Malaysia’s Sarawak Hidro Said to Plan $1.3 Billion Sukuk Sale

  • Government-owned company starts AAA-rated Islamic bond program
  • Power generator last sold state-guaranteed notes in 2013

Sarawak Hidro Sdn., the state-owned developer of Malaysia’s biggest hydropower project, plans to offer 5.5 billion ringgit ($1.3 billion) of sukuk without a government guarantee, people with knowledge of the matter said.

Sarawak Hidro, owned by Malaysia’s Ministry of Finance, aims to sell the Islamic bonds in July and will use the proceeds to refinance existing debt, according to the people. The sukuk program has a preliminary AAA score from local assessor RAM Rating Services Bhd., the people said, asking not to be identified as the information is private.

The electricity generator is weaning off government guarantees for its latest sukuk program in a move to ease the nation’s fiscal burden, even as sales of such debt climbed to a record this year. Sarawak Hidro’s plant on Borneo island is part of Prime Minister Najib Razak’s $444 billion development plan, which includes improving infrastructure as the nation seeks to become a developed economy by 2020.

“The move is positive for the government to manage the risk of contingent liabilities, by leaving companies with healthy cashflows to have their standalone rating,” Fakrizzaki Ghazali, a Kuala Lumpur-based strategist at RHB Research Institute Sdn., said by e-mail Monday. The limited supply of local AAA-rated debt this year could support demand for the offering, according to Ghazali.

Debt Target

Malaysia aims to cut its ratio of debt to gross domestic product to 45 percent by 2020, from 54.5 percent at the end of last year, the finance ministry said in an e-mailed response to Bloomberg queries last week. Sales of government-guaranteed sukuk in Malaysia, the world’s biggest Shariah-compliant debt market, rose to a record 12.1 billion ringgit so far this year, data compiled by Bloomberg show.

Sarawak Hidro appointed Malayan Banking Bhd. and RHB Investment Bank as joint lead managers for the offering, according to the people. The company last sold government-guaranteed Islamic bonds in 2013, when it priced 500 million ringgit of 2028 sukuk with a coupon rate of 4.58 percent, data compiled by Bloomberg show. The yield on the securities dropped 62 basis points this year to 4.62 percent, the data show.

A person who answered the phone at Sarawak Hidro’s office said Managing Director Zulkifle Osman wasn’t available for comment. Zulkifle didn’t immediately answer an e-mail seeking comment.

Malaysia’s federal government debt amounted to 630.5 billion ringgit at the end of 2015, according to data published on the central bank’s website. The outstanding debt guaranteed by the state totaled 177.7 billion ringgit, or 15.4 percent of GDP.

Sales of local-currency securities that comply with religious tenets have climbed to 28.7 billion ringgit this year, up 18 percent compared with the same period in 2015, data compiled by Bloomberg show.

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