BT: Cagamas set to issue another landmark sukuk

By Hamisah Hamid
The ringgit-denominated sukuk is now ready and will probably be launched this month after it receives approval from the authorities, sources say. National mortgage company Cagamas Bhd is expected to issue another landmark sukuk, after the launch of the benchmark Sukuk Al-Amanah Li Al-Istithmar (Sukuk ALIm) in mid-July.

Like Sukuk ALIm, Cagamas' latest sukuk is also an innovative issuance that does not incorporate "doubtful" principles. Sources said the new sukuk will be ringgit-denominated. However, they declined to reveal the amount.

"The sukuk is now ready and will probably be launched this month after it receives approval from the authorities," the source told Business Times in Kuala Lumpur. While Sukuk ALIm was designed to meet the requirements of broader investors, especially from the Middle East, the new sukuk is anticipated to attract local institutional investors.

Sukuk ALIm, which was developed in collaboration with Al Rajhi Bank Malaysia, marks the first of its kind in the country's Islamic bond market and sets a benchmark for future sukuk issuance in the global Islamic debt capital market. Cagamas' mixed asset Sukuk ALIm, which includes a RM5 billion Islamic commercial paper and Islamic medium term note programme, completely precludes the elements of sale and buyback (Inah), trading of debt (Bai' Dayn) and undertaking (Wa'ad) - concepts which are not be acceptable to some Syariah scholars, particularly from the Middle East.

Cagamas' new sukuk is also expected to be well-received by local investors.

Analysts see huge appetite for sukuk among institutional investors in Malaysia's Islamic debt capital market. "Although the yield of sukuk originated from Malaysia is not that high, of between 3 and 4 per cent, they are always oversubscribed. This is because there is more demand than supply in the market," an analyst based in Kuala Lumpur told Business Times. Sukuk issued in the international market usually fetch double-digit returns.

In an interview with Business Times earlier this year, Cagamas president and chief executive officer Steven Choy said the corporation plans to sell more sukuk this year, in line with the recovering economy.

Last year, the country's biggest buyer of home loans sold RM11.3 billion worth of bonds, down by more than half from the record RM25 billion in 1999. About 40 per cent, or RM4.3 billion, were sukuk. Cagamas issues bonds or debt securities to finance the purchase of housing loans from banks, freeing up lenders to give out more loans. It is the second biggest issuer of debt papers after the government and carries the highest credit rating of "AAA" from local rating agencies. This means that its paper is highly sought after by investors because the probability of a default is very low.

(Business Times, 6 Sept 2010)