The Government of Malaysia issued US$800m 10-year trust certificates. The issuance is the world’s first sovereign sustainability sukuk, with the proceeds to be used for eligible social and environmental projects.
The Government also issued US$500m 30-year trust certificates concurrently with the 10-year issuance.
The joint offering was the highest oversubscription rate ever achieved by the Government of Malaysia – a strong recognition of Malaysia’s capabilities in structuring innovative sukuks in the Islamic finance industry.
The transaction was led by capital markets partners Amit Singh and Jonathan Horan based in the firm’s Singapore office and Jonathan Fried based in Dubai, as well as Phill Hall, counsel based in Singapore.
Moody’s said the issuance was credit positive for the government as the addition of a new avenue of financing further anchors its already low liquidity risk through diversifying the country’s creditor base and keeps funding costs low.
Malaysia is one of the few sovereigns globally for which sukuks are an important instrument through which deficit financing needs are met. Moody’s assessed Malaysia’s exposure to environmental risk to be moderate, reflecting the government’s exposure to petroleum-related income, which accounts for around a fifth of total revenue.
Moody’s opined that the strong interest for the international sustainability sukuk, which resulted in relatively low yields of 2.070 per cent for the 10-year trust certificates and 3.075 per cent for the 30-year trust certificates at issuance, also demonstrates Malaysia’s ability to access market financing in reserve currencies.
This complements its access to deep domestic capital markets, supporting the rating agency’s assessment of the government’s low liquidity risk even as financing needs rise because of wider fiscal deficits.
“We forecast the government’s fiscal deficit to be around 6.0 per cent of gross domestic product in 2021, narrowing to about 5.0 per cent in 2022-23, but still wider than the deficits of around 3.0 per cent and 4.0 per cent before the pandemic,” it added.
Moody’s added that besides expanding its financing options, the government’s issuance also sets a benchmark for other Malaysian issuers seeking to tap international investors for ESG products.
Source Global Legal Chronicle