Malaysian telecom operator Axiata Group Berhad executed a $500 million sukuk bond on Tuesday, catching a market window ahead of a string of other prospective deals from Malaysian government-linked entities.
Axiata was able to build up a peak order book of $1.4 billion for its Baa2/BBB rated deal, a relatively warm reception that is likely to hearten the rest of the pipeline.
By contrast, its ultimate parent, Khazanah Nasional Berhad, managed to scrape together just $850 million for its own $750 million deal three weeks ago.
Khazanah did not provide an auspicious backdrop for Axiata since its unrated bond has consistently traded down since issue. On Tuesday, it was quoted on a bid price of 98.89%, two points lower than issue and a yield of 3.279%.
Axiata went out with initial guidance at 260bp over Treasuries and, like ICICI one day before it, tightened indicative pricing by 20bp leading to a drop off in the order book to $900 million. Final pricing of the Wakala trust certificates was fixed at par on a profit rate of 4.357% to yield 240bp over Treasuries.
A total of 64 investors participated with a split 71% Asia, 11% Europe and 18% Middle East.
Syndicate bankers estimated fair value around the 235bp level after taking account of a curve worth 45bp between the existing November 2020 bond and new March 2026 bond.
The group's existing $500 million 3.466% November 2020 paper was trading on a G-spread of 190bp on Tuesday. In line with most Asian credits, it has dropped about two points from an early February high around the 102.5% bid level to its current 100.16% level.
Bankers said Axiata opted for a fairly unusual 10-year maturity to avoid bunching since it issued two five-year deals last year - one in April and one in November.
Axiata group chief financial officer, Chari TVT told FinanceAsia the group chose a 10-year in line with its long term strategy to build out its curve. He also said Axiata opted for a sukuk because it supports the Malaysian government's strategy to promote Islamic financing and believes the structure enables it to find a wider investor pool.
International investors have been net sellers of the country for some time although the negative sentiment has shown signs of stabilising since Fitch re-affirmed the sovereign's A- rating in late February..
Sukuk pipeline
However, Malaysian and Indonesian sukuk have been the best performing bonds in the Islamic finance universe this year, according to RHB Securities. The Malaysian sovereign 2025 bond is up 56bp year-to-date and the Petronas 2020 up 12bp.
RHB calculated there has been $3.15 billion of global issuance to mid-March. For the whole year, Ratings Agency Malaysia is forecasting $55 billion to $65 billion compared to $66.4 billion in 2015.
Malaysia, Indonesia and GCC countries have historically accounted for about 90% of issuance and this is not expected to change this year. The Republic of Indonesia is currently on the road with its first dollar sukuk of the year.
Shortly behind Axiata, the market is also expecting a new dollar sukuk from the Federation of Malaysia and a debut global sukuk by Tenaga, which is said to have mandated CIMB, HSBC and Maybank. Petronas and Telkom are also expected to tap the market this year.
Rising leverage
Where Axiata is concerned, Standard & Poor's notes that debt to ebitda has risen to two times following the group's $1.365 billion acquisition of Ncell, Nepal's largest mobile phone operator.
The agency had previously said it would consider lowering its BBB+ group rating if Axiata went on a debt-funded acquisition spree. However, in its latest report it says it believes Axiata will take the "necessary steps to bring its leverage below two times".
Axiata's Chari told FinanceAsia the company is doing this. "Axiata has put in place several initiatives including monetization of our existing assets and embarked on a rights issue exercise at PT XL Axiata Tbk, that we will executed over the course of next 12 months," he said. "We're confident this will be achieved."
The company makes roughly 80% of its revenue from Malaysia and Indonesia but has been on an M&A spree in recent years to expand its footprint across Asia. It now owns or has majority stakes in Sri Lanka's Dialog, Bangladesh's Robi and Cambodia's Smart.
Joint global co-ordinators for its sukuk bond deal were CIMB, Deutsche Bank and HSBC.
This article has been updated since first publication to include comments from Axiata.
