Malaysia Airlines Group (MAS) has issued the first tranche of the junior sukuk for a total amounting to M$1 billion ($314 million). The first tranche was fully subscribed by Kumpulan Wang Persaraan (Diperbadankan).
The junior sukuk was issued at par and carries a semi-annual expected profit rate of 6.9% per annum. The proceeds raised from this issuance will be utilised for MAS' working capital requirements and refinancing of existing borrowings.
Maybank Investment Bank Berhad arranged the offering.
Last month MAS received approval from the Securities Commission for the establishment of the M$2.5 billion perpetual junior sukuk programme and chief executive Ahmad Jauhari Yahya said the group has obtained firm commitments for the remaining M$1.5 billion.
The perpetual sukuk is considered an appropriate product for Malaysia Airlines as it captures the essence of equity at a relatively lower cost of capital compared to common equity, whilst providing an attractive yield to investors.
It is redeemable at Malaysia Airlines' option after 10 years, and on every distribution date thereafter.
There have been some conventional perpetual capital securities being issued by Asian corporates recently, however, this is the first ever Sharia-compliant perpetual offering by any issuer.
Jauhari Yahya comments: "The perpetual sukuk enables us to improve our balance sheet and gearing as it is recognised as equity capital under Malaysian accounting standards, but yet provides a relatively reasonable long-term funding rate of 6.9% per annum. This perpetual sukuk is the foundation of our funding plan, which in turn would be the bedrock from which Malaysia Airlines would imminently launch its programme of planned operational improvement initiatives, on its route back to sustainable profitability."
"We hope that [the perpetual sukuk] will serve as a catalyst and encourage more issuances of perpetual sukuk in Malaysia as well as further broaden and deepen the Malaysian sukuk market," says Maybank IB chief executive Tengku Dato Zafrul Tengku Aziz.
"We see this issuance as another step in strengthening Malaysia's leadership in the Islamic debt capital markets," he adds.