: the largest perpetual Sukuk issuance globally by a non-bank; the largest ringgit-denominated perpetual Sukuk issuance to date; and the first perpetual Sukuk globally using the principle of Wakalah Bi Al-Istithmar. The ‘AAIS’-rated perpetual Sukuk (Sime Darby’s first issuance under the program) were subscribed by investors based in Malaysia.
Prior to this deal, Sime Darby in 2009 launched its inaugural ringgit-denominated Sukuk (Maybank IB was the sole principal advisor, sole lead arranger and joint lead manager) and debuted its US dollar-denominated Sukuk in 2013 (Maybank IB was a joint principal advisor, joint lead arranger, joint lead manager and dealer).