After Cagamas, Malaysia's equivalent of Fannie Mae, recently scored a blowout with investors on its M$2.05 billion ($527.6 million) Islamic MBS deal (see ASR, 8/1/05), other issuers are lining up to try and replicate the agency's success.
Next up will be another quasi-sovereign entity, Institut Jantung Negara, operator of the country's National Heart Institute. Institut Jantung, a subsidiary of the Finance Ministry, has established a M$209 million Islamic facility - IJN Capital - to finance construction of a new block for its main hospital in Kuala Lumpur, as well as to purchase new equipment.
RHB Sakura is acting as arranger and underwriter on the deal, which will issue Sukuk Musyarakah paper when funding is required. The Musyarakah concept - also used on the Cagamas offering - involves a joint venture between the issuer and investors to finance the project. Profits are distributed at a pre-agreed ratio, with losses shared according to the amount invested.
Institut Jantung will sell notes with maturities stretching from three to 10 years. Malaysian Rating Corp. has provisionally assigned triple-A ratings to Sukuk between three and seven years, and AA+' to longer-dated paper.
Institut Jantung officials said last week they would attempt to benchmark pricing against the Cagamas transaction, arranged by Commerce International Merchant Bankers and HSBC. The deal featured six triple-A tranches offering coupons ranging from 3.41% on the three-year paper, or 30 basis points over Malaysian Government Securities, to 5.27% on the 15-year Sukuk, a 73-point spread over government bonds.
With Malaysian investors likely to lap up anything issued by a quasi-sovereign borrower, pricing no doubt will be tight. Even so, one banker familiar with the situation reported that investors needed to start looking at the underlying structure as well as the name of the borrower.
"In my view, if [Institut Jantung] can price at the same levels as Cagamas IRMBS, that would be a great outcome," the banker said. "However, it is unclear whether [Institut Jantung] Sukuk will carry the same 20% risk weighting [as Cagamas] and there are other irregularities."
"[Institut Jantung]'s deal involves unsecured paper, whereas both Cagamas' conventional and Islamic MBS notes are secured," the banker added. "In developed markets, secured ABS deals price well inside unsecured corporate paper with similar ratings and maturities. In my view, there will have to be market correction in Malaysia in the future to reflect the differences."
Meanwhile, senior government officials told an investor's forum in Kuala Lumpur last week that Malaysia is still on course to establish a specialist bank for small and medium sized enterprises later this year. The Treasury is in charge of the project, designed to assist SMEs in securing funding at more attractive terms than through bank loans.
Securitization will form a key part of SME Bank's strategy. The bank will act as both guarantor and issuer of ABS backed by SME loans. The government is also believed to be the driving force behind Cagamas' plans on a similar initiative (see ASR, 6/20/05). Cagamas will pay transaction costs on three separate offerings, backed by loans originated by Maybank (working with Citigroup Global Markets), Overseas Chinese Banking Corp. (allied with Deutsche Bank) and Bumiputra Commerce Bank (working with Commerce International).
The three consortia are currently lobbying Cagamas to be the first to issue, although there have been no indications on timing thus far.
Staying on the SME theme, Korea's Small and Medium Business Administration is readying a KRW200 billion ($195 million) CBO to fund capital expenditures by small companies. The deal, arranged by Goodmorning Shinhan Securities, will pool together corporate bonds issued by 100 enterprises with a minimum credit rating of B-'.
The Administration expects to complete the transaction in August. The deal carries the assurance that the government will acquire up to 18% of subordinated paper on the underlying bonds to boost credit ratings. Any entity found using issuance proceeds for purposes other than mentioned in its business plan would have to repay the money early.
The agency had stated earlier this year that it planned to issue W300 billion worth of ABS 2005, although a W100 billion transaction scheduled for earlier this year never materialized. It is unclear whether the Administration plans an additional deal in 2005 to reach its previously declared target.
The Administration last tapped ABS investors last September with a W100 billion three-year Korea Development Bank-backed issue arranged by Daehan Investment Trust Securities.
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