Malaysian sovereign fund issues $400m sukuk

Khazanah's exchangeable Sukuk is the first bond of its kind to offer exposure to China’s water sector.

Khazanah Nasional, the $35 billion Malaysian sovereign wealth fund, is issuing a $398.8 million Sukuk exchangeable into shares of Beijing Enterprises Water Group, a Chinese water treatment services provider it partly owns.

The Sukuk achieved a final pricing of 43 percent exchange premium. This is the highest exchange premium for a zero-coupon and zero-yield exchangeable Sukuk since 2007 in the Asia Pacific market bar Japan. 

The Sukuk, which has a tenor of five years with an investor put option at the end of year three, drew demand from a diverse group of investors including long-only funds, hedge funds, arbitrage funds and asset managers across Asia and Europe, the fund said in a statement. 

Khazanah invested HKD1,180 million ($152 million; €136 million) in BEWG in October 2013. The stake was valued at HKD2,164 million at close on 31 August, implying a holding period return of 146 percent. Assuming full exchange of the Sukuk at the exchange price, the stake would be valued at HKD3,095 million, or an implied holding period return of 249 percent. 

“The 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,” said Dato’ Mohd Izani Ghani, chief financial officer of Khazanah. 

“The structure also provides the Sukuk holder 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. This is another milestone in Khazanah’s track record of innovative and landmark transactions.” 

The exchangeable Sukuk will be listed on the Singapore Exchange Securities Trading, Labuan International Financial Exchange and Bursa Malaysia.