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MENAFN - Arab News - 01/08/2011

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(MENAFN - Arab News) Sukuk and infrastructure should be a natural fit. While the sukuk market has flourished over the last four years, these have concentrated more on raising finance for balance sheet purposes; refinancing existing more expensive debt including very often conventional finance debt; overcoming the mismatch between short-term deposits and longer term liabilities by raising longer term financing; and providing working capital and funds for expansion.

Sukuk for development and infrastructure projects such as pure project sukuk have been hardly a feature of the sukuk landscape, although there have been a few exceptions. This is surprising given the estimated multi-trillion dollar infrastructure spend in the IDB member countries over the next decade or so. The current Jeddah Rehabilitation Project, for instance, alone will cost in the excess of SR35 billion, and according to the promoters, Jeddah Development Company, sukuk may feature in the financing side of some of the planned projects. The project however has to be funded by the private sector and will not carry any government guarantees.

Not so in Malaysia, where Syarikat Prasarana Negara Berhad, the Malaysian public infrastructure company wholly-owned by the Ministry of Finance, successfully priced its RM2 billion 7-Year, 10-year and 15-year Islamic Medium Term Notes issued last week under its RM4 billion nominal value sukuk program. The sukuk program, whose proceeds will be used mainly to part finance the Kelana Jaya and Ampang LRT Line Extension Project (LEP) and other infrastructure improvement initiatives by Prasarana, is guaranteed by the Malaysian government.

The offering was structured as a Sukuk Al-Ijarah (leasing sukuk), which according to Parasarana, involves a sale and leaseback of Prasarana's railway assets, which the company would re-purchase upon maturity of the sukuk. It is Prasarana's obligations in relation to the payment of the rentals and the re-purchase price that are guaranteed by the Malaysian government.
Parasarana was set up to facilitate, undertake and expedite public infrastructure projects approved by the government and together with its group of companies are also asset-owners and operators of several public transport providers, namely the Ampang and Kelana Jaya lines, KL Monorail system, bus operations in Klang Valley and Penang, as well as the cable car services in Langkawi.

The good news is that this was the first time that the company has tapped the Islamic capital market with a sukuk issuance, and according to Prasarana Chief Executive Officer Shaipudin Shah Harun, there will be further finance raising forays in the future to fund the company's expansion plans, and Parasarana is committed to contribute to the further development of the Malaysian sukuk market.

However, the absence hitherto of Parasarana from the Islamic finance market especially for a major urban transport infrastructure company is surprising, given that it has managed several major projects in the Klang Valley, all of which would have been ideal for sukuk issuance and securitization.

This RM2bn Sukuk Al-Ijarah was actually structured in 2009 by joint lead managers and arrangers AmInvestment Bank and CIMB Investment Bank, with Bank Islam Malaysia acting as co-manager. But the issue was delayed due to the impact of the global financial crisis which badly affected pricing and yields in both the conventional bond and sukuk markets.

In his budget 2011 speech in his capacity as finance minister and at the launch of the government's Economic Transformation Program (ETP) in 2010, Malaysian Prime Minister Mohd Najib Abdul Razak however urged government owned and government linked companies to increase their Shariah-compliant investments as part of their investment portfolios both at home and abroad in search of portfolio diversification and more competitive returns; and to raise funds through the issuance of sukuk.

The Parasarana RM2 billion sukuk issue has a semi-annual profit rate of 4.05 percent per annum for the 7-year series, 4.40 percent for 10 years and 4.65 percent for 15 years respectively. The book-building exercise peaked at RM15.23 billion at one stage, and due to the strong appetite from investors and the fact that the Malaysian government is the obligor, the sukuk was priced at the tightest end of the final price guidance. The issue, according to Parasarana was four times over-subscribed by a broad range of investors, including insurance companies, fund managers and financial institutions.


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