REFILE-Malaysia's Etiqa Takaful eyes debut sukuk as soon as this month

Wed May 7, 2014 11:55pm EDT

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By Bernardo Vizcaino

May 7 (Reuters) - Etiqa Takaful Bhd, Malaysia's largest Islamic insurer and a unit of Malayan Banking Bhd, plans to issue 300 million ringgit ($92.2 million) in sukuk as early as this month to boost its capital, its chief executive told Reuters.

Last month, Etiqa Takaful set up its maiden sukuk programme, rated AA1 by RAM ratings, designed to qualify as Tier 2 capital in the company's balance sheet.

"Based on the latest progress, the tentative target date of sukuk issuance will be in May," said Chief Executive Ahmad Rizlan Azman.

Local-currency sukuk are common in Malaysia and several Islamic banks have set up subordinated programmes this year to boost their capital, but Etiqa's would be a rare issuance from a takaful firm.

The sukuk would be a one-off transaction classified as Etiqa's liabilities, carrying a 10-year tenor and a non-call provision in the first five years, said Rizlan.

Etiqa would use a musharaka structure for its sukuk, an investment partnership arrangement in Islamic finance where parties share profits according to a stipulated ratio and share losses on the basis of equity participation.

Proceeds of the sukuk would be used for general business operations, working capital and other purposes. Maybank Investment Bank is the advisor for the sukuk.

Etiqa has a strong liquidity position although its family takaful business has seen poor growth due to unattractive pricing and a limited portfolio, RAM said on its rating note.

Etiqa would seek to address this by expanding its product range while targeting higher-income clients, Rizlan said.

"Management aims to increase regular contributions, mainly in investment-linked and ordinary family lines, to ensure sustainable income. Initiatives include the introduction of new products and targeting the higher-end segment of the market."

Etiqa is the largest of 12 takaful operators in Malaysia and its plans could add pressure to competitors which might not have the balance sheet size necessary to tap the sukuk marketplace, while Etiqa has built a commanding market share.

Etiqa Takaful held 11.2 billion ringgit in assets as of December, up 9.6 percent from a year earlier, representing close to half of total takaful industry assets.

Etiqa posted a net profit of 188.5 million ringgit in 2013, up 50 percent from a year earlier, according to company financials. ($1 = 3.2535 Malaysian ringgit) (Editing by Kim Coghill)

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