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Malaysia’s Mortgage Securitiser Cagamas Keeps Sukuk Issuance Momentum Going with Flurry of Offerings in November 2020 totalling RM2.5bn

Cagamas Berhad, the National Mortgage Corporation of Malaysia, one of the most prolific issuers of Sukuk, continued its debt paper issuance on 23 November 2020 with a combined 2-tranche offering totalling RM545 million, comprising RM300 million 3-month Conventional Commercial Papers (CCPs) and RM245 million 3-month Islamic Commercial Papers (ICPs). Proceeds from the issuances will be used to fund the purchase of housing loans and house financing from the financial system.

Cagamas plays a major role in Sukuk origination and continues to be an innovator in the mortgage finance and securitisation market. In September for instance, Cagamas, through its subsidiary Cagamas SRP Berhad, launched the Digital Skim Rumah Pertamaku (Digital SRP), the country’s first online home financing service aimed primarily at first time home buyers. Last month, Cagamas achieved another first by successfully pricing a combined issuance of its inaugural ASEAN Sustainability SRI Sukuk and Islamic Medium-Term Notes (IMTNs) totalling RM450 million.

“Global market players,” explained Datuk Chung Chee Leong, President/Chief Executive Officer of Cagamas, “remain vigilant as early optimism boosted by the news of promising vaccine trials was tempered by the rising coronavirus cases and new shutdowns in many parts of the world – which may continue to threaten the recovery from the pandemic recession. On the local front, the recent announcement of an improved Malaysian economy that recorded a smaller contraction of 2.7% in the third quarter of 2020 and continued expectation of further improvements moving forward, will provide a positive catalyst to attract foreign inflows to the local capital markets.

“Despite the continued downside risks on the global outlook, the Company has successfully priced its CCPs and ICPs issuances competitively at 21 bps to 24 bps, above the respective Malaysian Government Securities/ Malaysian Government Investment Issues.”

At the end of November, Cagamas launched a second 4-tranche combined transaction totalling RM2 billion – comprising RM700 million 3-month Conventional Commercial Papers (CCPs), RM300 million Islamic Commercial Papers (ICPs), RM500 million 1-year Islamic Medium-Term Notes (IMTNs) and RM500 million 1-year Conventional Medium Term Notes (MTNs).

Like the previous offering, the proceeds from the issuances will similarly be used to fund the purchase of housing loans and house financing from the financial system.

“We are pleased with the successful conclusion of these latest issuances despite growing caution on the domestic front, arising from the parliamentary voting of Budget 2021 coupled with potential risk-on sentiments as global markets were buoyed by news of imminent COVID-19 vaccines, added Datuk Chung Chee Leong.

“While mixed sentiments slowly descended into the fixed income space, the Company managed to price its RM2 billion combined deal with its ICPs, CCPs, IMTNs and MTNs issuances competitively at 30 bps to 45 bps, above the respective Malaysian Government Securities/ Malaysian Government Investment Issues.”

The above two transactions marked the Company’s nineteenth and twentieth issuance exercise for the year and brings the year-to-date issuance amount to RM9.32 billion. It also represented the largest amount priced by the Company in a single day since November 2013.

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. They will be listed and tradable under the Scripless Securities Trading System of Bursa Malaysia.

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.

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