US$1.5bil sukuk issuance a vote of confidence for M’sia
RECENTLY the Malaysian government went to the market to raise US$1.5bil to redeem its existing US$1.2bil trust certificates due in July 2016 as well as to finance development expenditures.
The certificates were issued in two tranches, one maturing in 2026 and the other in 2046. The Malaysian delegation was headed by the secretary-general of Treasury, with representatives from Fiscal Policy Office, Treasury and Bank Negara. The joint bookrunners and lead managers for the exercise were CIMB, HSBC, JP Morgan and Maybank.
The extensive roadshows via private meetings, group presentations and conference calls lasted over six days and the delegation engaged with more than 130 investors across global financial centres, including Malaysia, Hong Kong, Singapore, Abu Dhabi, Dubai, London and New York.
Adopting an innovative structure comprising 100% non-physical underlying assets – the first-of-its-kind for a global sovereign sukuk – the roadshows received overwhelming response from global investors, attracting an aggregate order exceeding US$6.3bil from a combined investor base of over 195 accounts, representing a subscription rate of 4.2 times over the offering size.
Many of the investors placed orders in large ticket sizes of above US$10mil. These orders in aggregate made up more than 75% of the final order book. Following the resounding support from investors, the 10-year tranche was finally priced at 3.179%, while the 30-year tranche was priced at 4.080%. This represents a zero to minimal new issue premium against the Government’s secondary curves and is lower than the typical new issue premium paid by sovereigns globally.
The deal attracted interest from diverse domestic and international investors, achieving a well-spread distribution with 65% allocation to Asia, 19% to Middle-East, 11% to Europe and 5% to the US for the 10-year tranche and 54% allocation to Asia, 24% to the US, 12% to Europe, and 10% to the Middle-East for the 30-year tranche. The issuance also garnered interest from a wide mix of quality accounts comprising fund managers, pension funds, insurance companies, bank treasury desks and sovereign/central banks/supranationals. The success of the Government’s fifth US dollar-denominated global sukuk issuance is a testament of investors’ strong confidence in Malaysia’s track record of macroeconomic stability, sustainable growth and deep domestic financial markets.
Malaysia’s strong economic fundamentals, amidst a backdrop of weak global growth and slow global trade, are mainly due to the National Transformation Policy (NTP) which was launched in January 2010. The NTP comprises several transformation programmes to steer Malaysia towards the target of a high-income and advanced economy status.
Removal of subsidies
Since the introduction of NTP, several structural changes were implemented. Apart from this, the removal of subsidies on fuel in December 2014 has enabled the nation to slowly move away from the entrenched practice of blanket subsidies.
The implementation of the goods and services tax (GST) on April 1, 2015 has further helped ease the burden of the Government with its planned development programmes. In addition, greater diversification in key economic sectors has also decreased the Government’s dependence on oil revenue. As a consequence, in 2015, oil and gas revenue accounted for only 21.5% of federal government revenue compared with 35.4% in 2010. The ratio is expected to be much lower at 14% in 2016. In the last five years, Malaysia has also been able to meet its fiscal deficit target year on year with the ratio of fiscal deficit to gross domestic product (GDP) declining from -6.74% in 2009 to -3.2% in 2015, whilst also keeping a lid on debt below 55% (54.5% of GDP in 2015).
While creating fiscal space, emphasis was also placed in macroeconomic stability by enabling the private sector to build stronger foundations to support the nation’s efforts towards strengthening its economic fundamentals. Towards this end, the private sector continues to play its role in driving consumption as private consumption, at 52.4% of GDP, was four times more than the public consumption last year.
Over the last five years of economic transformation, the private sector has also grown to own a significantly larger portion of the investment. In 2015, it contributed 65% of the total investments in the country, with the remainder contributed by the public sector. Real investments accelerated between 2011 and 2015 by 12.2%, against 5.9% between 2006 and 2010. This is an excellent lead-up to the aspiration of getting private-sector players to own 92% of total investments by 2020. Malaysia’s external sector remains resilient despite an environment of greater uncertainty in the global economy. The current account of the balance of payments which has been supported by a sizeable trade surplus.
The level of international reserves remains sufficient to meet short-term external obligations, thus providing ample buffers against external vulnerabilities. At the same time, monetary policy remains accommodative and in sync with the nation’s pro-growth fiscal policy.
All-in-all, the overwhelming response to the Government’s newly-priced global sukuk issuance reflects global investors’ continued confidence in the country’s economic fundamentals. This, in turn, has enabled Malaysia not only to strengthen its position as a top investment destination but also further affirms Malaysia’s position as the leader in international Islamic finance.
Tan Sri Mohd Irwan Serigar Abdullah is the secretary-general of Treasury. He welcomes comments or feedback at email@example.com.