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Khazanah to test market with country's first ethical sukuk

[KUALA LUMPUR] Malaysia's sovereign fund Khazanah Nasional on Monday launched the country's first sustainable and responsible sukuk(SRI) with a 1 billion ringgit (US$280.1 million) bond programme.

Khazanah will price the first issuance next week: a seven-year 100 million ringgit sukuk that will fund the rollout of 20 new government schools this year.

It hopes to raise at least 150 million ringgit annually by issuing sukuk from the 25-year programme, which has a preliminary credit rating of AAA by Kuala-Lumpur based RAM ratings.

The sukuk will follow a unique "step-down" structure: coupon payments will be reduced by 80 to 100 basis points from their fixed rate if the schools, which are measured by their rate of expansion and the competency of their teachers among other factors, meet the benchmarks set. "This sukuk presents a new method for funding the purpose of education and a means for investors to fulfil their corporate responsibility," Deputy Prime Minister Muhyiddin Yassin, who is also the minister of education, told reporters.

CIMB Investment Bank Bhd is the lead arranger for the programme.

The use of SRI sukuk may be extended to raise money for affordable housing, the healthcare and environment sectors, officials from Khazanah said.

SRI sukuk was first announced by Prime Minister Najib Razak in Oct 2013 and official guidelines were provided in August the next year.

The instrument may be used to finance projects that conserve energy, use renewable energy such as wind and solar, build public hospitals, schools or affordable housing, and develop awqaf properties.

Awqaf operates social projects such as hospitals, mosques and schools with donations received from Muslims in the form of land, cash or other valuables.