Civil service fund takes up RM1b of MAS perp
UPDATED @ 07:05:20 AM 13-06-2012
PETALING JAYA, June 12 — Malaysia Airlines’ (MAS) fund-raising efforts received a boost today when the civil service pension fund (KWAP) took up the entire first tranch of RM1 billion of the airlines’ perpetual sukuk today.
MAS also said in a press conference here that it received firm commitments for the rest of the RM1.5 billion of the perpetual sukuk, which MAS said today does not carry a government guarantee.
Perpetual bonds, also known as perps, are considered higher risk bonds as there is no guarantee of repayment.
The perpetual sukuk will pay a rate of 6.9 per cent and is not rated.
It allows the financially troubled airline to raise money without affecting its gearing ratios as it is treated as equity under Malaysian accounting conventions.
“We consider it the cheapest form of equity,” said MAS deputy group CEO Mohd Rashdan Yusof. “It’s a great deal for our shareholders.”
MAS group chief executive Ahmad Jauhari Yahya said the successful subscription of the first tranche indicated the trust investors had in the airline.
“This firmly secures the first pillar of our funding plans and is testament of the confidence in MAS,” he said.
He added that the remaining RM1.5 billion of the perpetual sukuk will be subscribed by local institutions but declined to reveal them, saying only that details will be announced later.
Ahmad also said he hoped the proposed government-funded special purpose vehicle (SPV) that will be used to finance the delivery of MAS aircraft will be finalised by the end of July.
MAS, which has posted large losses for the past several quarters, is proposing to raise about RM9 billion through a combination of perpetual sukuks, commercial loans and government financial assistance.
Interest in perpetual bonds has risen in the region, prompting the Monetary Authority of Singapore to express concern over the demand for the higher risk fixed income instruments.
The Thai SEC (Securities and Exchange Commission) also issued a warning earlier this month for investors to fully understand the details of subordinated debentures, which is corporate debt that ranks as a low priority for repayment.
MAS said that the perpetual junior sukuk will be recognised not as debt but as equity, and payment obligations will at all times be junior to the claims of present and future creditor of MAS but ahead of other share capital instruments.
The tenure of the sukuk is perpetual and MAS has a call option to redeem the junior sukuk at the end of the 10th year and on each following periodic distribution date.
MAS can also redeem the junior sukuk if there is a change in accounting standards resulting in it no longer being recognised as equity.
The airline may also defer periodic distributions but the deferred distributions will be cumulative.
Interest in perpetual bonds has grown as companies look to take advantage of the opportunity to raise funds without any impact on gearing ratios and investors look for higher payouts in the current low interest-rate environment.
Reuters reported that more perpetual bonds, informally called perps, were sold in Singapore in the first three months of 2012 than in the previous 15 years
Perps are uncommon in Malaysia and mostly issued by banks.
MAS is also the world’s first corporation to issue an Islamic perpetual bond.