Malaysia Plans 30 Billion Ringgit Rail Sukuk, Official Says

Malaysia plans to sell as much as 30 billion ringgit ($9.9 billion) of local-currency Islamic bonds under a program to help finance a mass-transit railway in Kuala Lumpur, a government official said.

A special financing vehicle will be formed by the government to raise the funds which will be used for the country’s biggest infrastructure project to date, said the official, who couldn’t be named as details of the sale have yet to be finalized. Domestic sources, including the Employees Provident Fund, could subscribe to the sukuk issuance, which would be at least 20 billion ringgit, he said.

“Demand from local investors would be high,” Elsie Tham, a senior manager at Manulife Asset Management Bhd. in Kuala Lumpur, who helps oversee more than $1 billion of fixed-income assets, said in an interview today. “We do have a substantial amount of insurance and pension funds that would require long-dated paper. These infrastructure bonds would be the type of bonds these funds would be looking at.”

The government estimates the network and rolling stock will cost 48 billion ringgit, with the first line scheduled for completion in five years. The railway is part of a $444 billion private sector-led investment program being championed by Prime Minister Najib Razak’s government for the current decade.

“Eagerly Waiting”

Malaysia is revamping its public transportation system amid increasing traffic congestion in the capital. The planned railway will cover a 20-kilometer (12-mile) radius around Kuala Lumpur’s city center and carry 2 million passengers a day, the government said in a report last year.

A final decision on the financing for the railway project will be made in the second half of this year, Najib said in an interview on March 29.

“Everyone is eagerly awaiting details for the issuance,” Manulife’s Tham said. “The bond will probably have a tenor of at least ten years. There’s still scarcity in long-dated paper.”

The Employees Provident Fund, Malaysia’s largest pension fund which manages more than 400 billion ringgit, will look at investing when approached, Deputy Chief Executive Officer Shahril Ridza Ridzuan said. “We will have to see the financing scheme and also the coupon rate,” Shahril told Bloomberg News in Kuala Lumpur today. “We don’t mind considering.”

Sales of ringgit-denominated sukuk, bonds that pay returns on asset to comply with Islam’s ban on interest, total 9.5 billion ringgit so far this year, from 4.9 billion ringgit in the same period in 2010. Malaysia is the world’s largest sukuk market. Global issuance for the securities increased to $4.5 billion in 2011, from $2 billion in the same period last year.

-- With assistance from Suryani Omar in Jakarta. Editors: Barry Porter, Sandy Hendry

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