Khazanah issues world’s first ringgit-denominated SRI Sukuk: A shift toward retail

Sovereign wealth fund Khazanah Nasional issued the world’s first Malaysian ringgit-denominated sustainable and responsible investment (SRI) Sukuk as part of its RM1 billion (US$236.74 million) Sukuk program in 2015. The program has raised RM200 million (US$47.35 million) so far. Established for the purpose of raising capital for schools under the Yayasan AMIR fund, the Sukuk facility features an innovative ‘pay-for-success’ structure.

In 2015, as part of a RM1 billion SRI Sukuk program, the Malaysian Securities Commission (SC) approved Ihsan, the first SPV under its Sustainable and Responsible Investment Sukuk Framework.

“This first-ever SRI Sukuk issued by Ihsan marks another milestone in product innovation from Malaysia in the Islamic capital market. This achievement also reinforces the universality of the value proposition of Islamic finance,” said Ranjit Ajit Singh, the then-chairman of SC. 

Khazanah has issued two tranches of the Sukuk program, one in May 2015 and one in August 2017. Both tranches had a seven-year maturity and were worth RM100 million (US$23.67 million) each. The first tranche of the Sukuk had an annual profit rate of 4.3% while the second tranche featured a 4.6% annual profit rate if key performance indicators (KPIs) were not met and a 4.2% profit rate per annum if KPIs were met. The KPIs include the number of trust schools, student outcomes and the performance of teachers and school senior leadership.

The Sukuk facility implements a ‘pay-for-success’ structure which measures a set of predetermined KPIs assessed over a five-year period. If the KPIs are not met at maturity, Sukukholders will forego up to 6.22% of the nominal value due under the Sukuk. The Sukuk facility also includes a unique feature allowing Sukukholders to convert their investment into a donation at any point throughout the tenor.

The proceeds from the Sukuk will fund schools under the Yayasan AMIR Trust School Program, a not-for-profit foundation, to improve accessibility of quality education in Malaysian government schools through public and private partnerships with the Ministry of Education. The second tranche of the program will fund the rollout of the trust school program to at least 20 schools.

The first tranche of the issuance saw participation from a diverse investor group including foundations, corporations, banks, pension funds and asset management companies. The second tranche featured a retail component, allowing investors to purchase the Sukuk listed on Bursa Malaysia. Additionally, it also allowed retail investors to participate via the ATAPlus and pitchIN crowdfunding platforms.

As Malaysian Sukuk issuance has generally been targeted toward institutional investors, the second tranche issuance represents a deliberate effort to rope in retail investors. This offering suggests that Malaysia may be aiming for retail Sukuk to play a more dominant role in the Malaysian Sukuk landscape.