Global market volatility stalls TAQA sukuk offering

Mohammed Mubaideen, investor relations manager, TAQA,
confirmed that the (issuance) process is in early stages and the above
announcement was made "to meet regulatory requirements. Any issuance will
be subject to market conditions. Markets are very volatile at the moment, and
it is very difficult to have a clear vision." He could not give more
details on the sukuk program nor the size or structure of the first tranche.
Last month, Khazanah Nasional Berhad, the Malaysian
sovereign wealth fund, postponed the issuance of its debut dim sum sukuk in the
offshore renminbi market in Hong Kong for the same reasons on the advice of the
mandated lead arrangers Bank of China International, CIMB and Royal Bank of
Scotland.
Sovereign Indonesia similarly is awaiting "the right
timing" to launch its proposed $1 billion plus benchmark global Islamic
trust certificates (sukuk) to which Standard & Poor's Ratings Services last
week assigned a “BB+” long-term foreign currency issue rating and Moody's
Investors Service a provisional rating of Ba1.
According to Bhimantara Widyajala, director, Indonesian
Ministry of Finance's Debt Management Office, the issuance will go ahead but
only at the right timing and pricing. The ministry has already mandated HSBC,
Citigroup and Standard Chartered Bank to arrange the Sukuk Al-Ijara (leasing sukuk)
offering, which will be issued by Perusahaan Penerbit SBSN Indonesia II
(PPSI-II), a special purpose vehicle (SPV) on behalf of the Indonesian Ministry
of Finance. 
Last week also Kuveyt Turk Participation Bank (KTPB),
which is majority owned by Kuwait Finance House, one of the largest Islamic
banks in the world, launched its road show for its proposed 5-year $350 million
Sukuk Al-Ijara issuance in Kuala Lumpur in Malaysia albeit taking in also other
centers in Asia, the GCC and Europe, and once again signifying that issuers
from the Middle East, largely from the Gulf Cooperation Council (GCC) countries
and Turkey, are increasingly turning to investors in Malaysia and Asia to raise
their funding requirements. This according to some bankers is due to the
fallout of the so-called Arab Spring and both issuers investors are more
cautious of investing in papers originated in some parts of the region.
TAQA's investor relations manager, Mohammed Mubaideen,
concurs that "the company would like to diversify its sources of funding.
The Malaysian market has great potential and is one of the markets that we are
looking at."
The good news is that TAQA is looking at Islamic finance
as part of its diversification of sources of funding strategy, and according to
Mubaideen, TAQA already utilizes Islamic financing at its project level.
The proceeds of the proposed sukuk issuance "will be
used for general corporate purposes" and currently TAQA has no plans for
further forays into the Islamic finance market to fund expansion or
acquisitions in new markets? Currently TAQA does not have any expansion plans
in new markets, said Mubaideen.
He agrees that "the role of Islamic finance will
become more important in the region" over the next few years especially to
serve the oil and gas industry in the GCC/MENA countries.
International credit rating agency, Moody's Investors Service,
has already assigned a provisional A3 rating to TAQA's proposed RM3.5 billion sukuk
program. In its rating rationale, Moody's stressed that the Sukuk Murabahah
instruments to be issued pursuant to the program will rank pari passu with all
other unsecured and unsubordinated obligations of TAQA and therefore carry the
same rating as TAQA's A3 long term issuer rating. "The purpose of
establishing the sukuk program by TAQA is to diversify its investor base, with
management's intention of using proceeds for general corporate purposes.
Moody's understands that the interest and principal Malaysian Ringgit currency
exposure will be fully hedged. The terms and conditions of the sukuk program
are based on Malaysian law," said Moody's.
These above developments follow the offering in August
2011 of the RM750 million ($254 million) Sukuk Wakala bi Istithmar issued by
Kuwait-based Gulf Investment Corporation (GIC) under its existing 20-year RM3.5
billion ($1.18 billion) medium term notes program. GIC, whose shareholders
include the governments of the GCC states, namely, Kuwait, Saudi Arabia, the
United Arab Emirates, Qatar, Bahrain and Oman, and whose mandate is to promote
private enterprise and support economic growth in the GCC region, raised the
RM750 million in the Malaysian market through a 5-year sukuk issuance which has
a profit payment of 4.9 percent to be paid twice a year.
Other foreign issuers that have originated sukuk in
Malaysia include the World Bank and its private sector funding arm, the
International Finance Corporation (IFC); the $100 million Sukuk Al-Ijara issued
by Japan's Nomura Holdings; the RM100 million Sukuk Al-Ijarah issued by Islamic
Development Bank; and the RM500 million 10-year sukuk issued by the National
Bank of Abu Dhabi.
However, the biggest breakthrough potentially came in
2010 when Saudi Arabia's Al-Rajhi Bank, the largest Islamic bank in the world
in terms of balance sheet, collaborated with Cagamas Berhad, the National
Mortgage Corporation of Malaysia and leading securitization house, to develop
and launch the Sukuk Al-Amanah Li al-Istithmar (Sukuk ALIm), which was the
underlying structure for Cagamas's RM5 billion Islamic Commercial Paper (ICP)
and Islamic Medium Term Note (IMTN) program. This "first-of-its-kind"
and "innovative" structure was sold to investors in Saudi Arabia and
is a manifestation of Al-Rajhi's new-found strategy of bridging the gap and
facilitating cross-border activity in the Islamic capital market between
Malaysia and the Middle East.