Malaysia’s Agrobank Issues Maiden RM500m (US$119m) Sukuk Wakalah Bi Al-Istithmar with Strict Use of Proceeds Linked to Achieving UN Sustainable Development Goals

Malaysia’s Agrobank (Bank Pertanian Malaysia Berhad) successfully closed its debut Sukuk on 18 October 2021 – a RM500 million (US$118.98 million) Sukuk Wakalah Bi Al-Istithmar. Agrobank is a Development Financial Institution (DFI) owned by the Ministry of Finance with a primary focus on strengthening the agriculture sector in Malaysia and which converted into a dedicated Islamic bank in 2015.

The issuance comes under Agrobank’s RM1 billion Sukuk Wakalah Programme established in August 2021. Agrobank mandated Maybank Investment Bank to act as the Principal Arranger, Lead Arranger and Lead Manager for the Sukuk Programme and the maiden issuance.

According to Khadijah Iskandar, Chief Executive Officer of Agrobank, the transaction was completed after a mere one-day book-building exercise, which she stressed “demonstrates the depth of the Malaysian Sukuk Capital market. The strong demand for this instrument in the market is a testimony of the confidence investors have in Agrobank’s credit, operations and business activities. The issuance will enable the industry to realise the benefits from raising capital through the issuance of these instruments as a cost efficient and non-dilutive capital raising solution that lowers the cost of capital.”

The Agrobank Sukuk comprised two tranches – a 5-year tranche and a 7-year tranche. The initial guidance pricing for the two tranches “was very tight” at a spread of 51 basis points and 49 basis points respectively. The order book, says the bank, was closed at very competitive levels of 3.63% p.a. for the five-year Sukuk and 3.90% p.a. for the seven-year Sukuk, amidst a challenging market environment.

“This was achieved after price tightening of between four to six basis points across the tenures from the initial price guidance. The inaugural issuance saw strong orders from quality investors comprising government agencies, financial institutions, asset management companies and insurance companies which resulted in an oversubscription of the amount offered,” explained CEO Khadijah Iskandar.

“Proceeds from the Sukuk issuance will be utilised for the working capital requirements, general investments and/or to refinance any existing financing of Agrobank which are Shariah-compliant, hence steering the growth of the bank in the post-pandemic era. Our aim is to establish stable funding by securing lower cost of medium and long-term funding,” confirmed Dato’ Mustapha Buang, Chairman of Agrobank.

The strict link between use of proceeds and the 17 UN Sustainable Development Goals (SDGs) is very clear. “The proceeds raised from the issuance of the Sustainable Sukuk shall be used by the Issuer solely to finance Sharia’a compliant working capital of Agrobank that is within the criteria set out in the Agrobank Sustainable/Green Sukuk Framework established in October 2021,” says the Framework document.

As such, the proceeds of each Agrobank Sustainable Sukuk will be used to finance and/or refinance in whole or in part existing business and projects that promote any of the 17 SDGs as defined by the UN. Specifically, the use of proceeds of any Agrobank Sustainable Sukuk will be applied to eligible businesses and projects. Agrobank will determine eligibility based on assessment of whether the funds are applied to Eligible Categories, and, whether a significant positive sustainability net impact is achieved.

The Sukuk Wakalah Programme has been assigned a financial institution rating of AAA by Malaysian Rating Corporation Berhad. In addition, RAM Sustainability has assigned Environmental Benefit (EB) ratings to the Sukuk Programme. Three green solutions within Agrobank’s Sustainable Sukuk Framework have been assigned EB ratings – (i) sustainable water and wastewater management; (ii) environmentally sustainable management of living natural resources and land use; and (iii) terrestrial and aquatic biodiversity conservation–. RAM Sustainability also assigned Social Benefit (SB) ratings to social solutions under the Framework.

Agrobank established the Framework “as part of our legacy as a strong corporate citizen. Agrobank recognizes the catalyzing role it can play through its financing activities and operations towards the achievement of the UN SDGs. The Framework is a step towards highlighting this impact, and mobilizing investors to contribute capital towards the significant investments needed to accomplish the 17 goals.”

Agrobank in collaboration with the Malaysian Ministry of Agriculture and Food Industries (MAFI), also allocated RM110 million through its financing campaign called ‘Dana Agromakanan Keluarga Malaysia’ in conjunction with the newly launched ‘Keluarga Malaysia’ concept by Prime Minister Ismail Sabri Yaakob on 23 October 2021.

The core mandate of Agrobank is to drive the development and modernisation of the agricultural sector and agrofood industries over the next 10 years.

“The ‘Dana Agromakanan Keluarga Malaysia’,” explains Dr Ronald Kiandee, Minister of Agriculture and Food Industries (MAFI) “will be channelled through two of Agrobank’s financing programmes namely Agromakanan (PENJANA), a financing assistance for entrepreneurs for micro-enterprises and in the B40 group with a total fund size of RM50 million and maximum financing up to RM50,000 and profit rate as low as 3.5% per annum; and Dana Pembiayaan Agromakanan (DPA), a financing specifically for agropreneurs in food industry to increase local production and reduce imports with a total fund of RM60 million. The financing offers up to RM10 million financing with profit rate of 3.5% per annum (RM10,000 – RM5 million) and 4.75% per annum (RM5 million – RM10 million)”.

Agrobank, he said, is committed to support SMEs and micro agropreneurs in Malaysia “to ensure sustainability in the agriculture sector and food industries as well as to stimulate the economy growth.”

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