Malaysian conglomerate Sime Darby made a successful debut in the US dollar bond market, pricing on January 22 a dual-tranche sukuk issue totaling US$800 million. It is the first Malaysian issuer and the first sukuk issuer globally to launch in the international US dollar debt capital markets in 2013. The transaction did not disappoint as it generated a robust investor demand as it offered a welcome diversification from the slew of conventional bond deals that are flooding the market since the start of the year.

The sukuk structure is based on the Shariah principle of ijara. The offering was equally split into US$400 million each and priced at par, with the five-year tranche paying a coupon of 2.053% or a spread of 130bp over the US treasuries. This was at the tight end of the final guidance of 135bp area (+/- 5bp) and well inside the initial guidance of 150bp area.

The other tranche is for 10 years with a coupon of 3.290%, or equivalent to a spread of 145bp over the US treasuries. This was also at the low end of the final guidance of 150bp area (+/- 5bp), which was revised from the initial guidance of 165bp area.

The Reg S transaction undoubtedly benefited from the scarcity of such issuance, enabling Sime Darby to lock in a cheaper funding. The deal achieved the lowest coupon ever by a corporate globally in the US dollar sukuk market, the lowest ever US dollar coupon in sukuk format by an Asian issuer and the lowest coupon by a Malaysian issuer in the US dollar market in both the five-year and 10-year tenors.

Sime Darby president and group chief executive Dato Mohd Bakke Salleh describes the investor response as a clear testament to the strength of the Sime Darby group, especially in the longer term. "We believe this is an important step we have taken to ensure sustainable growth in line with the group's strategy," he adds in a statement.

Amid the heavy supply in the primary US dollar bond market, the deal attracted a total order book of US$8.7 billion, with the five-year generating US$4.2 billion from 184 accounts and the 10-year US$4.5 billion from 192 accounts.

In terms of geographical distribution, the five-year tranche was allocated 83% into Asia and 17% into Europe and the Middle East, with the asset and fund managers accounting for the bulk of the bonds with 65%, banks 19%, insurance companies 10%, public sector 4% and private banks 2%.

The 10-year tranche was sold 53% into Asia and 43% into Europe and the Middle East. Half of the paper went to asset and fund managers, 19% to banks, 15% to public sector, 14% to insurance companies and 2% to private banks.

The sukuk, issued through a special purpose vehicle Sime Darby Global, represented the first drawdown from the company's newly-established US$1.5 billion multi-currency sukuk issuance programme and the proceeds will be used for capital expenditures, working capital requirements and general corporate purposes.

Citi, HSBC, Maybank Investment Bank and Standard Chartered Bank were the joint bookrunners and joint lead managers for the transaction. Citi and HSBC likewise acted as the joint rating advisers to Sime Darby. 

The sukuk programme, according to Fitch Ratings, is structured as a sale and lease back transaction involving Sime Darby as the seller of sukuk assets and lessee, and Sime Darby Global as the purchaser of the sukuk assets and lessor.

The return on the sukuk assets is derived from the lease rentals paid by Sime Darby in relation to the sukuk assets and the repayment of debt is backed by a purchase undertaking clause which requires Sime Darby to repurchase the assets at an exercise price essentially equivalent to the nominal amount of the debt and any interest outstanding.