Malaysia Pays Higher Yields for Aircraft Sukuk to Lure Investors

Malaysia’s government paid higher yields for its second offering of state-backed Islamic bonds on behalf of the national airline to entice investors, as total issuance of the notes rose to 4.6 billion ringgit ($1.5 billion).

The finance ministry sold 1.2 billion ringgit of the debt yesterday, with orders amounting to 1.5 billion ringgit, said two people familiar with the matter who asked not to be named because the details are private. That compares with 3.6 billion ringgit in bids for a 2 billion ringgit sale of Shariah-compliant debt by rail operator Syarikat Prasarana Negara Bhd. on Aug. 28, which were also government guaranteed.

The finance ministry paid 3.77 percent for the 10-year portion on behalf of Malaysian Airline System Bhd. and 4.16 percent for the 15-year notes, compared with 3.74 percent and 4.12 percent in November. Sales of state-backed Islamic securities rose 10-fold to about 20 billion ringgit in 2012 from a year earlier, according to data compiled by Bloomberg.

“The company had to price the debt at higher yields because demand wasn’t hot,” Fariza Taib, a fixed-income manager overseeing 1 billion ringgit at Kuala Lumpur-based Asian Islamic Investment Management Bhd., said in an interview today. “A lot of funds already have holdings of the sukuk as they sold a bigger portion in November.”

The offering is part of a 5.3 billion ringgit 20-year program via Turus Pesawat Sdn., a special-purpose company set up to sell the securities on behalf of MAS, which is using the funds to purchase aircraft as it seeks to compete with budget airline AirAsia Bhd.

DanaInfra Offering

Turus Pesawat sold 370 million ringgit of 2028 notes yesterday at a yield of 4.16 percent, or 45 basis points more than similar-maturity sovereign debt.

Malaysian Airline System, based in Subang near Kuala Lumpur, sold 1 billion ringgit of Islamic bonds with no fixed maturity in June via a private placement at a yield of 6.9 percent. It also issued 500 million ringgit in September at the same rate.

MAS announced in May it planned to lease six Airbus A380s and two A330s from the government for 5.3 billion ringgit. The airline returned to profit in the third quarter for the first time since the three-month period ended December 2010.

DanaInfra, a state-owned entity formed to finance projects such as roads and railways, plans to sell 1.5 billion ringgit of government-guaranteed sukuk this month, Kamal Mohd Ali, chief operating officer, told reporters on Jan. 8. The company drew orders of 12.9 billion ringgit for a 2.4 billion ringgit offering of Islamic debt in July, which were also state backed.

Sales of local-currency Islamic bonds, which pay returns on assets to comply with the Koran’s ban on interest, rose to a record 95.8 billion ringgit last year, more than doubled 2011’s 45 billion ringgit, according to data compiled by Bloomberg.

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