Good news! Just read the The Edge Financial Daily today, there is a notice of the offering of 7-year 4.23% Danainfra Retail Sukuk to the public. So here is the brief information on the offering:-
*Click table to enlarge (Source: DanaInfra Nasional)
Who is the Issuer
DanaInfra Nasional Berhad (“DanaInfra”) is a special purpose vehicle established on 3 March 2011 with the main purpose of undertaking the funding of infrastructure projects assigned by the Government of Malaysia. DanaInfra’s primary role upon its incorporation is to secure and manage the funding for the Klang Valley Mass Rapid Transit – Sg Buloh-Kajang Line (SBK Line).
Sukuk Structure
Basically, a Sukuk is a shariah compliance fixed income bond. Danainfra Retail Sukuk offers 4.23% p.a coupon with tenure of 7 years. Interest/coupon is paid semi-annually and principal will be paid on the maturity date, which is expected to be on 27/08/2021. This investment has relative low risk as it is guaranteed by the Government of Malaysia.
Investment Size
Why did I say it is a good news in the beginning? Fixed income such as government paper and corporate bond are common investment instruments to institutional investors (fund managers) but not the retail investors (public) as it is oftenly traded over-the-counter (OTC) with minimum investment size of RM1 million. For this Sukuk, it is a good opportunity to the public as it offered exclusively to retail investors with minimum subscription of RM1,000 (equivalent to 10 unit).
Listing
This Sukuk is a Exchange Traded Bonds and Sukuk (ETBS). ETBS are fixed income securities that are listed and traded on the stock market. Thus, investors are able to trade the bond prior to maturity. Price will be determined by market force.
Important Timeline
Opening date for Danainfra Retail Sukuk offering : 21 July 2014
Closing date for Danainfra Retail Sukuk offering : 15 August 2014
Balloting of DanaInfra Retail Sukuk offering 19 August 2014
Listing and commencement of trading : 27 August 2014
Application
You need to have a CDS account to apply for this Sukuk. Application for Danainfra Retail Sukuk is similar to application for IPO shares. It can be done via application form, ATM or Internet Banking.
In the event of over-subscription, the Issuer will conduct a ballot to determine the allocation to retail investors in a fair and equitable manner.
Investment Risk
Credit Risk
This risk arises if the ETBS issuer is unable to pay the coupon payment on the coupon date or the principal amount to the lender at maturity. However, DanaInfra Retail Sukuk is backed by the central government, thus deemed to have a low credit risk.
Market Risk
This is the risk of price fluctuations and is impacted by the demand and supply in the market.
Interest Rate Risk
It is important to note that price of fixed income have an inverse relationship to interest rates. Valuation of the ETBS may be affected by the changes in interest rates e.g. if the interest rate rises, ETBS prices will fall as investors may relocate their investment to capture a rise in interest rates available in other instruments, for example, in a bank deposit.
For more detailed infor on the offering, please check out the link below before investing:
Personal Opinion
This is suitable for low risk and long-term investor. If you only prefer investment/saving like Fixed Deposit (FD) with guaranteed income compared to the volatility in stocks market, then this investment may suit your appetite. The coupon of 4.23% p.a is deemed attractive compared to the current 12-month FD rate of 3.05%-3.90% p.a. Also, it is 47.1 bps higher than 7-year Malaysia Government Securities with yield of 3.759% (as at 21 July 2014).
This may not suit short-term investors and investors who seek for high return and growth. Just to note in the stock market, Malaysia real estate investment trusts (MREITs) have dividend yield of 5%-7% p.a (as at 21 July 2014). However, it is not directly comparable to fixed income as MREITs have relatively higher risk since the dividend is not guaranteed and the payout will depend on the profitability of the company.
Note: You will receive the face value of Sukuk (RM100/unit) if you hold the Sukuk until maturity date. However, if you intend to sell before the maturity, the Sukuk may be trading at premium (above RM100/unit) or discount (below RM100/unit) depending on the supply/demand and interest rate market environment. Bond price tend to have inverse relationship with interest rate.
