Hong Kong Showcase on Islamic Finance Khazanah 3 rd Exchangeable Sukuk Muzaffar Hisham Deputy Chief Executive Officer CIMB Islamic Bank
Khazanah s Re-create New Silk Road USD647 million raised through a combined offering of USD550 million exchangeable Sukuk and USD97 million stock placement Transactions priced at the tightest ends despite unprecedented turbulent markets. The Sukuk was over-subscribed by 10 times, reflecting strong demand for quality Malaysian credit The first Sukuk that offers Islamic investors exposure to China s growth story, continuing the innovations in structured Islamic financial products Khazanah s initial investment in Parkson is monetised at over 900% its cost. 2
Managing Director of Khazanah, Dato Azman Mokhtar said: The transaction is a wonderful testament of Malaysia s and Khazanah s credit and economic fundamentals at a turbulent time in the markets when many countries and companies are afraid of tapping the international market. Deals are being pulled out there and we have entered instead and the strong terms and 10 times oversubscription could not be a stronger endorsement The deal also further promotes Malaysia s position as a leading developer and innovator in Islamic finance and interestingly, among others, this transaction can be said to recreate a New Silk Road by linking China and the Middle East, via Malaysia, of course, 3
Marketing to Targeted Middle Eastern/Islamic Investors Targeted pre-marketing and management roadshow, focused on: Key accounts who have participated in the previous Exchangeable Sukuks Greater focus on locations with stronger interest, i.e. Dubai, Abu Dhabi, Saudi and Kuwait BAHRAIN CIMB Kanoo Bahrain Pension Fund Bahrain Islamic Bank QATAR Masref Al-Rayan Doha Bank KUWAIT Kuwait Finance House Global Investment House UAE Dubai Islamic Bank Millenium Cap Emirates NBD Group Mashreqbank/ Al-Badr Noor Islamic Bank Standard Chartered DIFC Dubai First Gulf Bank National Bank of Abu Dhabi Shuaa Capital Sharjah Islamic First Gulf Bank SAUDI Islamic Development Bank Jadwa Public Investment Funds Al-Bilad Saudi Hollandi SEDCO NON-ME ISLAMIC AM Investment European Islamic Investment Bank Optimum Pembroke Capital Islamic Bank of Asia 4
Groundbreaking Landmark Sukuk Key Highlights First Exchangeable Sukuk launched concurrent with a block trade on overnight accelerated bookbuilding and First International Islamic Zero Periodic Payment exchangeable/sukuk First Exchangeable Sukuk to use listed shares in HK as the exchange property and underlying assets Second equity-linked transaction out of Malaysia in 2008 Malaysian equity-linked transaction Index Issuer Year Size (US$'m) 1 Khazanah Islamic EB into PLUS 2007 850 2 Khazanah Islamic EB into TM 2006 750 3 IOI Corporation 2008 600 4 Khazanah Islamic EB into Parkson 2008 550 5 Khazanah Conventional EB into PLUS 2004 415 6 Tenaga Nasional 2002 400 7 IOI Corp 2006 370 8 Telekom Malaysia 1994 360 9 IOI Corp 2004 345 10 Genting EB into Resorts World 2003 300 High over-subscription rate of 10 times the deal size of US$550 million 5
Priced at the tightest end of the range - a record LIBOR Swap minus 220bps, lowest yield USD sukuk priced todate Generated strong interest from Middle East investors final allocation of 50% to Islamic investors Unique Features of the Transaction Innovative structure that accommodates share borrowing & lending Final sukuk represent only 1/3 tangible assets (shares), a far departure from the previous ones which are backed by 100% tangible assets Manager of the Trust Assets is an independent party ie not related to the Obligor. 6
Transaction Summary Zero Periodic Payment Exchangeable Trust Certificates Khazanah Nasional Berhad US$550,000,000 Zero Periodic Payment Exchangeable Trust Certificates Due 2013 Joint Bookrunner Joint Lead Manager CIMB 2008 Offering Summary Issuer: Paka Capital Ltd Obligor : Khazanah Nasional Berhad Underlying shares : Ordinary Shares of Parkson Retail Group Limited Issue Size : USD550 million Issue Date : 12 March 2007 Schedule Dissolution : 5 years (12 March 2013) Optional Dissolution : 3rd anniversary Issuer Call Option : After 3rd anniversary; subject to 130% hurdle Issue price : 100% Periodic Payment : 0.00% Yield-to-Scheduled Dissolution : 0.69% (annual) (3-yr USD swap rate minus 220bps) Optional Dissolution Amount : 102.08% Scheduled Dissolution Amount : 103.50% Reference Share Price : HKD71.00 (being the purchase price of Block Trade) Exchange premium : 37% above Initial Reference Share Price Structure : Accelerated Bookbuilding Listings : (1)Labuan Int l Financial Exchange & (2)Hong Kong Stock Exchange (3)Dubai International Financial Exchange Distribution : Reg S only; No sales into the United States, Canada, Japan or Malaysia (save to offshore companies and foreign offshore companies, both as defined under the Malaysian Offshore Companies Act,1990) 7
Execution Highlights Exchangeable Sukuk The Exchangeable Sukuk was completed within a compressed timeline. Bookbuilding was done on accelerated basis on 5 March 2008. Book was already half covered upon book opening and the Sukuk traded above par in the grey market even before the books had closed Books closed on 5 March 2008, 3 hours after book opening with a record subscription rate of 11x amidst challenging market conditions and priced at the tightest end of the range - a record LIBOR Swap minus 220bp at a premium of 37%, lowest yield USD sukuk priced todate Tight pricing was achieved despite weak Asian market, with the Hang Seng dropping 907 points from mid March till time of launch. First Exchangeable Sukuk which had an optional early dissolution at the 3rd anniversary and an avenue for hedging the equity option which was not available in the first two Exchangeable Sukuk. The book runners successfully distributed to an excellent mix of quality Middle Eastern and global investors. Allocation was equally split between Islamic and conventional accounts with favorable allocation towards Middle Eastern accounts, repeat convert buyers for Khazanah's previous issuances and real money accounts. Allocation to Middle Eastern/Islamic investors represented approximately 50% of the total issued, despite the transaction was executed on overnight accelerated bookbuild. The transaction received very positive media coverage. Finance Asia reported Strong Demand for Khazanah s third exchangeable Sukuk Investor Distribution US Offshore 11% Middle East 50% Asia 13% Europe 26% 8
Transaction Summary Block Trade Offering Summary Company: Parkson Retail Group Limited Vendor : Pangkor Investments (Cayman Islands) Limited Listing : Hong Kong Stock Exchange Khazanah Nasional Berhad US$97,000,000 Block Trade Joint Bookrunner CIMB 2008 Issue Size : 10,620,000 shares representing approximately 1.9% of total issued shares Bookbuilding Range : HKD70.00 HKD72.30 (representing approximately 5% - 8% discount to closing price of HKD76.10 as at 5 March 2008) Purchase Price : HKD71.00 (representing approximately 6.7% discount to closing price of HKD76.10 as at 5 March 2008) Bookbuilding Date : After market close, 5 March 2008 Structure : Accelerated bookbuilding 9
Execution Highlights Zero Periodic Payment Exchangeable Trust Certificates Third largest block trade in Hong Kong YTD Largest block trade of a foreign company by a Malaysian company in recent times US Offshore 3% Investor Distribution Book successfully covered despite investors not willing to risk order inflation due to concurrent delta placement of an indeterminate size orders reflective of real demand Orders came in despite current share price being lower than the earlier block trade in Jan 2008 at HKD78.66. Large placement size if compared to average daily turnover volume approximately 12 times Europe 32% Asia 65% 10
Challenging Market Conditions The transaction was completed amidst challenging and volatile market conditions. Tight pricing was achieved behind a backdrop of weak Asian equity Indices and Parkson Intra-Day Share Performance (3 Mar'08-5 Mar'08) Source: Bloomberg Hang Seng Intra-Day Index Performance (3 Mar'08-5 Mar'08) Source: Bloomberg Volume 100,000 80,000 Volume Closing Price HKD 82.00 80.00 24,000 23,500 Traded Price 60,000 78.00 40,000 23,000 20,000 76.00 0 3-Mar-08 0-Jan-00 4-Mar-08 5-Mar-08 74.00 22,500 3-Mar-08 0-Jan-00 4-Mar-08 5-Mar-08 Parkson 1-Year Share Price Volatility Source: Bloomberg 65 3-Year Intra-Day USD Swap Rate (3 Mar 08 5 Mar 08) Source: Bloomberg 3.00 60 Volatility 260d Volatility 90d 2.95 3-yr USD Sw ap Volatility % 55 50 45 2.90 2.85 40 35 2.80 30 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 2.75 0-Jan-00 4-Mar-08 5-Mar-08 11
Press Coverage on the Offering Strong demand for Khazanah s third exchangeable Sukuk Finance Asia 6 March 2008 Another difference versus the previous two bonds was that the deal was launched and priced on the same night. In fact the books were open for only three hours after the close of the Malaysian market, compared with five days of bookbuilding for the other two transactions. The limited offer period was clearly enough though, since both portions of the deal were covered after just one hour. By choosing an underlying stock that is listed outside Malaysia, Khazanah was also able for the first time to introduce the possibility of hedging the equity option. Khazanah sells stake Parkson Retail Bloomberg 6 March 2008 PAKA Capital Ltd and Khazanah Nasional Bhd are selling a stake worth as much as HK$578.4 million (US$74 million) in Parkson Retail Group Ltd, a Beijing-based department store chain. Parkson.s shares more than doubled in 2007 as the company lured more shoppers to its store in China, the world.s fastestgrowing major economy. The retailer, which has 41 stores in 26 Chinese cities, posted a 47 per cent gain in 2007 annual profit to 676 million yuan. The fact that investors can short-sell the stock is likely to have factored in the decision against an extended marketing period, as that would have increased the pricing risk. The premium was fixed at the top of the 32% to 37% range, while the yield was also set at the most favourable end for the issuer at 0.69%. It was offered in a range up to 1.39%. According to sources, the bonds attracted about $6 billion of demand, or more than 10 times the final size. There was no definitive breakdown of either demand or the final distribution, but one source says the allocation to Middle Eastern accounts was approaching similar levels to the previous Khazanah sukuk exchangeable when they walked away with about 50%. The demand from these accounts was said to have been almost enough to cover the entire deal. Khazanah Nasional To Sell Parkson Stake South China Morning Post 6 March 2008 "Orders for both tranches were well covered three hours after they were launched for Asian investors although the book will stay open for the European market," a source said. "Half of the orders were placed by long funds (those with only long positions on shares) while the remainder came from hedge funds and private investors." 12
USD850 Million Periodic Payment Exchangeable Trust Certificates Khazanah Nasional Berhad US$850,000,000 Periodic Payment Exchangeable Trust Certificates Due 2012 Joint Bookrunner Joint Lead Manager CIMB 2007 Offering Summary Issuer: Cherating Capital Limited Obligor : Khazanah Nasional Berhad Underlying shares : Ordinary Shares of PLUS Expressways Berhad Issue Size : USD600 million Increase Option : USD250 million (exercised) Issue Date : 5 July 2007 Maturity : 5 years (5 July 2012) Issuer Call Option : After 3rd anniversary; subject to 130% hurdle Issue price : 100% Periodic Payments : 2.00% per annum Yield-to-Scheduled Dissolution : 4.58% (annual) Scheduled Dissolution Amount : 114.14% Initial Reference : MYR3.2054 (VWAP at June 27 Share Price 2007) Exchange premium : 23% above Initial Reference Share Price Initial Exchange Price : MYR3.9426 per share (based on a fixed exchange rate) Listings : (1) Labuan Int l Financial Exchange (2) Hong Kong Stock Exchange (3) Dubai Int l Financial Exchange Distribution : Reg S only; No sales into the United States, Canada, Japan or Malaysia (unless to Non- Residents) Investor distribution Execution Highlights The Islamic Exchangeable Sukuk was completed within a compressed timeline Bookbuilding commenced on 24 June 2007. Demand gained immediate momentum surge, leading to an order cap of USD60 million. The sukuks traded above par in the grey market even before the books had closed Books closed on 27 June 2007 with a record subscription rate of 13x and priced at the tightest end of the range - a record LIBOR Swap minus 90bps, lowest yield USD sukuk priced todate Tight pricing was achieved despite being priced one day before an FOMC meeting amidst an environment of volatile interest rates which had seen the LIBOR Swap rising some 70bps over a period of 6 weeks The bookrunners successfully distributed to an excellent mix of quality Middle Eastern investors and global investors. Allocation to Middle Eastern/Islamic investors represented approximately 50% of the total issued, a record Middle Eastern/Islamic participation in an equitylinked offering Largest equity-linked issue out of Malaysia, surpassing Khazanah s own USD750 mil Islamic Exchangeable Sukuk into Telekom Malaysia Berhad. It was also the third largest equity-linked issue out of Asia-Pac ex Japan/Aust YTD 2007 The transaction received very positive media coverage..finance Asia reported that the exchangeable sukuk is A Blow Out Success Other 10% Asia 18% Middle East & Islamic 50% Europe 22% 13
USD750 Million Exchangeable Trust Certificates Khazanah Nasional Berhad USD750,000,000 Periodic Payment Exchangeable Trust Certificates Due 2011 Joint Bookrunner Joint Lead Manager 2006 Offering Summary Issuer : Rafflesia Capital Limited Obligor : Khazanah Nasional Berhad Underlying shares : Ordinary Shares of RM1.00 par each of Telekom Malaysia listed on Bursa Malaysia Securities Berhad Issue Size : USD650 million Over-allotment Option : USD100 million (exercised) Issue Date : 4 October 2006 Maturity : 5 yrs (4 October 2011) Issuer Call Option : At end of yr 3 (5 October 2009) Issue price : 100% Periodic Payments : 1.25% Yield-to-Scheduled Dissolution : 5.07% (annual) Scheduled Dissolution Amount : 121.14% Exchange premium : 19% above Reference Share Price Initial Conversion Price : MYR10.85 per share (based on a fixed exchange rate) Initial Reference : MYR9.1143 (VWAP at Sept 27 Share Price : 2006) Listings : (1) Labuan Int l Financial Exchange (2)Hong Kong Stock Exchange Distribution : Reg S only; No sales into the United States (or US persons), Malaysia (unless to Non- Residents). Execution Highlights Bookbuilding commenced on 21 Sept 06 (0800 hours) with initial size of USD500 million and upsized due to strong demand. Book closed on 27 Sept 2006 (1700 hours). Book was over 2x covered on opening day with little impact on TM s share price despite longer bookbuilding period. Subscription rate approx. 6x at price range and initial size of launch. Successfully distributed to excellent mix of quality investors from Middle East and global investors including financial institutions, asset managers, insurance companies, pension funds and high net worth individuals. Strong demand from Middle Eastern investors despite lack of familiarity with exchangeable instruments. Certificates immediately traded up after pricing. World s first Shariah-compliant exchangeable bond Investor Distribution by Region Middle East 27% Others 73% 14