Published October 8, 2009

Khazanah eyes US dollar exchangeable sukuk

Move part of plan to reduce holdings in govt-linked firms

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(KUALA LUMPUR) Malaysia's state investor Khazanah Nasional will sell US dollar exchangeable sukuk next year if the stock market recovers as it seeks to reduce its holdings in government-linked companies.

Khazanah, which controls some of the country's largest listed companies, was earlier hoping to launch an exchangeable sukuk this year, said Mohd Izani Ghani, senior vice- president for finance at Khazanah.

'Unfortunately, the target price of our stocks is not quite up to the level of our expectations. That's why we have to give it a miss this year,' Mr Mohd Izani told an IFR capital markets conference.

Khazanah has been tapping the US dollar Islamic exchangeable bond market since 2006. In March 2008, it raised some US$550 million by issuing sukuk or Islamic bonds that were exchangeable into the shares of Hong Kong-listed Parkson Retail Group .

Exchangeable bonds are similar to convertible bonds, but unlike convertible bonds, they are not exchangeable into the shares of the issuer but for shares in another company in which the issuer has a stake.

Khazanah has identified 'a few stocks' in its portfolio that could be structured into an exchangeable sukuk, said Mr Mohd Izani.

'Hopefully the stocks that we have can perform. Let's hope for one (bond issue) next year,' said Mr Mohd Izani.

Just on Tuesday it announced that it had invested US$150 million for a 25 per cent stake in Dubai-based Islamic investment firm Fajr Capital Ltd.

The injection was part of Fajr's first round of funding with commitments amounting to US$588 million from other investors including Brunei Investment Agency and Abu Dhabi Investment Council.

'Islamic financial services is a key priority for Malaysia, and Khazanah's participation in Fajr Capital reflects our commitment to this area,' Azman Mokhtar, Khazanah's managing director, said in a statement.

Khazanah owns more than 50 per cent of flag carrier Malaysian Airline System and Malaysia Airports Holdings . It also owns controlling stakes in No 2 lender CIMB , national carmaker Proton Holdings and national power company Tenaga Nasional .

Prime Minister Najib Razak wants Khazanah to reduce its stakes in government-linked companies to create a more liquid stock market. -- Reuters