Kuala Lumpur: Sukuk cost is going downward and this slide in the sukuk cost indicates that Malaysia’s state-owned Syarikat Prasarana Negara Bhd is paying 20 percent less to finance railway expansion than China, which is building the world’s largest high-speed network.
According to an interview of Prasarana Finance Director, Muhammad Zahir Zahur Hussain, the company, which runs light-rail services in and around the Malaysian capital, Kuala Lumpur, has RM1 billion each of 2022 and 2027 Shariah-compliant notes to yield 3.77 percent and 4 percent respectively.
China’s Ministry of Railways issued 10-year non-Islamic bonds at a coupon rate of 4.68 percent on Aug 21 and 15-year securities at 5 percent, the government’s debt clearing house website shows.
OSK-UOB Islamic Fund Management Bhd said that the government guarantees are lowering borrowing costs for companies involved in Prime Minister Najib Razak’s $444 billion program to build railways, highways, and power plants. China is paying more for its debt because of the risk the economy will slow too rapidly, while a shortage of sukuk is cutting yields in Malaysia.
Chan Cheh Shin, who manages RM850 million as Head of Sukuk at Kuala Lumpur-based OSK-UOB Islamic Fund Management, said in an interview, “Prasarana is able to pay lower yields than most corporates because of the explicit government guarantee.”
Hussain said that the company attracted orders for the 10-year portion of RM1.6 billion and RM2 billion for the 15-year notes. The proceeds from the short-maturity debt will be used to refinance existing loans and the longer- tenor notes will go toward capital expenditure, he added.
Central Bank data shows that yields are falling in Malaysia even as sales increased 41 percent in 2012 to RM43.2 billion from a year earlier, after reaching a record RM75.6 billion in 2011. Islamic banking assets in the Southeast Asian nation grew 24 percent to RM435 billion in 2011.
Average yields on the country’s top-rated 10-year corporate debt declined 31 basis points, or 0.31 percentage point, in 2012 to 4.35 percent.
Danainfra Nasional Bhd, formed to help finance the construction of a subway in Kuala Lumpur, sold 10 and 15-year Islamic bonds at 3.74 percent and 4.04 percent on July 10. The issuance attracted orders worth RM12.9 billion for the RM2.4 billion on offer, the company said in an e-mailed statement on July 10.
Prasarana sold RM2 billion of sukuk, which pay returns on assets to comply with Islam’s ban on interest, at a previous sale in July 2011 to fund the expansion of two existing overhead lines in Kuala Lumpur.The 10-year notes, which were issued at a coupon rate of 4.15 percent, yielded 3.74 percent on July 18, according to Bursa Malaysia. Prasarana sold the 15-year securities due in 2026 at 4.35 percent. The debt yielded 3.96 percent on Aug 14. Islamic bonds in the nation are not freely traded because of the supply shortage and are generally held to maturity.