Malaysia Said to Plan Global Islamic Dollar Bond

(Corrects spelling of source name in fourth paragraph in a story first published yesterday.)

Malaysia is said to be planning a 10- year dollar-denominated Islamic bond, its second sovereign sale of Shariah-compliant debt in a year, four people familiar with the matter said.

Three local investment banks submitted pitches proposing a size of $500 million to $1.7 billion, said the people who couldn’t be named as the matter is confidential. The deadline for the request for proposals from bankers has closed, they said.

An offering of 10-year overseas Islamic debt would set a benchmark for the $1 trillion industry, where issuers tend to favor shorter maturities such as five years or less. The government may be willing to pay a higher yield on the notes than non-Shariah-compliant bonds because it wants to strengthen Malaysia’s position as the global hub for Islamic finance and the biggest market for sukuk, the people said.

“Malaysia’s sovereign bonds have always been sought after because they are rare,” Lum Choong Kuan, head of fixed-income research at CIMB Investment Bank Bhd., a unit of Malaysia’s second-biggest bank, said in a telephone interview in Kuala Lumpur today. Proceeds are likely to be used to part-refinance a $1.75 billion non-Islamic, dollar-denominated bond that matures in July, he said.

The finance ministry has yet to take a final decision on the potential sale, said a government official who also declined to be named because of confidentiality. The prime minister’s press aide Sarifudin Ahmad said he couldn’t comment when contacted by phone.

Spread With Treasuries

The Southeast Asian nation sold $1.25 billion of the five- year dollar-denominated Islamic bonds in May last year at a 180 basis-point premium over U.S. Treasuries. The yield difference has since shrunk to 97 basis points today, approaching a March 31 low of 88 basis points, according to data compiled by Bloomberg.

The yield on the 3.928 percent sukuk maturing in June 2015 was little changed today at 2.45 percent, prices from Royal Bank of Scotland Group show. It reached 2.33 percent on Nov. 4, the lowest since the debt was sold.

Average rates on global sukuk dropped three basis points to 4.06 percent yesterday, the lowest level since March 2005, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. The difference between the average yield for sukuk and the London interbank offered rate narrowed eight basis points to 242, the index showed.

Ringgit Sales Surge

Shariah-compliant bonds gained 4.8 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Debt in developing markets rose 3.8 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Sales of ringgit-denominated Islamic bonds rose 72 percent this year to 12.4 billion ringgit ($4.1 billion) from the same period in 2010, Bloomberg data show. The government has announced a $444 billion 10-year development plan that includes a mass railway in Kuala Lumpur. Malaysia may also sell local- currency sukuk to help finance the construction of the 48 billion ringgit network, Prime Minister Najib Razak said on March 29.

The Bloomberg-AIBIM-Bursa Malaysia Sovereign Shariah Index, which tracks the most-traded ringgit-denominated government securities, was at 102.403 yesterday. The gauge has gained 1.3 percent this year.

Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, climbed to $5.9 billion this year, from $5.4 billion in the same period of 2010, according to data compiled by Bloomberg.

To contact the reporter responsible for this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry in Hong Kong at shendry@bloomberg.net.

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