[KUALA LUMPUR] Asia is set for the busiest year for dollar sukuk sales in at least five years as Malaysia's state oil company plans a record offering and Indonesia's government seeks to beat rising US borrowing costs.
Petroliam Nasional Bhd. may sell as much as US$7 billion of Islamic notes, the biggest ever foreign-currency sukuk, which will take the amount outstanding from Asia to US$19 billion, compared with US$76 billion worldwide. Malaysia, Cagamas Bhd. and Export Import Bank of Malaysia also plan offerings this year, after a combined US$4.3 billion from the region in 2014 that was the largest in Bloomberg-compiled data going back to 2010.
Asian issuers of US currency sukuk are looking to take advantage of the rising pool of Islamic banking assets that Ernst & Young LLP forecasts will double to US$3.4 trillion by 2018. Petronas, as Malaysia's only Fortune 500 company is known, is coming to the market just as a slump in crude prices is hurting revenues for the region's only major oil exporter.
"We are seeing more Asian companies and sovereigns tapping the dollar market because they want to take the opportunity before the Federal Reserve raises interest rates," Mohamed Azahari Kamil, chief executive officer of Asian Finance Bank Bhd. in Kuala Lumpur, said by phone Feb 12. "Despite the challenges, Petronas will be successful in selling the sukuk because the company is well-managed and is backed by strong fundamentals." Indonesia, which last sold Shariah-compliant dollar notes in September 2014, is seeking to return to the fold in the first half of this year. Malaysia has asked for proposals from banks for a global offering as US$1.25 billion of sukuk are due to mature in June. It would be its first sale since 2011.
Petronas is selling debt to raise funds for working capital, a person familiar with the matter, who asked not to be identified because the process is private, said on Feb 11. Petronas won't issue a statement on the planned offering, according to a Feb 12 e-mailed statement.
Malaysia's top oil producer reported a 14 per cent drop in third-quarter profit on Nov 28 amid a 36 per cent decline in Brent crude since June. Net income fell to 12.4 billion ringgit (US$3.5 billion) and revenue decreased 1.3 per cent to 80.4 billion ringgit. Numbers for the period to December will be issued later this month.
Petronas, which is rated A- by Standard & Poor's, has US$625 million of US currency notes due in August. The company's only dollar sukuk, sold in 2009 at a coupon of 4.25 per cent, matured last year. The yield on the 2015 non-Islamic debt denominated in the greenback increased one basis point this year to 1.12 per cent and the yield on the 2022 securities rose two basis points to 3.43 per cent, according to data compiled by Bloomberg.
The government invited bankers to submit proposals for a dollar sukuk by Wednesday, separate people with knowledge of the matter said Feb 12. Export Import Bank of Malaysia plans its sale for the final six months of the year. Cagamas, the nation's state-owned mortgage provider, has set up a US$2.5 billion multicurrency program.
The yield on Malaysia's 4.646 per cent notes maturing in 2021 climbed 24 basis points, or 0.24 percentage point, this month to 2.98 per cent, data compiled by Bloomberg show. The yield on Indonesia's 4.35 per cent 2024 debt decreased one basis point to 4.07 per cent.
"A name like Petronas should attract interest and will encourage other issuers to follow suit," Mohd. Effendi Abdullah, head of Islamic markets at AmInvestment Bank Bhd, Malaysia's third-biggest sukuk arranger, said by phone Feb 12 in Kuala Lumpur. "It will give a boost to the Islamic bond market, and may help global sukuk surpass 2012's record."
Worldwide offerings of Islamic bonds, including local- currency notes, totaled US$46.3 billion in 2014, US$500 million short of the all-time high, data compiled by Bloomberg show. Sales have dwindled to US$1.7 billion so far in 2015, the worst start to a year since the US$561 million in 2010.
While the Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, climbed 2.9 per cent this year, the ringgit has fallen 2.5 per cent. The average yield on US currency sukuk has dropped 13 basis points to 2.92 per cent this year, after reaching an 11-month high of 3.28 per cent on Dec 16, according to a Deutsche Bank AG index.
"The planned sales by Petronas, Malaysia and Indonesia will be positive as they will help ease the shortage of sukuk," Jesse Liew, Kuala Lumpur-based head of global Islamic bonds at BNP Paribas Investment Partners Malaysia, which has more than $900 million of assets, said in a phone interview Monday. "It would be better if they sell in the first quarter as borrowing costs are still low."