Maybank launches first ever lower tier-2 sukuk

The first Islamic surbordinated lower tier-2 deal is attracting considerable interest from investors.
Malayan Banking's (Maybank) debut Reg-S $300 million 10-year non-call-five deal, a breakthrough Islamic subordinated lower tier-2 certificate, is generating very strong interest, with key Asian investors already in the book. Guidance has not been released, but demand has reportedly reached $1 billion.

Maybank's special purpose vehicle, MBB Sukuk Inc, will issue the subordinated trust certificates via bookrunners HSBC, UBS and Aseambankers. The sukuk format will allow Maybank to raise funds in compliance with sharia law, underpinning a strategic initiative to further develop the bankÆs Islamic financing market. The structure will also fund the bankÆs Islamic finance business, representing 10% of its revenue base.

On the investor side, the format has attracted just over $100 million of Malaysian/Middle Eastern interest, although the largest portion of initial interest is allegedly coming from conventional investors. Islamic participation will likely increase in the secondary market since Middle Eastern investors can take up to two weeks to receive credit approvals.

Sources expect demand primarily from Asia (Hong Kong and Singapore). Maybank benefits from high credit quality (the issue is rated BBB+/Baa1) and 60% sovereign or sovereign-related ownership, with 22% of its equity held offshore. Investors with sukuk limitations on their investments, who have been unable to buy lower tier-2, will vie for this rare issue.

Pricing performance will compare with Public BankingÆs 2017 non-call 2012 issue, now effectively a 10-year non-call-five bond, which is trading at 37bp-33pb over dollar Libor. Standard CharteredÆs 2017 10-year non-call-five deal (rated a little higher than Maybank's issue at A/A3) is trading at 30bp, while price guidance for KoreaÆs similarly-structured National Agricultural Cooperative Federation issue is expected in the low-40s.

Maybank is engaged in a range of banking and financial services including retail and commercial banking, financing, asset management, investment banking and insurance services. It primarily operates in Malaysia, Singapore and the Philippines. The group is headquartered in Kuala Lumpur and operates branches across 12 countries, with 22 in Singapore alone.
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