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Malaysia’s Cagamas Berhad Defies Global Growth Challenges and Trade Tension Sentiments with Three Competitively-priced Sukuk Issuances in August to Support Mortgage Market

Cagamas Berhad, the National Mortgage Corporation of Malaysia, one of the most prolific issuers of Sukuk, continues to play a major role in Sukuk issuance and in the Islamic mortgage securitization market in Malaysia, closing three transactions in August 2019 alone totaling RM730 million (US$175.2m).

These included RM305 million 3-month Islamic Commercial Papers (ICP) issued under the Commodity Murabaha (Tawarruq structure) on 23 August; a standalone 3-year RM400 million Islamic Medium Term Notes (IMTN) offering on 14 August and a 1-year RM25 million IMTN on 9 August (which was accompanied by a RM400 million issuance of Conventional Medium Term Notes (CMTN)).

Proceeds from all three issuances, according to Cagamas, will be used to fund the purchase of Islamic housing financing from the financial system.

In addition, there was an issue of RM300 million 3-month Conventional Commercial Papers (CPP) and Cagamas President/Chief Executive Officer, Datuk Chung Chee Leong commented “We are pleased with the successful conclusion of both CCP and ICP as it represents the Company’s fourth and fifth issuance respectively for the month of August. This brings the total issuance for this month alone to RM 1.8 billion, which is the highest to-date in 2019,”.

Despite substantial uncertainty arising from global growth rate forecasts evidenced by a series of monetary policy easing within the region, both Conventional and Islamic short term papers secured competitive pricing referenced at 15 basis points below the 3- month onshore Kuala Lumpur Interbank Offered Rate.

“The issuances were fully subscribed by financial institutions which continue to seek for short-term high-grade investment assets domestically,” added Datuk Chung.

The successful conclusion of the RM400 million IMTN marked the Company’s third Sukuk issuance year-to-date out of its existing RM40 billion MTN/IMTN local currency programme. “As the market braced for an expected interest rate cut by the Federal Reserve followed by our regional peers recently, the Company managed to secure a competitive rate of 3.5%,” said President/Chief Executive Officer, Datuk Chung Chee Leong.

“The pricing of the 3-year IMTN was concluded at 10 basis points (bps) above the recently concluded 1-year MTN/IMTN, supported by the positive sentiments in the onshore bond market. This is evidenced by the strong demand on the reopening auction of the 5-year Government Investment Issue (GII) which recorded a book-to-cover ratio of over four times last week,” he added.

Similarly, despite expectations for greater external risks arising from heightened volatility within the global markets due to further escalation in trade tension between US and China coupled with the Federal Reserve rate cuts, both CMTN and IMTN in the combined RM825 million offering were successfully concluded at competitive pricing. The initial RM600 million CMTN, according to Datuk Chung Chee Leong, which was conducted via public offering, received “a commendable demand that allowed the Company to upsize to RM800 million and tighten its pricing by 5 basis points from the high of the initial price guidance of 3.45% to 3.40%. The RM25 million IMTN were concluded via private placements and priced at the same level as the CMTN.”

The conclusion of the above issues brings the company’s year-to-date issuance to RM5.6 billion. The papers, which will be redeemed at their full nominal value upon maturity, are unsecured obligations of the Company, ranking pari passu among themselves and with all other existing unsecured obligations of the Company.

Cagamas’ corporate bonds and Sukuk continue to be assigned the highest ratings of AAA and P1 by RAM Rating Services Berhad and AAA/AAAIS and MARC-1/MARC-1IS by Malaysian Rating Corporation Berhad, denoting its strong credit quality.  Cagamas is also well regarded internationally and has been assigned local and foreign currency long-term issuer ratings of A3 by Moody’s Investors Service Inc. that are in line with Malaysian sovereign ratings.

The Cagamas model is well regarded by the World Bank as the most successful secondary mortgage liquidity facility. Cagamas is the second largest issuer of debt instruments after the Government of Malaysia and the largest issuer of AAA corporate bonds and Sukuk in the market. Since incorporation in 1986, Cagamas has cumulatively issued circa RM317.6 billion worth of corporate bonds and Sukuk.

Indeed, earlier this year Cagamas and the World Bank held a high level summit in Kuala Lumpur on affordable housing. Rapid urbanisation coupled with population explosion, stressed the two parties, have created a pressing need for affordable housing across the world. The United Nations estimates that by 2030, 300 million new housing units are needed – a mind-boggling 50 homes every minute for the next 11 years.

“While this is a global problem, it is of particular concern in emerging markets, where the majority of the workforce is informally employed and does not have access to financing. It is well reflected in negligible mortgage penetration thereby exacerbating the problem further,” stressed Zoubida Allaua, Director of the World Bank.

Cagamas executives stress that the corporation is well placed in Malaysia to carry through its mandate and social objectives of supporting the Government-driven home financing schemes to ensure accessibility of financing to house borrowers in the lower Middle 40% group (M40) and Bottom 40% group (B40).

The company is currently exploring new business initiatives to address the gap of those in the M40 group with good credit standing but without enough savings for the required deposit, thus promoting home ownership among Malaysians.

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