Khazanah returns to US dollar sukuk market, attracts strong demand
Deal generates a combined order book of US$5.3 billion
6 May 2021 | Chito Santiago

Malaysia’s sovereign wealth fund Khazanah Nasional returned to the US dollar bond market for the first time since 2016 pricing, on May 4, a dual-tranche sukuk offering totalling US$1 billion.

The Reg S unrated deal comprised of a five-year tranche amounting to US$400 million, which was priced at par with a profit rate of 1.658%. This was equivalent to a spread of 85bp over the US treasuries, or 40bp tighter than the initial price guidance of 125bp area. The other tranche was a 10-year sukuk amounting to US$600 million, which was also priced at par with a profit rate of 2.78%. This represented a spread of 120bp over the US treasuries, or 30bp inside the initial price range of 150bp area.

Khazanah previously accessed the US dollar bond market in February 2016 as it printed its first offshore sukuk amounting to US$750 million for five years. That trade carried a profit rate of 3.03%, or a spread of 178bp over the then prevailing US treasuries.

Structured under the Shariah principle of wakala, the latest sukuk generated a combined order book of US$5.3 billion from 345 accounts. The book was at a high US$6 billion when Khazanah revised the price guidance. The five-year sukuk garnered a total demand in excess of US$2.6 billion from 165 accounts with 71% of the paper distributed in Asia, 22% in the Middle East, as well as, 7% in Europe and other jurisdictions. By type of investors, fund managers accounted for 61%, while banks took 32%, and private banks, brokers and other investors 7%

Khazanah CFO Faridah Bakar Ali says the strong demand reflects investors’ confidence in Khazanah’s credit and on its ability to deliver the mandate as Malaysia’s sovereign wealth fund. “This issuance will extend our liability duration as we continue to rebalance our portfolio,” she adds.

The sukuk is issued through a Labuan-incorporated special purpose vehicle Dua Capital utilizing Shariah-compliant shares and Shariah-compliant commodities. Proceeds will be used for general investments, refinancing of borrowings and working capital requirements relating to Khazanah’s principal business activities which are Shariah-compliant.

CIMB, DBS, J.P. Morgan, MUFG and OCBC Bank acted as the joint bookrunners for the transaction as well as joint lead managers along with KFH Capital and Warba Bank.

Despite the volatility in global financial markets and an unfavourable economic environment impacted by the Covid-19 pandemic, Khazanah reported a steady overall performance for 2020.

The portfolio rebalancing that is ongoing presented opportunities for both divestment gains and dividend flows from its investments. In its annual review issued on March 4, it says it continues to deploy investments in a prudent manner in line with its refreshed mandate while taking advantage of volatility to seek opportunities in global markets.