Investors vie for piece of rare Sime Darby sukuk

Sime Darby locks in record low coupons for a rare US dollar sukuk from Malaysia.
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Sime Darby's headquarters in Kuala Lumpur
<div style="text-align: left;"> Sime Darby's headquarters in Kuala Lumpur </div>

Malaysian plantation company Sime Darby on Tuesday offered investors the chance to take part in a rare dollar sukuk from Malaysia. It tapped investors with an $800 million dual-tranche bond, which attracted a blowout order book of $8.7 billion.

Aside from Petronas, there have been few dollar sukuks from Malaysian companies. Thanks to its scarcity value, the company was able to lock in cheap funding.

The coupons for the five- and 10-year bonds were 2.053% and 3.29% respectively. These were the lowest coupons achieved by any company globally in the US dollar sukuk market for the respective tenors and also the lowest coupons by a Malaysian issuer in the US dollar market.

The deal was a debut trade for Sime Darby and the company sought ratings for the bond. It is rated A by Standard & Poor’s and Fitch, a notch above the Malaysian sovereign, and A3 by Moody’s, flat to the sovereign.

The bonds were split evenly across both tranches with the five-year bonds pricing at Treasuries plus 130bp and the 10-year bonds at Treasuries plus 145bp, 20bp inside the initial guidance of Treasuries plus 150bp and 165bp, respectively, for both bonds.

No breakdown of the take-up by Islamic investors was available, but most of the Middle Eastern and Malaysian investors would have been Islamic accounts. European and Middle Eastern investors were allocated 17% of the five-year bonds and 43% of the 10-year bonds — so, surprisingly, there was stronger demand among Islamic accounts for the longer-tenor bonds.

“One of the trends we are noticing is the growing comfort among Islamic investors for longer-dated paper,” said one source. “We saw that with the Indonesian sovereign pushing out tenors.”

In terms of relative value, the bonds priced about 30bp back of the Malaysian sovereign. The Malaysia 2021s were quoted at Treasuries plus 85bp and on a spread-adjusted basis were at Treasuries plus 115bp. Sime Darby was also able to price through a couple of major Hong Kong companies. It priced about 10bp inside the Hutchison Whampoa outstanding 10-year bonds and about 20bp inside the Swire 2022s.

Overall, demand was split roughly evenly between the two tranches, with $4.2 billion for the five-year bond and $4.5 billion for the 10-year bond. In secondary markets, the Sime Darby 2018s were trading 10bp tighter and the 2023s were trading 15bp tighter.

By investor type, for the five-year asset managers were allocated 65%, banks 19%, insurance 10%, public sector 4% and private banks 2%. For the 10-year, asset managers were allocated 50%, banks 19%, public sector 15%, insurers 14% and private banks 2%.

Citi, HSBC, Maybank and Standard Chartered were joint bookrunners.

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