The deal built a book of M$9 billion, with a four times subscription rate at the time of pricing, and is another step towards developing and deepening the domestic Islamic capital market.
The six-day roadshow for the deal encompassed Kuala Lumpur, Singapore and Hong Kong, allowing Cagamas to meet the bulk of key Islamic investors in the region.
The issue is the largest Malaysian RMBS transaction to date, CagamasÆ second Islamic transaction, and its fourth RMBS transaction. The tranches comprised three, five, seven, 10, 12, 15 and 20-year maturities which priced at par at 3.63%, 3.70%, 3.78%, 3.90%, 4.02%, 4.17% and 4.34% respectively.
In terms of comparables, bankers quote CagamasÆ outstanding 2010s which currently trade with a 3.75% yield to maturity, and the 2012s which are trading at 3.852%. Bankers also quote the 2015s and 2020s which currently offer a yield to maturity of 4.172% and 4.25% respectively.
The latest securities are backed by a portfolio of the Government of MalaysiaÆs staff Islamic housing facilities, and issued under the Musyarakah principle. According to a press release issued by Cagamas, this entails a partnership arrangement between investors to raise capital towards the financing of a business venture. Profits from this will be shared between the investors based on an agreed ratio while losses are shared on the basis of capital contribution.
Malaysian Rating Corporation and Rating Agency Malaysia both awarded the transaction a triple-A rating, and bankers were pleased to note strong levels of offshore interest, to which 20% of the total bonds sold. A geographic breakdown of allocation was not available, but those offshore accounts will most certainly own an onshore bank. Those that didnÆt have an onshore bank shied away from the issue. ôWe need to swap everything into dollars, and with the amortising feature it becomes expensive. Ringitt/dollar swaps are pretty illiquid,ö says one investor.
The rest of the bonds (80%) were allocated onshore. ôThe Ministry of Finance and Cagamas want to encourage the local bond market, and be at the forefront of Islamic financing,ö says a source close to the deal.
Islamic financing has developed as a result of increased liquidity on the part of Islamic investors, and a desire from a broader range of conventional investors to diversify their portfolio. In addition, recent regulations establishing a framework for Islamic financing have helped build business and confidence in such products. ôSukuks behave like bonds, and are backed by assets. We have no qualms about investing in this kind of financial structure,ö says one source on the buy-side.
In Malaysia, investors have increasingly bought into such funding for the return on appreciation since the ringitt depegged from the US dollar in 2005.
Cagamas MBS Berhad is a wholly-owned subsidiary of Cagamas Berhad, MalaysiaÆs national mortgage corporation.