The sukuk market continues to deliver for issuers and borrowers innovative and groundbreaking financing solutions to meet their funding requirements across different Shariah-compliant structures. This comes as the market remains volatile on the back of the war in Ukraine, rising oil prices and higher inflation – not to the mention the regulatory challenges relating to the implementation of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards.
Last year saw several market-defining transactions focused on sustainable finance that contributed to the further development of the Islamic capital markets. The Government of Malaysia priced the world’s first sovereign US dollar-denominated sustainability sukuk amounting to US$800 million, earning the accolade as the Sovereign Issuer of the Year. This is the country’s first sukuk issuance since 2016 and is part of the US$1.3 billion total fund raising that included a US$500 million conventional sukuk. The transaction is the first-ever sovereign sukuk to be structured based on vouchers for travel entitlements.
The global acceptance of the structure is demonstrated by the robust final order book, which peaked at US$8.8 billion, which included orders from high-quality Islamic and ESG investors. This enabled the sovereign to upsize the transaction from the initial amount of US$1 billion. The deal achieved for Malaysia the tightest coupon and the lowest spread ever in the US dollar sukuk market. It also achieved flat to negative new issue concession, underscoring the rarity value of the issuance.
For the sixth consecutive year, Malaysia’s national mortgage corporation Cagamas is selected as the Quasi-Sovereign Issuer of the Year for continuously providing market liquidity through its sukuk and conventional bond offerings. Its total fund raising in 2021 amounted to 19.2 billion ringgit (US$4.32 billion), including 7.3 billion ringgit worth of sukuk, with increasing focus on sustainability financing.
Cagamas priced in August 2021 a 100 million ringgit Asean sustainability SRI sukuk for affordable housing, which was consistent with the company’s aspiration to contribute to the further deepening of Malaysia’s sustainable finance market. In doing so, it provides investors with debt instruments that combine quality credit with social impact.
In its largest fund raising in 2021, Cagamas priced a three-tranche sukuk totalling 1.5 billion ringgit through a book-building exercise. The deal garnered a strong demand, which saw the three-year tranche upsized from 800 million ringgit to 1.15 billion ringgit, and the pricing for the one-year tranche tightened to 2.18% from the initial guidance of 2.20%.
The Jeddah-based Islamic Development Bank (IsDB) is another repeat winner as the Best Supranational Issuer of the Year on the back of its US$2.5 billion sustainability sukuk, which was chosen as the Best social impact sukuk. The deal was the bank’s largest US dollar public issuance to date with 90% of the proceeds allocated for social development projects and 10% to finance and/or refinance green projects. The offering complements the initiatives IsDB has undertaken as part of its wide-ranging response to Covid-19 pandemic for its member-countries.
Malaysia’s floating production storage and offloading (FPSO) company Yinson Holdings is a first-time winner as Corporate Issuer of the Year with its one billion ringgit sustainability-linked sukuk. This is Malaysia’s first-ever sustainability-linked sukuk and the world’s first with a coupon step-up. In 2021, Yinson established its climate goals to be carbon-neutral by 2030 and net zero by 2050, including setting up quantitative emission reduction targets as part of its net-zero roadmap.
Under the sustainability-linked sukuk, if all the sustainability performance targets (SPTs) are met by Yinson, there will be no adjustment to the profit rate. If SPT 1 is not met, the profit rate goes up by 10bp per annum and if SPT 2 and/or SPT 3 is not met, the step-up is 15bp per annum. If the events under SPT 1, SPT 2 and SPT 3 occur at the same time, the step-up is 25bp per annum.
Kuwait Finance House is selected as the Financial Institution Issuer of the Year, anchored on its first foray into the regulatory capital space with the tier 1 sukuk amounting to US$750 million. The deal achieved the lowest yield for a sukuk of its kind in Kuwait as it generated an order book in excess of US$2 billion.
With its heightened commitment to sustainable finance, including several first-to-market innovative transactions, HSBC Amanah Malaysia is voted as the ESG Bank of the Year for the third year in a row. Beginning in 2021, the bank commenced a pioneering first of its kind journey towards sustainability through a 24-month bank-wide transformation programme called Project Cocoon.
The bank also integrates value-based intermediation (VBI) being pushed by Bank Negara Malaysia into its core business practices, which is in line with HSBC Group’s existing sustainability strategy that focuses on incorporating environmental, social and corporate governance (ESG) into business and investment practices. HSBC Amanah is the first bank in Malaysia to voluntarily publish a TCFD (Task Force on Climate-related Financial Disclosures) report in 2021 – a forward-thinking approach ahead of the local regulator expectations for all banks to publish TCFD disclosure by 2024 and align itself fully to VBI.
HSBC Amanah also scoops the sustainability structuring award for its role as the Sustainable Development Goal (SDG) structuring agent in the Government of Malaysia sustainability sukuk and in the Yinson Holdings sustainability-linked sukuk.
Tough market conditions
Last year was very challenging for Islamic asset management companies, such as in Malaysia. Many Islamic funds were trading in the negative territory, like their conventional counterparts, due to sluggish equity market and the poor performance of the fixed-income market brought about by higher inflation and rising interest rates.
Against such a market backdrop, BIMB Investment Management remains firmly committed to offering ESG-focused funds and wins the ESG Asset Manager of the Year award. It announced in March 2021 the launch of BIMB-Arabesque Global Shariah Sustainable Equity Fund, a global Shariah ESG equity feeder fund that seeks to achieve capital appreciation over the medium to long-term for investors.
Principal Islamic Asset Management is a repeat winner as Asset Manager of the Year in Asia-Pacific as it further enhanced its franchise during the review period. Among other things, it launched a new asset class, UCITS Islamic Global Multi-Asset Fund, and introduced an alternative asset class for institutional investors, the USA Property Fund.
Among sukuk advisers, Standard Chartered wins the top honours as Sukuk Adviser of the Year – Global and Sukuk Adviser of the Year – Middle East. It was involved in several significant transactions such as those for the Republic of Indonesia, Kuwait Finance House, Sultanate of Oman, Dukhan Bank, Islamic Development Bank, Saudi Arabian Oil Company and the UK Government. Maybank Investment Bank, on the other hand, gets the citation as Sukuk Adviser of the Year – Asia-Pacific as it brings new issuers into the sukuk market such as Bank Pertanian Malaysia and Bank Simpanan Nasional.
Meanwhile, The Asset Triple A Industry Leadership Award is being bestowed on Datuk Chung Chee Leong, president and CEO of Cagamas. Datuk Chung provides leadership in advancing Cagamas’ sustainability agenda, which saw the company issuing Asean sustainability bonds and Asean SRI sukuk since 2020 – with the proceeds earmarked for affordable housing, employment generation, renewable energy, and sustainable water and wastewater management.
Datuk Chung is a prominent advocate of Islamic finance, promoting sukuk as a viable alternative capital market investment to regulators and investors in various countries, aimed at increasing the diversity of players in the global Islamic financial industry.
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