Malaysia has issued US$800 million 10-year trust certificates, the world’s first sovereign US dollar sustainability sukuk, the finance ministry said on Wednesday (Apr 21).

In addition, the country also issued US$500 million 30-year trust certificates, the ministry said in a statement.

Malaysia upsized the sukuk offering from an initial target size of US$1 billion to US$1.3 billion due to overwhelming demand as oversubscription hit 6.4 times. 

There was overwhelming interest for Malaysia’s US$800mil 10-year and US$500mil 30-year sovereign US dollar sustainability sukuk, which was oversubscribed by 6.4 times, said the Finance Ministry (MoF) in a statement today.

Both tranches have been assigned a rating of A3 by Moody’s Investors Service and A- by S&P Global Ratings.

The 10-year trust certificates are the world’s first US dollar Sustainability Sukuk issued by a sovereign. Due to the overwhelming demand for the sukuk, the government had increased the initial target size from US$1bil to US$1.3bil.

The strong demand also resulted in the lowest ever yield and spread for a US-dollar sukuk issuance by Malaysia, with the 10-year and 30-year Trust Certificates priced at 2.070% (T + 50 basis points) and 3.075% (T + 80 basis points), respectively.

“More importantly, this demonstrates the market’s confidence in Malaysia’s economic recovery and growth prospects, despite a challenging past year due to the COVID-19 pandemic,” said the MoF

Proceeds from the issuance will be used for eligible social and green projects aligned to the UN’s sustainable development goals agenda.

The sukuk’s underlying assets are sustainable assets, being vouchers representing travel entitlement on Malaysia’s Light Rail Transit, Mass Rapid Trnasit and KL Monorail networks.

Acccording to the MoF, the issuance sets a new benchmark and showcases Malaysia’s global leadership in Islamic finance, reinforcing the country’s position as the world’s largest sukuk market.

“We are extremely pleased and honoured by the investors’ vote of confidence in our maiden Sustainability Sukuk issuance, which also reflects their belief in Malaysia’s strong economic fundamentals and solid prospects for growth.

“The issuance is not only a global first on many fronts, but also a strong recognition of Malaysia’s Islamic finance industry’s innovative capabilities in structuring sukuk to help advance Malaysia’s SDG-focused policies towards achieving our Shared Prosperity Vision 2030,” said Finance Minister Tengku Zafrul Aziz.

The sustainability sukuk was issued via a special purpose vehicle, Malaysia Wakala Sukuk Berhad, and based on Malaysia’s newly established The Government of Malaysia SDG Sukuk Framework.

The allocation was well-spread globally with 55% of the principal amount of the 10-year sukuk distributed to investors in Asia, 33% to Europe, Middle-East and Africa (EMEA) and 12% to the US, while 46% of the principal amount of the 30-year Sukuk was distributed to investors in Asia, 33% to EMEA and 21% to the United States.

By investor type, the distribution of the 10-year tranche was 67% to fund managers and insurance companies, 18% to central banks and governments, 14% to banks and 1% to others investors while for the 30-year tranche was 83% to fund managers, 10% to banks, 4% to central banks and governments, and 3% to other investors.

CIMB, HSBC, and J.P. Morgan acted as the joint bookrunners and joint lead managers on this offering.