Malaysia's DanaInfra may issue two exchange-listed sukuk this year

KUALA LUMPUR Sat Feb 22, 2014 11:30pm EST

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KUALA LUMPUR Feb 23 (Reuters) - Malaysia's DanaInfra Nasional Bhd, created by the finance ministry to raise funds for the country's largest infrastructure project, may issue and list on the stock exchange this year as many as two Islamic bonds worth 100 million ringgit ($30.4 million) each, an official with the bourse said.

"We are in engagement with them, and definitely we will see at least one or two issuances this year," Jamaluddin Nor Mohamad, head of Islamic and alternative markets at Bursa Malaysia, said in an interview.

The expected issuance is necessary to promote Bursa Malaysia as a market for retail sukuk, he said. DanaInfra is so far the only institution to have issued sukuk on the bourse's Exchange Traded Bonds and Sukuk (ETBS) platform.

DanaInfra raised 300 million ringgit with a 10-year sukuk in January 2013 and 100 million ringgit with a 15-year sukuk in October. The issues targeted retail and corporate investors with limited access to the over-the-counter market in bonds, where investments must be done in large minimum sums.

Proceeds of DanaInfra's issues go towards extending the Mass Rapid Transit network to cover the Klang Valley and Kuala Lumpur conurbation.

NEGATIVE PERCEPTION

DanaInfra's sukuk issues this year will serve to correct a "negative perception" that ETBS bonds are more costly than raising funds on the OTC bond market and equity market, Jamaluddin said. DanaInfra's debut sukuk, the first on ETBS and an entirely new type of product, had to be priced at a premium to attract investors.

"It was a one-time decision by the issuer for the inaugural issue. The message we are sending out is that premium pricing is not the only way out, or you don't have to go down that road."

DanaInfra's second sukuk, priced based on OTC rates, was oversubscribed 2.19 times. Bursa Malaysia is now courting several financial institutions and government-related agencies to be issuers on ETBS.

"We continue to engage corporates on a direct basis, and explain all these intricacies and also put forward the incentives that have been put in place by the government."

Issuers enjoy a double deduction on expenses and are exempted from stamp duty until 2015. "What we want to achieve here might not be reflected in monetary benefit on an immediate basis - this is a long-term commitment," Jamaluddin said.

RETAIL INTEREST

Malaysia's Securities Commission launched a framework in September 2012 for retail investors to buy into bonds and sukuk.

ETBS offers an opportunity for retail investors to diversify, although its new nature means it is often evaluated in the same way a stock would be, said Jamaluddin. "They are going back to typical equity-type thinking, chasing yields."

DanaInfra, in an emailed statement to Reuters, said the major challenges had been educating retail investors about the general structure of sukuk, and the net benefit of investing in DanaInfra relative to other products.

Retail investors took smaller portions of DanaInfra's sukuk than institutional buyers. "We expect issuances in the immediate future to still be driven by institutional investors, nevertheless retail demand may gather momentum," said DanaInfra.

Maybank, CIMB Group Holdings, RHB Investment Bank and AmInvestment Bank - lead arrangers or market-makers for the DanaInfra sukuk - have been informing retail investors about ETBS. "These things will enhance the ability to attract investors on the coming issuances," said Jamaluddin.

"ETBS is still in its infancy stage as an investment product, the education and development of the market still has a long way to go," said DanaInfra. ($1 = 3.3070 Malaysian ringgit) (Editing by Andrew Torchia)

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