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Malaysia’s Dollar Sukuk Rises on Debut as Investors Favor Asia

May 28 (Bloomberg) -- Malaysia’s latest issue of five-year global bonds advanced on their first day of trading after yesterday’s sale attracted orders for more than five times the $1 billion originally sought.

The Islamic notes due June 2015 yielded 3.87 percent early today in Hong Kong, six basis points less than the 3.93 percent the securities were priced at in yesterday’s sale, according to data provided by Barclays Plc, one of the deal’s three arrangers. That’s 171 basis points more than similar-maturity U.S. Treasuries, nine basis points less than when the bonds were sold.

“Malaysia is oil-rich, the fundamentals are solid and they don’t have funding needs,” Paul Chan, Hong Kong-based chief investment officer at Invesco Asia Ltd., said before the sale. “There will be scarcity value in Malaysia’s dollar bonds. Asian countries are generally underrated” given what’s happening in Europe, he said.

Malaysia sale of so-called sukuk notes, its first international debt issue since 2002, will set a new benchmark for pricing bonds in the nation, Prime Minister Najib Razak said on May 19. The government sold $1.25 billion of the securities, after attracting orders of almost $5.5 billion, according to a sale document obtained by Bloomberg. CIMB Group Holdings Bhd and HSBC Holdings Plc, along with Barclays, arranged the offering.

Islamic bond sales are growing for the first time since 2007 as yields on securities complying with the religion’s ban on interest fall more than those on emerging-market debt even as Europe’s debt crisis worsens. Offerings of sukuk climbed 10 percent to $6.1 billion so far in 2010, the most since a 47 percent increase in the same period three years ago, according to data compiled by Bloomberg.

Biggest Sukuk Market

The Southeast Asian nation has the world’s biggest market for Islamic bonds, which are backed by physical assets and pay profit rates instead of interest that is prohibited under Shariah principles. Malaysia accounted for 65 percent of outstanding sukuk in 2009, according to CIMB Group Holdings Bhd., one of the lead arrangers for the latest notes.

The sukuk, which is of the Ijarah structure, were assigned debt ratings of A- by Standard & Poor’s and A3 from Moody’s Investors Service last week, the two company’s fourth-lowest investment grades. Greece, which sparked the European debt crisis amid concern about its ability to repay investors, has a junk, or high-risk, rating of BB+ from S&P.

Narrowing Premium

The premium investors demand to hold bonds in developing nations over U.S. Treasuries narrowed 20 basis points yesterday to 319 basis points, according to JPMorgan Chase & Co.’s EMBI+ Index. A basis point is 0.01 percentage point.

Malaysia’s latest bond issue would pay returns with rental income received by leasing 12 state-run hospitals, according to a sale document obtained by Bloomberg News last week.

State-owned Petroliam Nasional Bhd.’s 4.25 percent Islamic bonds due August 2014 yielded 3.92 percent yesterday, according to Royal Bank of Scotland Group Plc, or 207 basis points more than similar-maturity Treasuries.

“Usually the trading differential between Petronas and Malaysia is 20 or 25 basis points, so that’s what I was expecting,” said Brayan Lai, a Hong Kong-based credit analyst at Credit Agricole CIB. “The issuer came into a rally in the markets, so they probably got a good deal.”

To contact the reporter on this story: Gabrielle Coppola in New York at; Bob Chen in Hong Kong at

To contact the editor responsible for this story: James Regan at

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