Government-backed 1MDB Global Investments due to issue US$3 billion Sukuk (By IFN)

Government-backed 1MDB Global Investments due to issue US$3 billion Sukuk

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MALAYSIA: 1Malaysia Development (1MDB), an investment arm of the Malaysian government, will issue a US$3 billion Sukuk via its SPV, the 1MDB Global Investments (1MDB GI), to fund a 50:50 joint venture between 1MDB and Aabar Investments; which is wholly-owned by the government of Abu Dhabi. The entity, dubbed the Abu Dhabi Malaysia Investment Company, will invest in various projects “for the strategic interest” of Malaysia and Abu Dhabi. 1MDB GI is an SPV set up by 1MDB — a Malaysian government initiative to transform Malaysia into a high income economy — in the British Virgin Islands. The Malaysian government has explicitly expressed its intentions to financially support the payments of the notes and is legally obligated to ensure full and timely payments by the issuer. Global rating agency S&P has assigned an ‘A-‘ rating to the issuance, which is due in 2023, alongside an ‘axAAA’ ASEAN regional scale rating on the notes. According to S&P, the rating is based on the government of Malaysia’s willingness to support the payment obligations of 1MDB GI under the notes. Despite the current political uncertainty in Malaysia, in light of the upcoming 13th General Elections, analysts at S&P have clarified with Islamic Finance news that the rating on the upcoming notes have exempted any political connotations and is based solely on the credit quality of the Malaysian government and the country’s sovereign rating.

RHB Capital and OSK Investment Bank merger creates Malaysia’s biggest stockbroker and investment bank by assets (By IFN)

RHB Capital and OSK Investment Bank merger creates Malaysia’s biggest stockbroker and investment bank by assets

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MALAYSIA: RHB Capital and OSK Investment Bank have successfully merged into a single entity and is now known as RHB Investment Bank (RHBInvest). This entity is now the country’s largest stockbroker and investment bank by assets. Speaking to Islamic Finance news, a company official noted that there are still a number of uncertainties within the new institution’s management, as OSK and RHBCap staff see their positions redefined including the absorption of Yazit Yusuff into the investment arm of RHBInvest although he was the former head of Islamic banking at OSK. No details have yet been released with regards to the finalized merger however, ongoing reports from its initial merger proposal in late 2011, have noted that the acquisition of OSK would have cost RHB Group as much as RM1.95 billion (US$642.71 million). This agreement is also expected to boost the group’s involvement in Islamic capital market deals through its Shariah compliant arm, RHB Islamic. The deal is also expected to increase the banking group’s attractiveness as an acquisition target for foreign investors; especially Middle East investors who are keen to tap into the Malaysian booming Islamic banking market. However, without a CEO to head RHB Islamic, following the retirement of Abdul Rani Lebai, its former CEO and managing director; as first reported in Vol 10 Issue 13 of Islamic Finance news, things are still up in the air with regards to the future of the new entity’s Islamic business. RHBCap, as was previously known, was initially approached by Malaysia’s two biggest banks; CIMB Group and Maybank for separate merger negotiations in mid 2011 but was called off following concerns over price.

Indonesia: Retail battle takes shape

Indonesia: Retail battle takes shape

Rising profits and plans for expansion by major Indonesian retailers as international players enter the burgeoning mall segment highlight confidence in the sector’s prospects. However, creeping inflationary pressures and growing regulatory requirements threaten to dent the growth expectations of the industry and the overall economy.
On March 27 Mitra Adiperkasa (MAP), a local retailer, revealed plans to open … Read more.

MARC AFFIRMS ITS MARC-1IS(fg)/AAAIS(fg) RATINGS ON LBS BINA GROUP BERHAD’S ISLAMIC DEBT PROGRAMME

Apr 29, 2013 -

MARC has affirmed its ratings on LBS Bina Group Bhd’s (LBS Bina) RM135 million Islamic Commercial Papers/Islamic Medium Term Notes (ICP/IMTN) Programme at MARC-1IS(fg)/AAAIS(fg) with a stable outlook. The affirmed ratings and outlook are underpinned by an irrevocable and unconditional Kafalah Guarantee provided by financial guarantee institution Danajamin Nasional Berhad (Danajamin) in relation to the ICP/IMTN Programme. MARC currently rates Danajamin’s financial strength rating at AAA/stable based on Danajamin’s economic role as Malaysia’s sole financial guarantee insurer, a perceived high degree of support from the government in line with Danajamin’s public policy objective, its adequate capital structure and liquidity profile.

LBS Bina is a mid-sized property developer with activities currently focused on its flagship township development, Bandar Saujana Putra (BSP) in Kuala Langat, Selangor and, to a lesser extent, Puchong, Selangor, and Cameron Highlands, Pahang. Although an established player in the medium-cost segment, the group has expanded its scope to include the high-end market segment since 2011. MARC notes LBS Bina’s project launches in BSP comprising 744 units in 2012 have achieved a moderate take-up rate of 74%, although about 50% of the units were launched in the 4Q2012. Given that landed residential development has reached matured stage in BSP, LBS Bina launched BSP Skypark, a high-rise mixed-commercial development of 32 shop lots and 411 service apartments under phase 1 in January 2013. The project has a gross development value (GDV) of RM203.3 million and is expected to cater to demand for residential units in the township. MARC believes that the shift from landed properties to high-rise would allow LBS Bina to further maximise its land bank, however, the recent implementation of tighter lending guidelines by banks could weigh on demand for the developer’s newer launches.   

LBS Bina’s recent involvement in the high-end property segment through its 192-acre D’Island Residences project in Puchong has witnessed a slower take-up rate in 2012. Also, while the smaller and lower priced residential units achieved 100% sales, MARC observes that the sales of the larger semi-detached and super-link residences have been somewhat slower, reflecting the challenging conditions for the high-end segment in the Klang Valley. LBS Bina’s current development in Cameron Highland which has a GDV of RM262.6 million has achieved moderate response, with stronger sales of residential units as compared to commercial ones.  As at end-January 2013, the group has a GDV of RM1.87 billion for ongoing projects and unbilled sales of RM724.5 million which would provide near-term earnings visibility. 

MARC also notes that LBS Bina’s recent decision to divest its equity interest in its China assets to Zhuhai Holdings Investment Group Ltd (Zhuhai Holdings) would enable the group to monetise its China assets. LBS Bina, through its subsidiaries, holds a 60% stake in a golf club in Zhuhai, China and its surrounding development land totalling 197 acres. The cash and equity consideration of the divestment amounting to HKD1.35 billion (RM538.1 million) and 16.78% equity stake in Zhuhai Holdings, valued at HKD300.0 million (RM119.6 million) would provide LBS Bina additional liquidity to reduce its upcoming debt obligations while retaining the group’s exposure to future development projects in Zhuhai, China.

For the financial year ended December 31, 2012 (FY2012), the group’s revenue improved to RM509.6 million (2011: RM425.3 million) on the back of higher sales, arising mainly from projects in BSP. However, its operating profit margins declined to 18.4% (2011: 20.0%) due to weaker sales of its high-end properties, while pre-tax profit improved marginally to RM75.0 million (2011: RM67.7 million). Nevertheless, the group recorded higher cash flow from operations (CFO) of RM124.4 million (2011: negative RM8.8 million), although this was achieved through an increase in construction-related payables. The higher CFO allowed LBS Bina to early redeem RM60 million of its outstanding notes under the ICP/IMTN Programme in 2012, bringing its total borrowings and debt-to-equity ratio to RM429.3 million and 0.81 times respectively (2011: RM479.6 million; 0.95 times). An additional RM15 million of its outstanding debt under the ICP/IMTN Programme was redeemed on February 26, 2013, resulting in its proforma debt-to-equity ratio declining further to 0.78 times. MARC also notes that should the group utilise the proceeds from the disposal of its China assets to reduce its borrowings, its proforma debt-to-equity ratio is expected to improve to 0.55 times. LBS Bina’s remaining outstanding notes under the ICP/IMTN Programme of RM60.0 million will mature in 2015 (RM40 million) and 2016 (RM20 million). 

As the ratings and outlook hinge on the guarantee provided by Danajamin, any changes to LBS Bina’s rating would be largely driven by changes in Danajamin’s credit strength.

Contacts:

Jasmine Kua, +603-2082 2280/ jasmine@marc.com.my;

Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.

Australia’s Board of Taxation works towards ensuring a level playing field for Islamic finance (By IFN)

Australia’s Board of Taxation works towards ensuring a level playing field for Islamic finance

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AUSTRALIA: Bernie Ripoll, the parliamentary secretary to the treasurer and member of the Australian Labor Party, has announced that the country’s Board of Taxation has submitted its final report on Islamic finance tax treatments to ensure a level playing field for Islamic banking and Takaful products. “We see Islamic finance as a way of opening our capital and credit markets, enhancing competition and innovation, fostering social inclusion, and promoting greater engagement and integration in the Asia Pacific,” he said during a recently held forum in Melbourne. “More importantly, the Shariah prohibition on highly speculative activities not only helps to protect the economy against abuses and distortions, but also forges a closer link between financial activity and the real economy,” Ripoll added. In 2010, the Australian Board of Taxation was commissioned by the government to review the current tax treatments towards Islamic finance instruments; resulting in a consultation paper which was open to feedback from the industry’s stakeholders before being finalized. The report has called for the board to inquire into the treatment of Islamic finance products by the existing Australian tax law and proposed the removal of any regulatory barriers to its development. In line with this, the board has appointed a working group, comprising government officials and assisted by an expert panel, members of the board’s secretariat and officers from the Treasury and Australian Taxation Office. It is encouraging to see Australia, one of the most bullish economies since the 2009 global credit crisis, take to Islamic finance and appreciate its value to the country’s financial and economic system. Superannuation funds and Islamic home mortgages are amongst the products expected to kick off when the Australian Islamic finance industry gains traction.