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Treasury & Capital Markets
Khazanah prices first rated sukuk and conventional bond
Strong investor demand drives tighter pricing for US$1.5 billion issuance
Chito Santiago 29 May 2023

Malaysia’s sovereign wealth fund Khazanah Nasional on May 24 priced a dual-tranche senior bond offering totalling US$1.5 billion, comprising of a US$750 million wakala sukuk for five years and a US$750 million conventional bond for 10 years. The issuance represents Khazanah’s first US dollar rated sukuk and conventional bond out of its newly established US$5 billion multi-currency sukuk issuance programme and US$10 billion euro medium-term note programme through its wholly-owned special purpose vehicles.

The sukuk tranche was priced at par with a similar coupon and re-offer yield of 4.68%. This was equivalent to a spread of 93bp over the US treasuries, which was in line with the final price guidance and 42bp tighter than the initial price range of 135bp area. The conventional bond was priced also at par with a similar coupon and re-offer yield of 4.876%. This represented a spread of 118bp over the US treasuries, which was likewise in line with the final price guidance and 42bp inside of the initial price guidance of 160pb area.

The deal garnered a final order book of US$10.8 billion, after peaking at US$12 billion, that helped Khazanah to tighten pricing. The five-year sukuk attracted a total demand of over US$4.9 billion from 216 accounts, with 73% of the paper allocated in Asia-Pacific, 26% in EMEA and 1% in offshore United States. By type of investors, fund managers accounted for 74%, insurance and public agency 11%, banks 9%, and other investors 6%.

The 10-year conventional bond generated an order book of over US$5.9 billion from 236 accounts with 75% of the bonds distributed in APAC, 24% in EMEA, and 1% in offshore US. Fund managers also drove this tranche as they took 76%, while insurance companies, pension funds and sovereign wealth funds took 10%. Banks accounted for 8%, while other investors bought the remaining 6%.

Khazanah’s managing director Amirul Feisal Wan Zahir says the issuance will be the benchmark for the company’s credit as it continues to rebalance its portfolio and strengthen its balance sheet.

The bond proceeds will be used for general investments, refinancing of borrowings, and working capital requirements. BofA Securities, CIMB, DBS, J.P. Morgan, Maybank, MUFG Bank and OCBC Bank acted as the joint bookrunners and lead managers for the transaction.

Khazanah was assigned first-time ratings of A3 from Moody’s Investors Service and A- from S&P Global Ratings in April this year. It has historically enjoyed access to the debt capital markets even without a rating, supported by its strong linkage with the Malaysian government. Its standalone credit strength is somewhat moderated, though, by the high geographic concentration of its portfolio in Malaysia and exposure to market volatility, which causes fluctuations in its portfolio value, as with many other sovereign wealth funds globally.

Khazanah does not receive regular capital infusions, relying on its ability to generate returns and tapping the capital markets to fund its investments. It previously tapped the US dollar sukuk market in May 2021 with a dual-tranche offering totalling US$1 billion. The issuance consisted for a five-year sukuk amounting to US$400 million and a 10-year sukuk amounting to US$60 million.

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