Najib Transport Push Seen Reviving Malaysia Sukuk Sales in 2016

Updated on
  • Projects worth 75 billion ringgit to roll out next year: CIMB
  • Some 34 billion ringgit of sukuk needs to refinanced in 2016

Next year is forecast to be the second best on record for company sukuk sales in Malaysia as the rollout of subway and road projects revives issuance after a lackluster 2015.

Sales will rise to as much as 75 billion ringgit ($17.7 billion), according to CIMB Investment Bank Bhd., the world’s top arranger of Islamic debt. That compares with 49.3 billion ringgit so far in 2015 and would be the most since 2012, when Malaysian companies sold 106.9 billion ringgit of Shariah-compliant notes. AmInvestment Bank Bhd., the third-biggest sukuk arranger in the Southeast Asian nation, predicts as much as 70 billion ringgit of issuance.

Prime Minister Najib Razak announced in his 2016 budget speech plans to start the second phase of a subway in Kuala Lumpur next year as well as a highway in Sarawak, projects worth a combined 55 billion ringgit. Some 34 billion ringgit of company sukuk will mature in 2016 and the market has mostly priced in a likely Federal Reserve rate increase in December, said Nor Masliza Sulaiman, the head of capital markets at CIMB Investment Bank.

“For 2016, the general tone of rates should be relatively accommodative for longer-term financing to cater for upcoming maturities and the requisite infrastructure financing,” she said in Kuala Lumpur. “We expect stability in the markets for issuers to move their fundraising plans and investors to continue their investment activities."

Oil Prices

Prime Minister Najib is farming out big-ticket projects to the private sector and government-linked companies as part of efforts to transform Malaysia into a developed economy by 2020. Some 260 billion ringgit has been allocated for development expenditure under the country’s 11th Malaysia Plan covering 2016 to 2020, 13 percent more than from 2010 to 2015.

Ringgit company sukuk sales had been heading for the slowest year since 2010 before electricity company Tenaga Nasional Bhd. sold 8.98 billion ringgit of the debt last month via its Jimah Power East Sdn. unit, according to people familiar with the matter. Even so, issuance looks set to be less than 65.1 billion ringgit last year and 64.5 billion ringgit in 2013. Worldwide sales of debt that complies with Islam’s ban on interest are down 33 percent in 2015 to $31.2 billion.

RHB Investment Bank Bhd., Malaysia’s top sukuk arranger, sees 2016 sales ending up similar to this year. While infrastructure spending will drive issuance, low oil prices will also boost sovereign supply from Malaysia and the Middle East, said Angus Salim Amran, the Kuala Lumpur-based head of financial markets at the lender. That could push up borrowing costs for corporate issuers, he said.

Cash-Rich Investors

The average yield on Malaysia’s AAA-rated corporate bonds due 2025 has climbed two basis points this year to 4.80 percent, according to a central bank index. That compares with an average yield of 4.73 percent in 2014, but is lower than 4.89 percent in 2011.

CIMB’s Nor Masliza and Mohd. Effendi Abdullah, the Kuala Lumpur-based head of Islamic markets at AmInvestment Bank, said that around half of the estimated 75 to 80 billion ringgit of infrastructure spending next year will be funded from the debt market.

“We are already getting a fair amount of interest from companies looking to finance their infrastructure projects and refinance their debt via sukuk,” said Mohd. Effendi. “Borrowing costs are still not high and demand for sukuk will also be there as a lot of investors are still cash-rich.”