Best Funding Solution Winner: Ministry of Finance (on behalf of Government of Malaysia)

Published: Mar 2022


Standing from left: Faung Siew Leng, Principal Assistant Director (Investor Relations), Mohamed Farhan Mohamed Ainuddin, Assistant Director (Risk), Mohamad Hafizul Zainon, Assistant Director (Debt Strategy), Mohd Fakhrullah Nik Ab Kadir, Assistant Director (General Government), Nor Hannanah Jiman, Assistant Director (Debt Strategy) and niza Limat Principal Assistant Director (State-Owned Enterprises). Sitting from left: Faujat Noori Hithayathullah Khan, Principal Assistant Director (Financing), Imri Dolhadi Ab Wahab, Deputy Director (Financing Management) and Nurhanis Abd Razak, Assistant Director (Financing).

Imri Dolhadi Ab Wahab

Deputy Director, Financing Management Section, Fiscal Policy and Debt Management Office

The Ministry of Finance, Malaysia is a ministry that is responsible for formulating and implementing fiscal and monetary policies in order to ensure effective and efficient distribution as well as management of financial resources.

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World’s first sovereign US dollar sustainability sukuk against future train ticket sales

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The challenge

Malaysia has the fourth largest economy in Southeast Asia and the largest Islamic bond (sukuk) market in the world, accounting for 40.9% of the world’s outstanding issuance as at end-June 2021. Malaysia prides itself on its responsible investments, where most of the country’s sukuk issuances in the past year have been tied to the principles of sustainability.

In March, the government wanted to leverage growing investor appetite by issuing a US dollar sukuk that’s structure is based on sustainability principles to attract high quality investors, as well as set new benchmark yields for other Malaysian issuers. The key challenges it faced included the need to:

  • Launch it quickly, as the next US Federal Reserve (FOMC) meeting was scheduled on April 27th 2021, where the outcome could impact interest rates and the direction of US Treasuries – the government wanted the bond launched prior to that meeting to avoid taking the market risk of pricing after the meeting.
  • Establish a sustainable development goals (SDG) sukuk framework for the issuance, as this structure is unprecedented not only in Malaysia but globally.
  • Earmark an intangible asset and a sukuk structure that complied with Shariah principles, or requirements in accordance with Islamic religion.

The solution

The Government of Malaysia assisted by HSBC, J.P. Morgan and CIMB, launched the world’s first sovereign US dollar sustainability sukuk before the FOMC meeting on April 27th.

This landmark sukuk is also the first sovereign issuance taking the innovative approach of utilising travel vouchers as 100% of the underlying assets, whereby the issuance monetises the future ticket sales of its clean energy public transport – Mass Rapid Transit (MRT), Light Rapid Transit (LRT) and KL Monorail – setting a benchmark in sustainability Islamic bonds.

The Government managed to issue the bonds in just five weeks, which is unprecedented for a bond of similar complexity. Beyond structuring a first-of-its-kind sukuk within such a tight timeframe, the issuance also needed to be validated by a Second-Party Opinion (SPO) to deem the product sustainable; this was also achieved at an equally accelerated pace by Sustainalytics which bolstered its credibility.

With a coordinated effort by partner banks to promote the sukuk across Asia Pacific, the Middle East, Europe and the US, the issuance managed to be oversubscribed by 6.4 times and raise the maximum U$1.3bn, surpassing the initial target of US$1bn, and at a much more favourable price, shaving 35 basis points and 40 basis points off the ten-year and 30-year tranches from the initial price guidance, respectively. The proceeds will be used to fund an array of eligible sustainability projects determined by the government’s SDG Sukuk Technical Committee, including healthcare, education, basic infrastructure, support for SMEs, clean transportation, natural resources, renewable energy and green buildings.

Best practice and innovation

The landmark issuance, pulled off in record time, breaks new ground on multiple counts. It is the first sovereign sukuk with the unique and innovative structure of utilising travel vouchers as intangible underlying assets. It achieved the lowest spread and coupon ever for a Malaysian sovereign bond and it delivered the tightest ever pricing spread in the history of Southeast Asian sovereign issuances on the 30-year tranche.

Key benefits

  • Very favourably priced.
  • Strong book orders also allowed the Government of Malaysia to upsize the transaction.
  • Marks the highly successful return to the US dollar bond markets for the Malaysian government since 2016.
  • Lowest spread and coupon ever for the Government of Malaysia.

Nurjesmi Mohd Nashir

Head of Corporate Banking for Malaysia
J.P. Morgan

A big congratulations to the Government of Malaysia on this outstanding recognition! This was a landmark transaction at so many levels. From being the first-ever sovereign USD sustainability sukuk that adopts an innovative approach for its underlying assets, to achieving the lowest spread and coupon ever for a Malaysia sovereign bond, to having the intricate transaction completed in a record time of five weeks – the bond issuance has truly helped elevate Malaysia’s position as a leader in Islamic finance. We are pleased to have been a part of this historic transaction, and we look forward to achieving greater things with them in the future.

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The Adam Smith Awards Asia is the industry benchmark for best practice and innovation in corporate treasury. The 2021 awards attracted a record-breaking 497 nominations. To find out more please visit treasurytoday.com/adam-smith-awards-asia

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