Malaysia’s first Basel III-compliant Sukuk

AmIslamic Bank, the wholly-owned subsidiary of AMMB Holdings, has attained necessary regulatory approvals from Bank Negara Malaysia (BNM) and Securities Commission Malaysia for its Subordinated Sukuk Murabaha Program worth RM3 billion (US$902.86 million).
Speaking exclusively to Islamic Finance news, Mohd Effendi Abdullah, the director and head of Islamic markets at AmInvestment Bank, provided an insight on the upcoming issuance. “We are expecting to launch the Sukuk within the first quarter of this year. This is the first Malaysian Sukuk that is Basel III-compliant. Proceeds from the program will be used for AmIslamic’s general working capital, for its Islamic business,” said Effendi. He also mentioned that the papers will be offered to institutional investors both locally and globally.
The program carries a tenor of 30 years and is structured in accordance with the Capital Adequacy Framework for Islamic Banks issued by BNM in 2012. The Sukuk program will be released in several tranches qualifying as a Tier 2 regulatory capital for AmIslamic. Each tranche of the program will have a tenor of at least five years subject to their maturing on, or prior to the expiry of the Sukuk program. This affords AmIslamic the flexibility to issue the Sukuk tranches during the availability period of the program based on the funding requirements of the bank.
The proposed issuance has been assigned a preliminary rating of ‘AA3/Stable’ by RAM Ratings. The rating action assigned is one notch below AmIslamic’s long-term financial institution rating (‘AA2/Stable/P1’), underlining their lower ranking in the priority of claims upon bankruptcy or liquidation, relative to senior unsecured creditors. Wong Yin Ching, the co-head of financial institution ratings at RAM, said: “This is the first RAM-rated Basel III-compliant Sukuk in Malaysia. With Basel III regulation on capital components coming into effect early last year, we expect more issuances of Basel III-compliant Sukuk in the Malaysian debt capital market.”