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Saturday, 25 October 2014

BONDS: Malaysian investors eye first taste of Kazakh risk

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  • Visiting Kazakhstan President Nursultan Nazarbayev speaks during a joint news conference with Malays

Development Bank of Kazakhstan is bidding to become the first issuer from mostly Muslim Kazakhstan to sell bonds in Malaysia, the world’s leading market for Islamic debt.

Source: Reuters/Stringer Malaysia

Visiting Kazakhstan President Nursultan Nazarbayev speaks during a joint news conference with Malaysian Prime Minister Najib Razak in Putrajaya near Kuala Lumpur, April 18, 2012

State-owned DBK is meeting investors in Kuala Lumpur today ahead of a potential sale of sukuk, or Islamic bonds. The move comes after years of speculation about a potential sovereign-linked Kazakh issue in the ringgit market, and also underlines Malaysia’s growing appeal as an alternative international funding market.

DBK, the state financing institution in a country where 70% of the population are practising Muslims, is a completely new name to Malaysian investors, which means lead managers HSBC and RBS will have a lot of work to do. Malaysian investors are known for their reticence to unfamiliar names, but high-grade foreign borrowers with a strong global presence have often found a good response to their paper.

The wealth of demand for Islamic assets in Malaysia has allowed issuers such as Abu Dhabi National Energy, Gulf Investment Corp and Bahrain’s Gulf Investment Bank to raise funds at attractive rates by selling sukuk in the ringgit market. Other companies from Singapore-listed Noble Group to Japan’s Nomura have also considered Islamic offerings to tap the Malaysian investor base.

Citing figures from Zawya Sukuk Monitor, Fitch reported that global sukuk issues in 2011 amounted to US$84.4bn, a surge of 62% year on year. Malaysian borrowers accounted for more than half of that total.

Economy recovering

DBK is rated Baa3/BBB+/BBB+ by the three international agencies, and has obtained a rating of AA2 from local agency Ram for its M$1.5bn (US$474.7m) sukuk Murabahah programme. Ram’s rating reflects its strategic importance to the Government of Kazakhstan, which owns the bank through sovereign wealth fund Samruk-Kaznya. Although Ram noted that DBK, given its role of supporting the country’s development projects, “exhibits very weak asset quality as some of its credit counterparties have social-development agendas”, it also added that the government would provide ready support.

Ram also issued a note on the Kazakhstan economy, noting that its recovery was gaining traction with GDP expected to grow 5%–6% this year. Kazakh banks’ deleveraging efforts are also progressing well as these have helped bring the country’s ratio on external debt to GDP to a more manageable level of 68%, down from 100% during the global crisis.

The roadshow is intended to gauge investor interest in DBK. A deal could emerge, however, if there is sufficient demand coinciding with favourable swap and credit market conditions.

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