The International Finance Corporation (IFC) priced its first Islamic bond on Friday (December 3). Indeed, the bond was the first Islamic issue by any multilateral agency anywhere.
The three year, RM500 million ($105 million) bond was denominated in Ringitt and priced at 10bp through the three -year Malaysia government bond to yield 2.88%. The deal was marketed at a range between 9bp and 11 bp through the government's curve and so came in the middle of that range. It was upsized from an initial amount of RM400 million. HSBC and CIMB were joint lead managers of the transaction.
The deal was subscribed 4.37 times at this price after a bookbuild and a roadshow. Final allocations saw almost 30% of the deal going to offshore accounts, with 16% going to Singapore, 9% to Hong Kong and 5% to Europe. Some 58% of investors were financial institutions, 11% insurance companies, 3% private banks, 26% asset managers and 2% corporates.
The bonds were structured under the shariah principle of Bai Bithaman Ajil. This involves the buying and selling of a deposit of money to create an obligation from which a bond is structured. It is in effect a deferred liability. This is a structure that Malaysia is pioneering, although some in the Islamic world question its adherence to strict Islamic thinking as it is effectively pricing bonds on money.
Nevertheless, the deal presents something of a coup for Malaysia as it seeks to extend its role as the leading Islamic finance centre in the world. This was evident by the six months of work the IFC undertook with the Securities Commission and the government in order to get the deal to market. Indeed at the launch of the deal on Wednesday, the second finance Minister, Tan Sri Nor Mohamed, was on hand to run the proceedings.
This deal is the second bond to be issued in ringitt by a multilateral institution after the ADB's inaugural RM40 million, five-year issue earlier this year. The government has assigned the name Wawasan bonds to these types of deals from foreign multilaterals issuing in ringitt. Wawasan means perfect vision in Malay.