Malaysia Set to Issue New Sukuk; Turkish Banking Outlook Remained Negative; ICD Priced USD300m 5y at 2.468%

11 April 2016

Global Sukuk Markets Weekly

Malaysia Set to Issue New Sukuk; Turkish Banking Outlook Remained Negative; ICD Priced USD300m 5y at 2.468%

Highlights & Performance

¨   Bloomberg Malaysia Sukuk Ex-MYR Total Return (BMSXMTR) and Dow Jones Sukuk Total Return (DJSUKTXR) indices closed higher at 103.3 (+0.11%) and 158.3 (+0.13%) respectively, with yields declining 0.9bps to 2.486%. Gainers were led by Qatar ’23, PETMK ’20 and MALAYS ’25. Markets remained cautious ahead of first-quarter corporate earnings season and Oil producers meeting on 17 April in Doha. Oil prices jumped 8.5% to USD41.94/bbl on unexpected decline in US crude inventories and revived hope that major key producers may agree to curb their oil production after Kuwait expressed confidence about the deal, while dismissing the importance of Iran in the deal.

¨   Malaysia’ foreign reserves rose to USD97bn in March from USD96.1bn in line with higher foreign holdings in bonds of MYR226.6bn (vs. MYR215.1bn in Feb-16). Malaysia’s export growth rose to 6.7% in Feb-16 from -2.8% in Jan-16, which led to 2bps decline in CDS to 156.3bps. Turkish CDS tightened 9.4bps to 269bps as inflation eased to 7.46% in Mar-16 from 8.78% in Feb-16, the biggest drop in three years, while industrial production rose 5.8% in Feb-16 from 5.6%.

¨   Islamic Corporation for the Development of the Private Sector (ICD) via Hilal Services (Aa3/AA/AA) priced USD300m 5y Senior Sukuk at 2.468% (see sovereign/corporate update). Meanwhile, the outlook for Turkey’s banking system  on negative for the third consecutive year by Moody’s, owing to the system’s reliance on external wholesale markets which will expose to weaker international investor confidence and higher funding costs. Banks also face pressures from increasing dollarisation of liabilities in light of lira’s depreciation.

¨   In the MYR space, the MYR3.5bn 7y GII (reopening) auction closed at average yield of 3.932% (vs. WI of 3.935/915% a day prior to the tender closed), with strong BTC ratio of 2.686x. Putrajaya Holdings (MARC: AAA) priced MYR535bn Sukuk al-Musyarakah in 3 tranches — MYR55m 6y at 4.20%, MYR250m 8y at 4.35% and MYR230m 9y at 4.40%.

SOVEREIGN UPDATES

Country/Issuer	Update	RHBFIC View
The Government of Malaysia (A3/A-/A-; Sta)	On a roadshow for USD Sukuk issuance this month, mainly to prefund its maturity of USD1.2bn in July.	This is the second issuance by sovereign after Indonesia last month. According to OC sighted by us, 80% of transaction is for sale of vouchers while the remainder is for sale of shares by the Government via Ministry of Finance.
Indonesia (Baa3;Sta/BB+; Pos/BBB-;Sta)	Indonesia’s new Sukuk included in Nasdaq Dubai	The country’s recent issuance of USD2.5bn is listed in Nasdaq Dubai, which will bring total nominal value listed on the exchange to USD42.31bn.
Islamic Corporation for the Development of the Private Sector (ICD) (Aa3/AA/AA; Sta)	ICD issued USD300m 5y Senior Sukuk via Hilal services at profit rate of 2.468% (or MS+130, T+127).  The proceeds will be used to finance the expansion of the ICD’s terms finance and equity portfolios in response to a growing demand for assistance from its member countries.	Given its strategic importance to the Islamic Development Bank (IDB), strong capital and liquidity positions as a multilateral development bank, we view ICD’s profile favourably.