Sukuk lures insurers with guarantee

Kuala Lumpur: Dana Infra Sdn, the state-run company that finances Malaysia's subway system, will pay almost half a percentage point less than benchmark corporate rates on its sukuk because of a government guarantee and insurer demand, MCIS Zurich Insurance Bhd and RHB Investment Bank Bhd said.

The company, created to expand the nation's rail network as part of a $444 billion (Dh1.6 trillion) development programme, may sell 10-year bonds to yield 3.89 per cent, or 30 basis points more than similar-maturity sovereign non-Islamic notes, the Kuala Lumpur- based firms predict. Average yields on Malaysia's highest-rated corporate securities dropped to 4.36 per cent on April 30, the lowest level since May 2007, according to a central bank index.

Falling borrowing costs in Malaysia, the world's biggest Islamic debt market, have spurred a record 13 billion ringgit ($4.2 billion) of debt sales in 2012. Prime Minister Najeeb Razzaq has embarked on an initiative to construct railways, roads and electricity plants over the next decade to accelerate growth in the $238 billion economy.

"We will buy the Dana Infra sukuk because of the government guarantee and its strategic goal of railway development," Michael Chang, who oversees $1 billion as head of fixed income at MCIS Zurich Insurance, said in an interview yesterday.