Going For Listing: Ihsan Sukuk for a good cause

This article first appeared in Capital, The Edge Malaysia Weekly, on August 7, 2017 - August 13, 2017.
-A +A

IHSAN Sukuk Bhd, which will list on Bursa Malaysia on Aug 9, marks a new chapter for the local bourse as the country’s first sustainable and responsible investment (SRI) sukuk for retail investors.

The retail portion of RM5 million provides individual investors with a channel to invest in a good cause, says Khazanah Nasional Bhd. The RM100 million issuance (95% for institutions) is the second Sukuk Ihsan programme, the first having been a RM100 million tranche issued in 2015 only for institutional investors.

The retail portion of this sukuk (50,000 units of RM100 each) was 1.3 times covered, with 139 applications coming in for 64,810 units.

What is interesting is that 56.38%, or 28,190 units, of the retail portion went to a single retail investor who asked to buy 43,000 units, or 86% of the issuance. The identity of this investor has not been disclosed by the Malaysian Issuing House. This was the only application that did not get the full amount requested but was allotted all 28,190 units that were not taken up by the 138 other applicants.

While the minimum investment is RM1,000, the sovereign wealth fund also provided room for small-scale investors to start from as low as RM10 via two crowdfunding platforms — ATAPLUS and pitchIN. At the time of writing, the campaign for ATAPLUS had raised RM1,443 while the pitchIN platform had raised RM12,805. Both campaigns end by Aug 12 and target RM50,000 each.

The proceeds will be channelled into the Yayasan AMIR Trust Schools Programme, a non-profit organisation set up in 2010 aimed at improving access to quality education at government schools via a public-private partnership with the Ministry of Education.

The proceeds will be used to fund the expansion of the foundation’s Trust Schools Programme to another 20 schools. According to Khazanah, as at June this year, the programme covered 83 trust schools and over 65,000 students across 10 states.

The sukuk’s tenure is seven years and both the retail and non-retail sukuk holders will receive annual payments. It is structured in accordance with the principles of Wakalah Bi Al-Istithmar, meaning a contract entered into for the purpose of investment.

It is noteworthy that the yield to maturity depends on whether the key performance indicators (KPIs) for the sukuk are met — missing the KPIs means investors would get a higher yield of 4.6% at full redemption.

Otherwise, if the KPIs are fulfilled, investors would see a lower yield of 4.2% via a mandatory reduction of 3.18% as the SRI sukuk will be redeemed at 96.82%.

Over the seven-year tenure, investors can also opt to waive both the principal amount and profit invested at any time.

The KPIs entail the selection of at least 20 schools under the Trust Schools Programme over a five-year period. At the end of the five-year intervention, several key outcomes will determine whether the KPIs have been met.

At least half the teachers should show strong proficiency in their teaching areas, while a minimum of 50% of the schools’ senior leadership must demonstrate the ability to enable a positive learning environment.

At the same time, at least half of the students in these schools should demonstrate positive values and three-quarters of them must also be able to pass the national literacy and numeracy tests by then.

While the retail offering is for only 5% of the total nominal value, Khazanah, as the issuer, may appoint financial institutions to be involved in the trading of the non-retail sukuk portion to make a market for the retail portion. This means both the retail and non-retail portions will be fungible across both Bursa and over-the-counter markets for these market-makers only. As a consequence, the nominal value of the listing on Bursa may increase up to RM100 million.

The principal adviser and lead arranger is CIMB Investment Bank Bhd, while the joint lead managers are Maybank Investment Bank and RHB Investment Bank.