Khazanah sells Islamic bonds in second offer in three weeks

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(Sept 4): Malaysia’s sovereign wealth fund sold Islamic bonds for the second time in three weeks as it buys out the national airline.

Khazanah Nasional Bhd. issued $500 million of seven-year sukuk today convertible into shares of state power company Tenaga Nasional Bhd., said a person with knowledge of the matter who asked not to be named because the information is private. The notes can be swapped when the stock reaches a 15 percent premium over the reference price, the person said.

Khazanah is in the process of purchasing the 30.6 percent stake in Malaysian Airline System Bhd. that it doesn’t already own and will then delist the carrier from the stock exchange. The fund announced last week a 6 billion ringgit ($1.9 billion) plan to revive the airline. A prior attempt to sell the Tenaga- linked sukuk was shelved on June 5 because pricing didn’t meet expectations, said a person familiar with the deal at that time.

“There’s little credit risk in this issue,” James Lau, who oversees $300 million as an investment director at Pheim Asset Management Asia Sdn. in Kuala Lumpur, said in a telephone interview. “The premium reflects the market view on the upside for Tenaga shares.”

Yields Drop

The dollar-denominated notes were priced to yield minus 0.05 percent and the reference price was set at 12.40 ringgit, the person said. The shares were at 12.24 ringgit as of 11:30 a.m. in Kuala Lumpur, up 7.6 percent this year. Khazanah sold 1.5 billion ringgit of Shariah-compliant bonds on Aug. 19, according to two people familiar with that deal. Both proceeds are for working capital, the term sheets show.

Raslan Sharif, Khazanah’s spokesman in Kuala Lumpur, declined to comment on the latest bond offering by phone today.

The yield on the fund’s existing exchangeable Islamic bonds issued by a special purpose unit, Pulai Capital Ltd., in 2012 fell to a 2 1/2-year low. The U.S. dollar notes due in March 2019 that can be swapped into shares of Hong Kong-listed Parkson Retail Group Ltd. yielded 0.007 percent, data compiled by Bloomberg show. That compares with 0.06 percent on June 5 when the sale plan was scrapped.

The average yield on global sukuk dropped 64 basis points in 2014 to 2.78 percent, the lowest level since May 29, according to a Deutsche Bank AG index, which predominately tracks U.S. currency corporate and sovereign notes.

Khazanah is the biggest shareholder in Tenaga with 32.4 percent and also has holdings in the nation’s IHH Healthcare Bhd., telecommunications company Axiata Group Bhd. and CIMB Group Holdings Bhd.