Govt delays decision on sukuk size and timing

Swings in emerging-market assets the reason, say sources

 It is still a 50:50 chance that Malaysia will try to tap in such a shaky market
- Sergey Dergachev of Union Investment

KUALA LUMPUR: Malaysia has delayed making a decision on the size and timing of its first sale of Islamic bonds in eight years due to unstable market conditions, say two people with direct knowledge of the plan.

The decision would not be made this week because of swings in emerging-market assets, said one of the people, who declined to be identified because discussions were private. Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah didn’t pick up calls to his mobile phone seeking comment.

The Government had planned to determine the final size of the sukuk notes this week after completing an international roadshow to promote the securities to investors in Asia, the Middle East, Europe and the US. Sales of sukuk rose 31% so far in 2010 from the same period of last year.

“It’s still a 50:50 chance that Malaysia will try to tap in such a shaky market,” said Sergey Dergachev, who helps manage about US$6bil of emerging-market debt at Union Investment in Frankfurt.

Emerging-market assets have slumped over the past month as the debt crisis in the European Union fuelled concern the global economic recovery will stall. The extra yield investors demand to hold debt of developing nations over US treasuries widened 25 basis points in the past week to 345 basis points yesterday, according to JPMorgan Chase & Co’s EMBI+ Index.

The sukuk deal was subject to stable market conditions and it would take time for Middle Eastern investors to process any purchases, said the other unnamed person with knowledge of the matter.

Malaysia is turning to the international debt market for the first time since 2002 as it aims to increase development spending and boost economic growth. Indonesia this month trimmed the size of its planned sales of Islamic and yen-denominated debt because of concern that Greece’s debt crisis would spread.

The MSCI Emerging-Markets Index has lost 17% from its April 15 high on concern Europe’s 750 billion euro (US$922bil) aid package for indebted nations would fail to prevent a global economic slowdown.

Malaysia Airports Holdings Bhd said in a statement to Bursa Malaysia on Tuesday that it was considering issuing ringgit- and dollar-denominated debt among “various options” to meet funding needs.

The company planned to issue US$500mil of conventional bonds and RM1bil of sukuk to finance its second low-cost carrier airport project, Reuters reported last Friday, citing unidentified people with knowledge of the deal.

State-owned Petroliam Nasional Bhd’s (Petronas) Islamic dollar bonds rose, snapping a five-day drop.

The yield on Petronas’ 4.25% sukuk due in August 2014 fell two basis points to 3.94%, according to Royal Bank of Scotland Group Plc. — Bloomberg