At the same time, Abu Dhabi National Energy Company (Taqa) is in the process of launching a RM3.5 billion sukuk program in Malaysia to diversify funding sources. The company confirmed the issuance program in a statement to the Abu Dhabi Securities Exchange, and stressed that once regulatory approval is obtained from the Securities Commission of Malaysia, it aims to issue a first tranche under the program "quickly if an when market conditions are optimal".
These two issuances 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 six 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.
For Kuveyt Turk Participation Bank (KTPB) this will be its second sukuk issuance subject to market conditions and the right pricing. Last year the Bank issued a 3-year $100 million Wakala Sukuk in the GCC market. This one, according to Ufuk Uyan, CEO of KTPB, will be a five-year offering which would make it the first 5-year sukuk issued by a Turkish corporate to date.
The roadshow will start in Malaysia on Monday and move to other Asian markets, and then proceed to the Middle East and Europe by Oct. 18. KTPB has already appointed HSBC, Liquidity Management House and Standard Chartered Bank as lead arrangers for the issuance, which will be a US dollar denominated sukuk offering but subject to market conditions.
International rating agency Fitch Ratings has assigned the proposed KTPB second sukuk an expected rating of “BBB-“. The expected rating, said Fitch, is in line with Kuveyt Turk's long-term foreign currency issuer default rating (IDR) of “BBB-“. The final rating is contingent upon receipt of final documents conforming to information already received by Fitch.
The sukuk certificates will be issued by a special purpose company, KT Sukuk Varlik Kiralama A.S on behalf of KTPB, and use the proceeds to purchase from KTPB a portfolio of real estate Ijara (leasing) assets, non-real estate Ijara assets and Murabaha receivables. In accordance with the lease agreement (in relation to the real estate Ijara assets), Kuveyt Turk will lease-back the real estate Ijara assets and will pay rent to the issuer who will in turn pay the profit distribution to the certificate holders.
Kuveyt Turk, said Fitch, is ultimately liable for the due and punctual payment of all sums payable to the certificate holders. In accordance with the purchase undertaking agreement, Kuveyt Turk undertakes to purchase the portfolio assets from the issuer against the exercise price at maturity, expected to be in 2016, or earlier if a dissolution event (which includes an event of default or breach of other obligations on the sukuk by Kuveyt Turk) occurs. Kuveyt Turk's payment obligations under this transaction will rank at least equally with the claims of all of its other unsecured and unsubordinated creditors.
At the same time, the planned RM3.4 billion sukuk program by Abu Dhabi National Energy Company (Taqa) is part of the utility's efforts to diversify its sources of funding and will be the first Malaysian ringgit issuance by a UAE issuer. International credit rating agency, Moody's Investors Service, has 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.
GCC businessmen such as Hisham Al-Razzuqi, chief executive officer of GIC, anticipate more issuers from the GCC region following suit in tapping into non-traditional sources such as Malaysia and East Asia to obtain long-term funds, especially in the aftermath of the so-called “Arab Spring”.
These developments are also a major boost for the Malaysia International Islamic Financial Centre (MIFC) Initiative, which inter alia seeks to promote Malaysia as the centre for sukuk origination and listing.
The latest statistics underpin the strong support which the Malaysian government and the Securities Commission Malaysia have afforded the development of the Islamic Capital Market (ICM) in the country over the last few years. The Malaysian ICM totaled RM1.07 trillion at the end of 2010, slightly lower than the conventional capital market which reached RM1.19 trillion for the same period. The ICM comprised RM756.1 billion in Islamic equities (mainly mutual funds); RM294 billion in sukuk issuances; and RM24 billion in Islamic unit trusts.
The country's Capital Market Master Plan 2 (CMP2), which was launched by the Prime Minister Mohd Najib in April 2011, is also aimed at internationalizing the Malaysian financial services industry, and therefore the capital market, especially domestic companies venturing cross-border to diversify investments and risks and to achieve greater returns. "Our task now is to shift the focus of Islamic finance from serving domestic needs towards tapping the tremendous growth opportunities from intermediating international investments and corporate transactions," said Premier Najib at the launch.
Indeed, the internationalization of the capital market is a necessary pre-requisite to strengthening Malaysia's Islamic Capital Market hub - set to increase almost threefold from RM1.1 trillion in 2010 to RM2.9 trillion in 2020.
