Khazanah issues RFP for exchangeable sukuk

Malaysia’s state investment fund is looking at issuing another exchangeable sukuk – potentially its fourth issue in the last five years.

Khazanah Nasional sent out a request for proposal over the weekend for a potential exchangeable sukuk, according to sources familiar with the situation, as the Malaysian state investment fund looks to extend its streak of Islamic exchangeable bond offerings.

Tasked with developing Malaysia as the financial centre for the Islamic community, the state investment fund has actively sought in recent years to cash in some of its equity holdings through the exchangeable bond route.

With the exception of 2015 which was disrupted by the 1MDB corruption scandal Khazanah has issued three exchangeable sukuk in the last four years. It raised over $1.3 billion from the sale of bonds exchangeable into shares of Beijing Enterprises, Tenaga Nasional, and IHH Healthcare in 2016, 2014, and 2013, respectively.

Khazanah hopes to help expand the pool of Shariah-compliant products in the equity-linked market and to entice other issuers to issue Islamic convertible or exchangeable bonds. But in the last seven years it has been the only issuer in the asset class.

This time around, the state investment fund hopes an uptick in Malaysian equities since the beginning of the year – the Kuala Lumpur Composite Index has climbed 6% from a near four-year low – will help to stoke investor interest for the potential new bond.

In a similar fashion to its previous RFPs, Khazanah has yet to specify the company shares it hopes to use for the exchangeable bond and has asked investment banks for suggestions, the sources said.

Given its stockholdings, Khazanah could pick from seven possible candidates for an exchangeable bond of decent size and liquidity, including Tenaga Nasional, CIMB, Telekom Malaysia, and UEM Sunrise. But one of the sources familiar with the situation said Axiata Group would be the likeliest pick since Khazanah has already made it clear that it wants to trim its stake in the telecommunications company.

The state investment fund owns 38% of the Kuala Lumpur-listed telco. The stake is worth $3.8 billion based on the last closing price.

But it is also possible that Khazanah will use another of its significant equity holdings because Axiata's share price has plunged by 30% from a peak of M$7.22 in January 2015, a second source familiar with the situation said, citing alternative candidates Malaysia Airports and IHH Healthcare.

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