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Al-Rajhi, Cagamas to launch ‘first-of-its kind’ sukuk
Cagamas will cooperate with Al-Rajhi Banking and Investment Corp (Malaysia) to develop and issue first-of-its kind sukuk targeting Middle East investors.
May 17, 2010 4:58 by Katherine Azmeh
The sukuk, which will be launched in June 2010 by Cagamas and Al-Rajhi Bank Malaysia Berhad, will be aimed at investors from the Gulf Cooperation Council (GCC) countries, the European Union, North America, Malaysia, Singapore, Brunei and East Asia. Al-Rajhi Bank (Malaysia) received an IIB (International Islamic Banking) license from Bank Negara Malaysia, the central bank, in 2009 to establish Al-Rajhi Bank KSA, a branch of Al-Rajhi Bank in Saudi Arabia, which will operate as an offshore investment bank in the Malaysia International Islamic Financial Centre (MIFC).
Al-Rajhi Bank has hitherto been conspicuous in its absence from the global sukuk market, primarily because its Shariah advisory board is not happy with the current sukuk structures in the market. “The reason we have done it this way is because we want to leverage off our parent’s balance sheet to do transactions in the region. We have not been active in the sukuk market hitherto because we have been working for over a year to get the structures Shariah-compliant. We are now talking to certain clients to see if we can issue sukuk for them in the course of this year,” explained Ahmed Rehman, CEO of Al-Rajhi Bank (Malaysia) to Arab News in a recent interview.
Cagamas president and chief executive officer, Steven Choy, confirmed to Bernama during an MIFC roadshow in the GCC recently that “we have partnered Al-Rajhi for a new structure and Al-Rajhi itself will be investing in the sukuk. They (the investors) will see this sukuk is in line with their Shariah principles.”
The sukuk will be ringgit-denominated issuance with assets based in Malaysia. It will be tradable in the secondary market, and its size will be between RM300 million to RM2 billion. Choy confirmed that the structure of the sukuk has been approved by the Al-Rajhi Bank Shariah advisory board and would undoubtedly be acceptable to investors in the Kingdom and the GCC countries and beyond.
This issuance also paves the way for Al-Rajhi Bank to originate sukuk issuances in Saudi Arabia, which has the largest pool of funds in the Islamic financial services sector. Hitherto, the major sukuk issuers in the Kingdom have been Saudi Basic Industries Corp. with four issuances; Dar Al-Arkan Real Estate Development Company (DAAR) with four issuances; Saudi Electricity Company with two issuances; and Saudi Hollandi Bank with two issuances. Cagamas was established in 1986 to finance affordable mortgages for Malaysians, especially civil servants. Since then the corporation has diversified into becoming the leading securitization house in Malaysia, and to promote the secondary mortgage market there. It issues debt securities and sukuk to finance the purchase of housing loans and other consumer receivables from financial institutions and non-financial institutions. The provision of liquidity at a reasonable cost to the primary lenders of housing loans encourages further financing of houses at an affordable cost, stresses Cagamas. So successful has the Cagamas model been that the World Bank regards it as the most successful secondary mortgage liquidity facility.
Cagamas is the second biggest issuer of debt instruments in the country after the government of Malaysia which carry the highest credit rating of “AAA” from local rating agencies, RAM and MARC. It is one of the top sukuk issuers in the world. Since its incorporation in 1986, Cagamas has cumulatively issued RM242.76 billion of conventional and Islamic debt securities.
While other issuers are still emerging from the financial crisis recovery, Cagamas has been very active thus far in the sukuk market this year. A few days ago it issued its second sukuk in May 2010 – a RM300 million 5-year sukuk, which will be redeemed at their full nominal value on maturity, and which will be listed and tradable under the Scripless Securities Trading System.
According to Cagamas, the sukuk are unsecured obligations of the Company, ranking pari passu among themselves and with all other existing unsecured obligations of the Company. In early May 2010 Cagamas issued a RM1.06 billion Cagamas debts securities comprising RM1 billion 1, 2 & 3-year sukuk and RM60 million 3-month Conventional Commercial Paper (CCP). The issuances follow other issuances by Cagamas in 2010 which include a RM500 million 5-year sukuk in April 2010; RM500 million Cagamas debt securities comprising RM120 million Islamic Commercial Papers (ICP) and RM380 million Islamic Medium Term Notes (IMTN) – all on the same basis as above.