KUALA LUMPUR: Sliding sukuk costs mean Malaysia’s state-owned Syarikat Prasarana Negara Bhd is paying 20 per cent less to finance railway expansion than China, which is building the world’s largest high-speed network.
Prasarana, which runs light-rail services in and around the capital Kuala Lumpur, RM1 billion (US$321 million) each of 2022 and 2027 Syariah-compliant notes to yield 3.77 per cent and 4 per cent, respectively, the company’s finance director Mohd. Zahir Zahur Hussain said in an interview yesterday. China’s Ministry of Railways issued 10-year non-Islamic bonds at a coupon rate of 4.68 per cent on Aug 21 and 15-year securities at 5 per cent, the government’s debt clearing house website shows.
Government guarantees are lowering borrowing costs for companies involved in Prime Minister Najib Razak’s US$444 billion program to build railways, highways, and power plants. China is paying more for its debt because of the risk the economy will slow too rapidly, while a shortage of sukuk is cutting yields in Malaysia, according to OSK-UOB Islamic Fund Management Bhd.
“Prasarana is able to pay lower yields than most corporates because of the explicit government guarantee,” Chan Cheh Shin, who manages RM850 million as head of sukuk at Kuala Lumpur-based OSK-UOB Islamic Fund Management, said in an interview yesterday. “China may be in for a hard landing.”
The company attracted orders for the 10-year portion of RM1.6 billion and RM2 billion for the 15-year notes, Mohd. Zahir said yesterday. The proceeds from the short-maturity debt will be used to refinance existing loans and the longer- tenor notes will go toward capital expenditure, he said.
Yields are falling in Malaysia even as sales increased 41 per cent in 2012 to RM43.2 billion from a year earlier, after reaching a record RM75.6 billion in 2011, according to data compiled by Bloomberg. Islamic banking assets in the Southeast Asian nation grew 24 per cent to RM435 billion in 2011, central bank data show.
Average yields on the country’s top-rated 10-year corporate debt declined 31 basis points, or 0.31 percentage point, in 2012 to 4.35 per cent.
Danainfra Nasional Bhd, formed to help finance the construction of a subway in Kuala Lumpur, sold 10- and 15-year Islamic bonds at 3.74 per cent and 4.04 per cent on July 10. The issuance attracted orders worth RM12.9 billion for the RM2.4 billion on offer, the company said in an e-mailed statement on July 10.
Prasarana sold RM2 billion of sukuk, which pay returns on assets to comply with Islam’s ban on interest, at a previous sale in July 2011 to fund the expansion of two existing overhead lines in Kuala Lumpur.
The 10-year notes, which were issued at a coupon rate of 4.15 per cent, yielded 3.74 per cent on July 18, according to Bursa Malaysia. Prasarana sold the 15-year securities due in 2026 at 4.35 per cent. The debt yielded 3.96 per cent on Aug 14. Islamic bonds in the nation aren’t freely traded because of the supply shortage and are generally held to maturity.
“I’m interested in the Prasarana sukuk because they are long-dated, government guaranteed and fit in with the requirement of insurance companies,” Michael Chang, who oversees US$1 billion as head of fixed income at Kuala Lumpur- based MCIS Zurich Insurance Bhd, said in an interview yesterday. “The company is also an established name.”
Global demand is also pushing down yields on Islamic bonds sold internationally, which at 3.13 per cent are two basis points off a record low reached on Aug 7, after falling 86 basis points this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The difference between average yields and the London interbank offered rate, or Libor, has narrowed 68 basis points in 2012 to 205 basis points, the HSBC index shows.
Islamic bonds sold globally have returned 6.8 per cent this year, according to the HSBC/Nasdaq index, while debt in developing markets climbed 12.6 per cent, JPMorgan Chase & Co’s EMBI Global Composite Index shows.
Prasarana may tap the Islamic bond market again toward the end of the year subject to the company’s requirements and gaining approval from Malaysia’s ministry of Finance, Mohd Zahir said yesterday.
“The tenor of the Prasarana papers meet the requirements of pension funds and insurers,” Elsie Tham, a Kuala Lumpur-based portfolio manager for fixed income at Manulife Asset Management Sdn, who helps oversee US$1 billion of assets, said in an interview yesterday.
(Business Times / 01 Sept 2012)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com