Wednesday, 4 August 2010

Khazanah issues single largest sukuk of 1.5bil Singapore Dollars what is the rationale, really

This is news from TheStar which got Blogger Syed and Another Brick In The Wall all fired up:

Wednesday August 4, 2010

Khazanah issues single largest sukuk of S$1.5bil

PETALING JAYA: Khazanah Nasional Bhd has issued a 5-year and a 10-year sukuk for S$1.5bil (RM3.6bil) – its single largest sukuk issuance to-date.

In a late statement issued yesterday night, the country’ sovereign wealth fund said the Khazanah Singapore dollar sukuk, issued at nominal value, was priced through an accelerated book building process on Aug 3 and at the tightest end of the price guidance at 2.615% and 3.725% for the 5-year and 10-year sukuk, respectively.

The issuance is also the largest and longest termed sukuk issuance in Singapore, the largest Singapore dollar issuance by a foreign issuer in Singapore and the first Singapore dollar sukuk issuance out of the Malaysia International Islamic Financial Centre (MIFC) initiative, it said.

According to the statement, the transaction drew a demand of 4.3 times book size, enabling Khazanah to upsize the transaction from the initial offer size of S$1bil to S$1.5bil.

The deal attracted a diverse group of 78 local and international investors comprising financial institutions, asset management firms, statutory bodies and insurance companies from Singapore, Malaysia, Hong Kong, Brunei and Europe, it said.

This issue via a Malaysian-incorporated special purpose vehicle, Danga Capital Bhd, encompass a S$600mil 5-year sukuk and a S$900mil 10-year sukuk which was launched on an initial offer size of S$1bil with a “green shoe option” (an option to upsize).

Tan Sri Dr Zeti Akhtar Aziz, governor of Bank Negara and chairman of MIFC executive committee, said via the statement: “This is a further step forward for our MIFC initiative to evolve Malaysia into a multi- currency issuance platform for sukuk.”

The MIFC initiative promotes Malaysia as an Islamic finance global hub.

Ong Chong Tee, deputy managing director of the Monetary Authority of Singapore, said: “This latest sukuk adds to the growing range of syariah-compliant financing in Singapore.

“We welcome regional participants to tap into our growing capital markets and to continue to add to the depth and diversity of markets in the region.”

Khazanah managing director Tan Sri Azman Mokhtar said: “We are very pleased that this transaction broadens further our active participation in international Islamic capital markets.

“The transaction was executed with speed, at a competitive price while the substantial over-subscription was particularly encouraging.”

CIMB, DBS and OCBC are the joint bookrunners for this offering.

The three are also the joint lead managers together with CIMB Islamic, the Islamic Bank of Asia and OCBC Al-Amin.

The co-managers are the Australia and New Zealand Banking Group Ltd, BNP Paribas, Malayan Banking Bhd and United Overseas Bank Ltd.

Read the Blogger's fiery posts to the news above, here:

Blogger Syed said;
Khazanah Nasional Selling Us Out To Singapore, Literally

another blaster here:

Blogger Another Brick In The Wall said;
Azman's dungu: Float Sukuk Bond in Singapore in Sing Dollar...

Tough words and questions and yes, why not.

Blogger Syed has this to say:

....But here is the most mind boggling part. Khazanah says they are using the funds for property development in the Iskandar Region in Johor. This is a property development where expenditures are in Ringgit and even more importantly the earnings will also be in Ringgit.

The first rule of cross border borrowing is that you don’t borrow in a currency that is different from the currency in which you earn money. Its simply called a currency mismatch (hitech-nya).

And Khazanah has already been burnt once before. Tenaga Nasional Bhd, another Government Losing Concern in which Khazanah had about 70% stake, used to borrow heavily in US Dollars and used the money for its capital expenditure here in Malaysia. Then they take all their Ringgit earnings (from all our electricity bills) and then have to convert the Ringgit earnings back to US Dollars to pay back their US Dollar loans.

When the Asian Financial crisis hit in 1998-2000 and the Ringgit fell against the US Dollar, Tenaga Nasional suffered hundreds of millions of Ringgits in forex losses. Only Petronas can borrow safely in US Dollars because almost all their earnings are in US Dollars. No currency mismatch for Petronas.

Unlike Tenaga Nasional, in the 90s YTL, Ananda Krishnan, Genting etc borrowed billions in Ringgit financing to build all their private power stations (IPPs). None of them borrowed US Dollars. I know because I helped finance them. None of them suffered currency exchange risks like Tenaga Nasional.

They borrowed in the same currency (Ringgit Malaysia) that was also the currency used in their business operations. They easily avoided the type of currency risk that caused huge losses for TNB - simply by borrowing in the currency of your own country from the banks in your own country.

So why is Khazanah Nasional Berhad going in the opposite direction? Pengkhianat ke?

Even if the Singapore Dollar goes up 5% against the Ringgit (which is not impossible) that will be another RM180.0 million extra Khazanah will have to pay – per year.

To hedge this risk, Khazanah may have to buy expensive currency hedges. Simply meaning the financial advisors and the interest rate and currency rate hedge bankers stand to make a killing again.

S$1.5 Billion worth of currency hedging could mean a lot of year end bonuses for any banker. I think there is no other high tech reason for this financing exercise. I notice CIMB is the book runner. Advisor and arranger siapa?

Hmm, I think many concerned Malaysian taxpayers and of course voters would love to hear a learned response from Azman on the rationale of Khazanah Nasional Bhd issuing a 5-year and a 10-year sukuk for S$1.5bil (RM3.6bil) – its single largest sukuk issuance to-date in SINGAPORE DOLLARS.

Besides of course just keeping a low profile and saying that "“We are very pleased that this transaction broadens further our active participation in international Islamic capital markets. The transaction was executed with speed, at a competitive price while the substantial over-subscription was particularly encouraging”, which is hardly encouraging and does not inspire confidence in Khazanah's latest endeavor to say the least.


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