MBSB plans to sell first covered sukuk

Malaysia Building Society Bhd. will sell the nation's first covered Islamic bonds, offering RM495 million of the debt next month.

The sukuk will be the world's first covered Shariah-compliant securities to be backed by receivables, Datuk Ahmad Zaini Othman, chief executive officer at the mortgage-financing provider in Kuala Lumpur, said in an interview today. Covered bonds are backed by mortgages and public sector loans and typically get top credit ratings.

The sale will be the first portion of a RM3 billion programme announced last month and will be issued by Jana Kapital Sdn, a special-purpose company. In December 2012, Gatehouse Bank Plc in London became the first entity to sell covered sukuk backed by property, Ahmad Zaini said.

Malaysia Building, or MBSB, opted "to sell covered sukuk because borrowing costs for such debt are lower than for normal bonds," he said. The securities have been assigned an AA1 ranking by RAM Rating Services Bhd in Kuala Lumpur, Ahmad Zaini said. That's the second-highest investment grade and three steps above the mortgage financier's A1 rank, he said.

MBSB is tapping the Islamic debt market for the first time after the average global sukuk yield dropped 51 basis points, or 0.51 percentage point, to 3.78 per cent from a two-year high of 4.29 per cent reached on September 6, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The offer is part of the company's strategy to expand its business and to cut costs to sustain earnings growth, Ahmad Zaini said.

MBSB is an exempt finance company, which means that it can undertake financing business without a banking license, according to information published on its website. It has a market capitalization of RM4.6 billion and is 64.6 per cent owned by state-controlled Employees Provident Fund, according to data compiled by Bloomberg.

The company will report record profits this year as its nine-month net income of RM464 million has already surpassed 2012's full-year total of RM446.7 million, Ahmad Zaini said. Malaysia Building is projected to post a net income of RM597.2 million this year, according to the average estimate of analysts surveyed by Bloomberg