Malaysia Seen Selling Islamic Dollar Debt as Inflows Quicken

  • Banks asked to submit proposals by next week: people familiar
  • Ten-year dollar sukuk should yield 3.3%-3.6%: Aberdeen Islamic

Malaysia plans to tap the global Islamic bond market for a second consecutive year, joining Indonesia that’s planning a sale in March.

Banks have been asked to submit proposals by next week for a benchmark dollar-denominated offer, said people familiar with the offer who asked not to be identified because the process is private. Malaysia sold $1.5 billion of U.S. currency sukuk in April 2015, its first international bond issuance since 2011. Tengku Sariffuddin Tengku Ahmad, Prime Minister Najib Razak’s press secretary, couldn’t immediately be reached for comment.

The ringgit is the best-performing emerging-market Asian currency over the past three months as exports have held up and the government managed to keep its budget deficit within target even as oil prices slumped. Standard & Poor’s rates the nation at its fourth-lowest investment grade, and foreign funds were net buyers of the country’s debt in January after corruption allegations against the prime minister spurred outflows last year.

“We believe there is serious appetite from investors for high-quality issuers out there, and both Malaysia and Indonesia can certainly make that case,” said Hasif Murad, an investment manager at Aberdeen Islamic Asset Management Sdn. in Kuala Lumpur. “Should the Indonesia sovereign issuance do well, we believe Malaysia could potentially ride on their coat-tails and get a decent yield for this new issue.”

A Malaysian 10-year dollar sukuk should yield between 3.3 percent and 3.6 percent, Murad said. At last year’s sale, the nation issued 10-year notes at 3.04 percent and 30-year securities at 4.24 percent. The yield on the debt due 2025 has fallen 44 basis points this year to 3.17 percent, according to data compiled by Bloomberg. Malaysia has $1.2 billion of Shariah sovereign dollar bonds maturing in July.

Improving Sentiment

Indonesia plans to offer Shariah-compliant sovereign dollar notes in March, Scenaider Siahaan, director at the Finance Ministry’s budget financing and risk management office in Jakarta, said by text message on Tuesday. The nation’s dollar sukuk due 2025 yielded 4.68 percent on Wednesday, down 28 basis points this year.

Worldwide Islamic bond sales are up 17 percent in 2016 to $2.1 billion from the same period last year, data compiled by Bloomberg show. Issuance dropped 29 percent in 2015, the most since the global financial crisis in 2008. Malaysian corporate offers have surged 86 percent this year, while those from the six-member Gulf Cooperation Council fell 50 percent.

Foreign funds raised their holdings of Malaysian corporate and government debt by 0.8 percent to 216.5 billion ringgit ($51 billion) in January, the highest in 11 months. That came after they pared positions by 5 percent last year amid the allegations against Najib and a 35 percent drop in Brent crude, which weighed on the net oil exporter’s finances. The ringgit has strengthened 4 percent over the past three months as sentiment toward Malaysia improved, while oil prices have rebounded since mid-January.

“The fact that the Malaysian issuance is for refinancing purposes could inherently provide some captive demand,” said Winson Phoon, fixed-income analyst at Maybank Investment Bank Bhd. in Kuala Lumpur. “The recovery in oil prices and the dissipation of negative sentiment toward Malaysia will also help.”

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