DBS clinches Khazanah Nasional's USD bond sale

DBS Bank has scored a coup clinching Khazanah Nasional's first unrated and unsecured USD sukuk or Islamic bond deal, which is also so far this year's largest sukuk sale.

It priced a 5-year US$750 million bond for Malaysia's investment fund, Khazanah Nasional Berhad, on Wednesday.

Khazanah's other USD sukuk bonds are either equity-linked or convertible bonds or has a guarantee from the government of Malaysia.

This is the first standalone and plain sukuk bond issued by Khazanah, and shows that Malaysia remains a firm investment grade country, said Clifford Lee, DBS head of fixed income.

"Khazanah is also one of Malaysia's best credits," he said.

DBS clinched the deal after an earlier attempt in January by investment banks Barclays, UBS, CIMB and Morgan Stanley did not go ahead, The Business Times understands.

With choppy markets, having a strategy, knowing the market and anchor investors in mind is key to execution, said a fixed income banker.

"With a name like Khazanah, you have strong home market support and you would have strong bank support too," the banker added.

"In this kind of environment, you need banks with balance sheet and execution ability; you need strong hands to bring to the market" said Mr Lee.

On why DBS was not first approached in January, Mr Lee said "transition to newer operators like us is still ongoing; takes time from decades and decades of habit to switch over."

DBS had done Khazanah's debut SGD sukuk in 2010, totalling S$1.5 billion but investment banks were historically the banks to go to for USD transactions.

CIMB and DBS Bank are the joint global coordinators while CIMB, DBS Bank and Standard Chartered Bank are joint bookrunner for the sukuk offering. CIMB Islamic acted as the sole Shariah Adviser for the transaction.

The US$750 million sukuk will be issued via a Malaysian-incorporated special purpose vehicle Danga Capital Berhad, said a Khazanah press release.

This is Khazanah's first USD straight sukuk issuance and Danga's third foreign currency issuance under its multicurrency Islamic securities programme.

The sukuk was priced at 3.035 per cent and attracted over US$850 million orders from financial institutions, asset management companies, statutory bodies and insurance companies.

"Despite challenging market conditions, Khazanah achieved its target issue size at a spread of 178 basis points above prevailing 5-year US Treasuries," it said.

Proceeds of the sukuk will be used to refinance Penerbangan Malaysia Berhad's US$1 billion guaranteed notes maturing this year.

"Capitalising on low US Treasury yields, Khazanah was able to refinance these notes which are guaranteed by the Government of Malaysia at a savings of 2.590 per cent against the current 5.625 per cent coupon while simultaneously reducing the Malaysian Government's contingent liability," it said.