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Wednesday, 14 November 2018

Malaysia Bond House

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In a challenging year for Malaysia’s corporate credit market, Maybank Investment Bank made its mark with structuring and execution skills that won praise from the industry.

Maybank lead managed four of the five largest non-government guaranteed deals in the ringgit market during the review period, taking top roles in two – the M$5.54bn (US$1.25bn) Islamic issue for Sarawak Hidro and the M$2.2bn subordinated perpetual sukuk for Sime Darby.

It also distinguished itself as the top arranger of Islamic bonds in the ringgit market with some M$17.3bn of sukuk under its belt during the review period.

Maybank’s balance sheet certainly boosts its bargaining power when it comes to winning business, but both issuers and investors singled out the investment bank for its positive impact in 2016 as it broadened a local market that was crowded with government-guaranteed issues.

“Maybank impressed us with the way they structured the Sarawak Hidro deal,” said one frequent issuer. “They succeeded in reducing the contingent liability of the government, which was notable.”

The Sarawak Hidro sukuk transaction was structured to refinance M$5.35bn of outstanding loans from Employees Provident Fund (EPF). The loans were backed by a guarantee from the federal government, adding to pressure on the sovereign’s rating.

As sole lead arranger, Maybank structured the bond with extended maturities to match the issuer’s assets, reducing the risk of a potential cash crunch through steep principal repayments.

The bank also worked to replace the government guarantee with a letter of undertaking to top up any shortfall in cashflow during the life of the sukuk. In doing so, the move helped reduce the government’s contingent liabilities.

What was notable was the complete absence of EPF as an anchor investor in the bonds.

“Without the presence of EPF, Maybank still succeeded in selling down the deal – that is quite a feat,” said one investor.

Maybank’s experience in corporate perpetual bonds made it the bank of choice for conglomerate Sime Darby, which needed to bolster its balance sheet without taking on additional debt..

Again as sole principal adviser, Maybank structured a M$2.2bn perpetual non-call 10 note that allowed Sime Darby to also maintain its AAA rating from Marc. Despite the rating downgrades and market volatility, Maybank succeeded in pulling in an order book of M$2.2bn on a targeted size of M$1.5bn and priced the notes at yields that were tighter than the closest comparables. It was also the world’s first Islamic perpetual note structured on a Wakalah principle.

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