Moving up a grade
Khazanah Nasional may be a repeat issuer in the US dollar bond market, but its 2023 issue brought something new: credit ratings and its first non-Islamic tranche.
Sovereign wealth fund Khazanah obtained inaugural ratings of A3/A– (Moody’s/S&P) in April, in line with the Malaysian state, ahead of its US$1.5bn sukuk and conventional bond offering in May.
This allowed it to position itself more assuredly as a quasi-sovereign issuer, since as a rated credit more international investors were able to buy its notes and its bonds became eligible for inclusion in major indices. Without a rating, Khazanah’s early issuances had been smaller in size and their spreads over Malaysia’s US dollar bonds had reached as much as 180bp in the secondary market in 2022.
Khazanah was able to print its US$750m 4.687% five-year sukuk at Treasuries plus 93bp, and a US$750m 4.876% 10-year conventional tranche at Treasuries plus 118bp, both reflecting a tightening of 42bp from initial price guidance, despite soft market conditions.
Pricing on the new deal was about 50bp–60bp wide of the Malaysian sovereign, a big improvement from previous trades.
The new rating not only helped tighten pricing on the new notes, but it also reset the existing curve. Khazanah’s 2026 and 2031 sukuk were trading at spreads of 119bp and 137bp above Treasuries, respectively, when the new notes were priced on May 24, and tightened to 110bp and 130bp the day after the new notes priced.
The addition of a conventional tranche also gave Khazanah, which had only issued offshore bonds in sukuk format before, extra liquidity and investor appeal. The spread on the conventional tranche was the tightest ever achieved on a 10-year tranche issued by Khazanah.
The order book for the combined US$1.5bn bond sale peaked at US$11.9bn. Approximately 85% was allocated to real money investors.
Another key objective of the offering was to diversify the borrower’s investor base further across the Middle East. Khazanah was able to achieve this, as EMEA investors took up 26% and 24% of the five and 10-year notes respectively, up from 22% and 11% for the same tranches in its 2021 deal. Asia Pacific investors took up 73% and 75% of the five and 10-year tranches and offshore US investors booked 1% for both tranches.
Bank of America, CIMB, DBS, JP Morgan, Maybank, MUFG and OCBC Bank were lead managers.
Khazanah Global Sukuk issued the five-year, while Khazanah Capital issued the 10-year. The parent is guarantor for the notes.
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