Malaysia's Global Sukuk Seen Paying Premium Over Existing Debt

  • Nation has $1.2 billion of dollar Islamic notes due in July
  • Overseas funds held record amount of government bonds in March

Malaysia may price its 10- and 30-year global Islamic bonds at 150 and 165 basis points over U.S. Treasuries, according to a person familiar with the matter who isn’t authorized to speak publicly.

Based on current market yields, that would suggest a coupon rate of 3.27 percent for the shorter-maturity notes and 4.23 percent for the longer-term debt. Malaysia’s existing sukuk maturing in 2025 yield 3.05 percent, while securities due in 2045 are paying 3.96 percent, data compiled by Bloomberg show. The Southeast Asian nation has $1.2 billion of Shariah-compliant dollar notes coming due in July.

Malaysia is tapping the global Islamic bond market just as the ringgit has rebounded from its worst annual loss since the Asian financial crisis amid a stabilization in Brent crude prices, which has eased concern about the oil exporter’s finances. Foreign holdings of Malaysian government bonds climbed to a record in March as indications the Federal Reserve will take a gradual approach in raising interest rates bolstered demand for emerging-nation assets.

While sentiment for the ringgit improved, the cost to insure the nation’s sovereign bonds increased to the highest level this month amid the woes engulfing state investment company 1Malaysia Development Bhd. Five-year credit-default swaps were at 162 on Tuesday, near April’s high of 163 reached at the start of the week, according to CMA prices. The contracts rose to 247 in September, the highest in more than six years.

The saga over troubled 1MDB took on a new twist this week. The company failed to make a payment of more than $1 billion in connection with a loan made last year by Abu Dhabi’s sovereign wealth fund International Petroleum Investment Co., according to a London stock exchange filing. That means 1MDB and Malaysia’s finance ministry “are in default,” IPIC said in the filing. The state firm’s President Arul Kanda said in an interview on Tuesday that the company is in dispute with IPIC and sees an “amicable resolution.”

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