KUALA LUMPUR (Sept 1): Khazanah Nasional Bhd announced it has priced an exchangeable sukuk offering of US$398.8 million (RM1.62 billion), through a Labuan incorporated independent special purpose vehicle, Bagan Capital Ltd.
In a statement today, Khazanah said the sukuk is exchangeable into its holding of ordinary shares in Hong Kong-listed Beijing Enterprises Water Group Ltd (BEWG), an integrated water and sewage treatment solutions service provider in China.
Khazanah said its investment in BEWG of HK$1.18 billion (RM486 million) in October 2013, was part of a wider collaboration with the Beijing Enterprises Group Company Ltd to further strengthen its exposure to the fast growing environmental related sectors in China, including water and waste-to-energy.
At yesterday’s closing price of HK$5.41, Khazanah’s stake in BEWG is valued at HK$2.16 billion (RM1.15 billion), translating into an investment gain of HK$984 million (RM665 million), implying a Holding Period Return (HPR) of 146%.
Assuming full exchange of the exchangeable sukuk at the exchange price, the stake would be valued at HK$3.1 billion (RM1.62 billion) or an implied HPR of 249%.
Khazanah said the exchangeable sukuk was priced through an accelerated book-building process and achieved a final pricing of 43% exchange premium, with zero periodic payment and 0% yield to maturity.
“The transaction achieved the highest exchange premium for a zero coupon and zero yield exchangeable sukuk since 2007 in Asia Pacific ex-Japan, reflecting the market’s confidence in BEWG’s growth story supported by Khazanah’s strong credit,” the sovereign fund said.
“The sukuk, which has a tenure of five years with an investor put option at the end of year three, drew demand from a diverse group of investors, comprising long only funds, hedge funds, arbitrage funds, as well as asset managers across Asia and Europe,” it added.
Khazanah explained that the exchangeable sukuk, structured based on the principle of Wakalah, is an Islamic finance solution, whereby it references a stock in the water utility sector that does not meet the financial ratio requirements for Shariah-compliance set by the Dow Jones Islamic Market™ Index and FTSE Shariah Global Equity Index Series.
Khazanah’s chief financial officer Datuk Mohd Izani Ghani said this unique structure allows Islamic investors to participate, as Khazanah would satisfy any exchanges via a cash settlement, if BEWG shares do not meet the financial ratios for Shariah-compliance on the date of the exchange.
“The structure also provides the sukuk holder [with] the option to request for Khazanah to settle the exchange right by delivering BEWG shares in lieu of cash, subject to the terms and conditions of the sukuk,” he said.
The exchangeable sukuk will be listed on the Singapore Exchange Securities Trading Ltd, Labuan International Financial Exchange Inc and Bursa Malaysia (under the Exempt Regime).
Khazanah said it has undertaken repeat issuances of Islamic securities since its inaugural issuance of sukuk exchangeable into Telekom Malaysia Bhd shares in 2006, and BEWG represents the seventh underlying security offered by it in an exchangeable sukuk format.
Bank of America Merrill Lynch, CIMB Group Holdings Bhd and Deutsche Bank are the Joint Bookrunners and Joint Lead Managers for this exchangeable sukuk transaction.