HSBC has led the first corporate Islamic bond using a true sukuk ijara structure in Malaysia. The bank issued the deal on behalf of Ingress Corporation, an automotive company that makes door parts and panels for Malaysian car companies such as Perodua and Proton, as well as for the regional Asean automotive industry, notably Toyota and Honda in Thailand.
The deal is M$160mn (US$42mn) in size and while small, it is interesting for its pure ijara structuring. Under the terms of the deal, Ingress has set up a special purpose vehicle (SPV), which has bought some assets, plants and machinery from the parent. This SPV then leases those assets back to Ingress. The SPV then issues the sukuk based on the assets and the lease payments.
In previous Malaysian deals, only the actual lease payments have been used to issue the sukuk. In this structure, the assets are actually beneficially owned by the holders of the sukuk, making it compliant with global shariah standards. It is the same structure HSBC used with the sovereign sukuk it did for the government of Malaysia back in 2002 and this is the first time it has managed to replicate that feat in a corporate environment.
The sukuk is divided into three tranches: a M$60mn, five-year tranche with a 6.45% coupon; a M$50mn, six year tranche with a coupon of 7%; and a M$50mn seven-year tranche with a coupon of 7.6%.
Demand for the deal came in a 1.56 times and it closed at the end of June. The sukuk was rated A- by MARC, the local rating agency, and HSBC had sole books. About 50% of the transaction went to financial institutions, 40% to insurance companies and pension funds and 10% to local corporates.
In a bid to encourage market growth the Malaysian government said in its 2002/03 budget that the cost and expenses of these kinds of Islamic transactions would be tax deductible for the companies that issue them. Thus HSBC’s fees for doing the deal can be written off against Ingress’s tax bill, which must be useful to know when entering into fee negotiations.