Sunday, March 9, 2014

TMR: AmIslamic Bank issues Malaysia’s 1st Basel III-compliant sukuk

By Farah Adilla
AMMB Holdings Bhd’s Islamic banking arm, AmIslamic Bank Bhd, had on Feb 28 issued a RM200 million Basel III-compliant Tier 2 Subordinated Sukuk Murabahah.

The bank claims it is Malaysia’s first Basel III-compliant Tier 2 Subordinated Sukuk issuance and the world’s first Basel III- compliant Tier 2 Subordinated Sukuk to be issued under the Shariah principle of Murabahah based on commodity trading.

In a statement last Friday, the company said the RM200 million Tier 2 Sukuk Murabahah, with a maturity of 10 years and callable at the end of year five, carries a semiannual profit payment of 5.07% per annum.

“This is a 30-year programme which will provide AmIslamic Bank greater flexibility to issue sukuk of varying tenures on a “need to” basis from time to time to fund its general working capital requirements that conform to Shariah principles at competitive pricing given its strong credit rating, underscored by its strengthening credit fundamentals and improving asset quality,” it said in the statement.

AmIslamic Bank was upgraded to AA2 by RAM Rating Services Bhd in November 2013 along with AmBank (M) Bhd and AmInvestment Bank Bhd.

The Tier 2 Sukuk Murabahah has been assigned AA3 rating by RAM Ratings, one notch below AmIslamic Bank’s long-term financial institution rating, which reflects their lower ranking in the priority of claims upon bankruptcy or liquidation, relative to senior unsecured creditors.

AmInvestment Bank acted as the sole principal advisor, lead arranger and lead manager for this Tier 2 Sukuk Murabahah (2014/2044) issuance which was made under the RM3 billion subordinated Sukuk Murabahah programme.

AMMB said the Tier 2 Sukuk Murabahah has been structured to qualify as an Islamic Tier 2 capital instrument for AmIslamic Bank under Bank Negara Malaysia’s (BNM) capital adequacy framework for Islamic banks issued in November 2012, which, among others, requires the Tier 2 Sukuk to have loss absorption features at the point of non-viability of AmIslamic Bank.

AmBank Group MD Ashok Ramamurthy said while a number of conventional banks have issued Basel III-compliant capital instruments in Malaysia and the region, incorporating the required characteristics of Basel-III capital instruments into an Islamic context presented a number of additional challenges requiring close cooperation with the regulators.

“The successful closing of this landmark transaction represents a significant milestone for the Malaysian sukuk market.

“At the same time, this issuance saw the engineering of a Shariah mechanism that is acceptable to both the regulators and the Shariah scholars.

“This is the first Basel III-compliant Tier 2 Sukuk issuance by a Malaysian issuer which demonstrates our capability in sukuk structuring and profound track record in product innovation,” Ashok said.

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