March 2022 was a very tough time to bring any deal to market. Global capital markets had all but shut down amid the fallout from Russia’s invasion of Ukraine. The US Federal Reserve’s brutal tightening cycle in Washington was also in full force driving volatility, along with uncertainty about whether Covid-19 infection rates might surge again.
Yet it was into this environment that RCE Marketing (RCEM) decided to securitize a portfolio of personal finance non-discretionary civil service salary receivables through a RM2 billion ($445 million) multi-tranche deal, of which this was one tranche.
The programme is issued through the special purpose vehicle, Zamarad Assets Berhad (ZAB), with this tranche comprising a RM255 million sukuk murabaha asset-backed securitization.
This deal was tranche number seven under the programme and was led by CIMB Investment Bank, acting as principal adviser, lead arranger and lead manager. The deal was ZAB’s first issuance of the year.
This tranche boasted the first asset-backed security in the Malaysian Islamic market to use a revolving option structure. This allows excess cash in the transaction to be used to purchase additional receivables from RCEM.
The deal was attractive due to the nature of the receivables, which, backed by civil service salaries, do not embody credit risk
Any future purchases must meet a minimum weighted average portfolio profit rate, while the rating outlook of the outstanding sukuk must be either stable or positive.
CIMB managed to tap into pent up demand for high-grade asset-backed sukuk, and the deal closed at the tight end of the 3.24% to 5.18% guidance. The deal was attractive due to the nature of the receivables, which, backed by civil service salaries, do not embody credit risk.
The final order book amounted to RM555 million, producing a 2.64 times bid-to-cover ratio for the class-A and B sukuk murabaha instruments.
The issue attracted a diverse investor pool, including international financial institutions, asset management companies and insurance companies.
Along with ZAB’s revolving option asset-backed issuance, CIMB also worked on several other innovative deals over the year, including the first offering of rated Malaysian ringgit perpetual securities in the oil and gas sector for Dialog Group. It also worked on the first-ever perpetual sukuk credit-enhanced by a subordinated guarantee, issued for IJM Land.
