Kuala Lumpur: Malaysia's US$2 billion (RM6.08 billion) Islamic bond sale was eagerly snapped up by investors, reflecting their confidence in the country's financial health and their hunger for Islamic investments. Investors wanted to give Malaysia almost five times more than what was needed and the strong demand should pave the way for more sukuk sales, either from companies or other countries, analysts said. RAM Islamic ratings head Zakariya Othman said the oversubscription is an indication that investors prefer sovereign debt as they are more comfortable with the ratings and market liquidity. "Malaysia's sovereign rating is anchored by the sustained strength in the country's strong external payments position, high savings rates and deep onshore capital markets. "Official foreign exchange reserves stand at US$132.7 billion (RM403 billion), or more than four times residual short-term external debt as of end-May 2011. "In addition, the rating is supported by strong and well-managed corporate and banking sectors, which poses only marginal contingent liabilities to the government's balance sheet," Zakariya told Business Times yesterday. The Wakala global sukuk is Malaysia's third US dollar-denominated sovereign sukuk issuance. According to the Finance Ministry, 29 per cent of the global Islamic bonds was distributed to investors in the Middle East, 27 per cent to Malaysia, 22 per cent to the rest of Asia, 14 per cent to Europe and 8 per cent to the US. The government's five-year and 10-year Wakala global sukuk attracted over US$9 billion (RM27.4 billion) worth of subscription. The five-year US$1.2 billion (RM3.65 billion) paper, which was priced at 2.991 per cent, and the 10-year US$800 million (RM2.43 billion) paper, priced at 4.646 per cent, were distributed to over 320 global investors, according to the ministry in a statement. It said the strong demand was due to investors' confidence in the government's comprehensive transformation agenda. The successful pricing amid the current volatile global market is also testament of Malaysia's strong macroeconomic fundamentals, it said. "The deal was priced at the tighter end of the revised price guidance, reflecting investor confidence in the Malaysian credit story. "The Wakala global sukuk has been assigned credit ratings of 'A-' by Standard and Poor's and 'A3' by Moody's," the ministry said. Zakariya said the largest percentage of subscribers from the Middle East indicates their increased comfort with sovereign Malaysian risk, especially in tough market conditions and the shortage of such investment grade opportunities in the region. This could serve as the stepping stone for a politically and economically stable sovereign issuer in the Gulf Cooperation Council such as Qatar and Abu Dhabi to come out with its own 10-year sukuk. He said the 10-year sovereign sukuk will also encourage local corporate issuers to issue longer-term debt. "This would fill out the yield curve which is rather stunted currently with most sukuk maturing in five years or less," he said. Zakariya added that the Wakala sukuk would not only encourage longer maturity sukuk in Malaysia but could also serve as a benchmark to US dollar or dollar-linked global sukuk outside of Malaysia. The issuance is seen as having two-pronged benefit. He said not only can it be used to raise funds to finance the government's budget deficit, it will also broaden the investor base as well as set and develop global yield benchmarking. "Now that attention has finally turned towards developing short-term liquidity management tools such as the International Islamic Liquidity Management Corporation, the next important frontier is the long end of the curve, and sovereigns will most likely have to take the lead. "Malaysia has indeed taken the leadership role in expanding the offerings of longer-term sukuk," Zakariya said. According to the ministry, the sukuk represents the first global sovereign US dollar sukuk structured under the syariah principle of Wakala, the largest dual-tranche global sovereign US dollar sukuk ever issued, and the first 10-year global sovereign US dollar sukuk. It also has the lowest absolute yields achieved by an Asian sovereign for a new US dollar issue.
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