KUALA LUMPUR: Malaysia is leading global sales of perpetual sukuk as a planned offer by Asia’s biggest budget airline brings Islamic finance to a broader range of investors.
AirAsia Bhd will set up a RM1 billion programme to sell syariah-compliant notes with no set maturity, according to a Bursa Malaysia filing last Thursday. The company is the fourth issuer since national carrier Malaysian Airline System Bhd’s (MAS) debut in 2012 and so far US$998 million (RM3.3 billion) has been raised, data compiled by Bloomberg show.
Bursa securities appeal to investors to take on a greater degree of risk in exchange for a higher yield, according to RAM Rating Services Bhd. Perpetual Islamic bonds are treated as equity rather than debt on a company’s balance sheet, enabling firms to raise funds without affecting their creditworthiness.
“AirAsia’s planned perpetual sukuk will add to the growing list of such offerings that bring a new dimension to issuers and investors in the Islamic market,” Suzaizi Mohd Morshid, head of treasury at RHB Islamic Bank Bhd, a unit of RHB Capital Bhd, said in a phone interview last Thursday. “These sukuks are gaining popularity because most fund managers are already familiar with the equity part of the issuers.”
MAS priced its perpetual sukuk at 6.9% in June 2012 and the country’s second-biggest pension fund purchased all the RM1 billion on sale. Investors tend to hold Islamic bonds until maturity because of insufficient supply to meet demand, with no pricing currently available for the MAS notes.
The only other Malaysian issuers to date are property developer S P Setia Bhd and plantation group Boustead Holdings Bhd. Eight of the 14 perpetual sukuks sold worldwide are from Malaysia.
Malaysia Airports Holdings Bhd (MAHB) held presentations for investors for as much as RM1 billion of the securities in August. The bonds haven’t yet been sold.
Automotive distributor DRB-Hicom Bhd plans to set up a RM2 billion perpetual sukuk programme, according to a statement from Malaysian Rating Corp Bhd on Monday.
The Islamic debt market is becoming more sophisticated in an industry with US$1.7 trillion in syariah-compliant banking assets that Ernst & Young LLP forecasts will reach US$3.4 trillion by 2018.
Global sukuk sales, which pay returns on assets to comply with Islam’s ban on interest, rose 12% to US$38.1 billion in 2014 from a year earlier, according to data compiled by Bloomberg.
In Malaysia, the world’s biggest syariah-compliant bond market, this year’s corporate issuance climbed 54% to RM51.3 billion, surpassing 2013’s RM49 billion.
“Now that the sukuk market is well established, it makes sense for corporates to consider selling perpetuals because the Islamic market has a bigger pool of investors,” Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd, the top sukuk arranger, said in a phone interview last Thursday. “We are seeing a lot of interest from a broad spectrum of companies keen on issuing perpetual sukuk.”
AirAsia will use the proceeds from its bond sale to refinance existing debt and for working capital, according to the filing. The airline last tapped the Islamic market in 2008 when it sold RM420 million of five-year notes at 4.85%. The securities have now matured.
The carrier has RM4.2 billion in loans due by 2025, according to data compiled by Bloomberg. Its shares climbed 16% this year, compared with a 1.1% drop in the benchmark FBM KLCI.
S P Setia sold its Islamic bonds carrying no set maturity at 5.95% in December 2013 and they yielded 4.35% on Monday. Boustead’s perpetual sukuk was issued at 6.25% in August this year and the notes last yielded 4%. — Bloomberg
This article first appeared in The Edge Financial Daily, on November 5, 2014.