Infrastructure sukuk receives a major boost

The issuance was through PLUS Malaysia Sdn Bh, which is a
jointly-owned special purpose company of UEM Group Berhad and the Employees
Provident Fund (EPF), which was set up to acquire the Malaysian business and
undertakings including the assets and liabilities of PLUS Expressways Berhad,
the major provider of expressway operation services in Malaysia, under a
privatization exercise (proposed acquisition). Following the completion of the
proposed acquisition, PLUS Malaysia's wholly-owned subsidiary, PLUS Berhad will
acquire all the assets and liabilities of the respective concession companies
via the issuance of the GG Sukuk and AAA Sukuk Musharaka.
The program, according to lead arranger and Principal
Adviser, CIMB Investment Bank, comprised RM11 billion of GG issuances and
RM19.6 billion of AAA issuances and are based on a bought deal and private
placement basis. The non-government guarantee component could be increased to
RM23.35 billion.
It is no secret that national road agencies from several
countries, especially those in emerging countries, have been watching the PLUS
offering closely with the hope of attracting investors to participate in their
own road expansion and rehabilitation programs with the strong interest and
therefore possibility of issuing Sukuk to do this against toll roads operated
by these agencies.
Countries with huge areas such as Saudi Arabia, Turkey,
India, South Africa, China, Pakistan, Iran, Egypt and do on, whose road
infrastructure needs further development and rehabilitation, in particular could
use competitive financing alternatives such as Sukuk to fund these needs based
on innovative and fair revenue models.
Two national road agencies — one from a Muslim country
and the other from a non-Muslim country — have in fact confirmed that they have
initiated feasibility studies and preliminary discussions to issuing sukuk as
part of their source of funding diversification strategies. The major problem
is lack of familiarity about the structures of Sukuk; issues relating to
prohibitive demands on collateral and guarantees; lack of legal infrastructure
in the domicile of the potential new issuers; and concern over the Shariah
compliance of such issuances. 
One of the national road agencies stressed that it has
had discussions in the past with several potential lead managing suitors for a
potential sukuk, but discussions did not progress because of legal limitations
over asset ownership.
With the difficult global bond market conditions, there
are signs that infrastructure companies are seeking to diversify to other
funding sources in addition to the traditional equity and government budget
financing. Sukuk is emerging as an attractive and viable alternative.
A few months ago, for instance, Syarikat Prasarana Negara
Berhad, the Malaysian public infrastructure company wholly-owned by the
Ministry of Finance, successfully closed its RM2 billion Sukuk Al-Ijarah
offering under its RM4 billion nominal value sukuk program, whose proceeds will
be used mainly to part finance the Kelana Jaya and Ampang LRT Line Extension
Project and other infrastructure improvement initiatives by Prasarana. The
issuance is guaranteed by the Malaysian government. 
Prasarana usually issues only conventional bonds to
finance its activities. The company was set up to facilitate, undertake and
expedite public infrastructure projects approved by the government and together
with its group of companies are also asset-owners and operators of several
public transport providers, namely the Ampang and Kelana Jaya lines, KL
Monorail system, bus operations in Klang Valley and Penang, as well as the
cable car services in Langkawi.
This RM2bn issuance was the first time that the company
tapped the Islamic capital market with a sukuk issuance, and according to
Prasarana Chief Executive Officer Shaipudin Shah Harun, there will be further
finance raising forays in the future to fund the company's expansion plans, and
Parasarana is committed to contribute to the further development of the
Malaysian sukuk market. This issuance was actually structured in 2009 by joint
lead managers and arrangers AmInvestment Bank and CIMB Investment Bank, with
Bank Islam Malaysia acting as co-manager. But the issue was delayed due to the
impact of the global financial crisis which badly affected pricing and yields in
both the conventional bond and sukuk markets.
Sukuk and infrastructure should be a natural fit. While
the sukuk market has flourished over the last four years, these have
concentrated more on raising finance for balance sheet purposes; refinancing
existing more expensive debt including very often conventional finance debt;
overcoming the mismatch between short-term deposits and longer term liabilities
by raising longer term financing; and providing working capital and funds for
expansion.
Sukuk for development and infrastructure projects such as
pure project sukuk have been hardly a feature of the sukuk landscape, although
there have been a few exceptions. This is surprising given the estimated
multi-trillion dollar infrastructure spend in the IDB member countries over the
next decade or so.
The latest PLUS Sukuk Program, whose issuer and obligor
is provides an ambitious financing conduit for the toll road services operator,
which some observers stress would only be possible in a country such as
Malaysia where the government is a proactive supporter of involving Islamic
finance in the economy together with conventional financing options under its
economic transformation program (ETP).
The GG issuances comprised two tranches of RM5.5 billion
each — the one with a tenor of 26 years with a periodic distribution rate of
4.86 percent and the other with a tenor of 27 years and 353 days with a periodic
distribution rate of 5 percent respectively.
The AAA issuances, which are Sukuk Al-Musharaka,
comprised a total of 21 tranches with tenors ranging from 5 years to 25 years
with a periodic distribution rate ranging from 3.9 percent to 5.75 percent
respectively.
PLUS Expressways operates and maintains 973 kilometers of
inter-urban toll expressways in Peninsular Malaysia, stretching from the border
of Thailand in the north to the border of Singapore in the south, linking all
major cities on the west coast of Peninsular Malaysia.