a case study on danainfra nasional berhad’s financing...

Copyright © DanaInfra Nasional Berhad 2012. All rights reserved.

1 October 2012

A Case Study on DanaInfra Nasional Berhad’s Financing Programme

Fazlur Rahman Ebrahim Principal Officer of DanaInfra Nasional Bhd

Managing Director of Prokhas Sdn Bhd

[ 2 ] Copyright © DanaInfra Nasional Berhad 2012. All rights reserved.

CONTENTS Background

DanaInfra Nasional Berhad – Establishment, Framework Operating Model and Methodology

MRT Project

DanaInfra Team

Case Study - Financing Programme

Government Guarantee

Salient Terms of ICP/IMTN Programme

Tax and Legal Considerations

Participating Financial Institutions

Maiden Issuance of IMTN

Bookbuilding Exercise

Pricing Management and Comparative

Investors’ Profile

Moving Forward


The Economic Council decided on 14 June 2010 for the establishment of an Infrastructure Financing Entity (“IFE”) to advise and undertake funding for future major infrastructure projects

Separate fund raising activity from infrastructure construction Develop the most cost competitive, efficient and sustainable

financing models Maintain Government’s fiscal position through most competitive

financing and timely disbursement of funds

IFE’s Objectives

ESTABLISHMENT OF DANAINFRA

DanaInfra Nasional Berhad (“DanaInfra”) was established on 3 March 2011 Wholly-owned by Minister of Finance, Incorporated with a paid-up capital of RM10.0 million

Advise on best methods of fundraising exercise and most effective payment structures

Develop best structures for long-term funding at efficient cost Execute and implement fundraising and payment strategies Identify strategic investors

Role and mandate as funding vehicle


RAIL INFRASTRUCTURE PROJECT BUSINESS MODEL

Project Management Co

Project management company to undertake all railway development and

property development projects

Danainfra Nasional Berhad

Infrastructure Funding Entity

Asset Owner Co

Main Concession Holder and Asset House for the

MRT Assets

Operation Co

Operations of the completed rail project

100% Equity Ownership SPAD (Regulator)

Government of Malaysia New Model

Previous Model Government of Malaysia

Asset Owner, Project Management Co &

Funding Entity

Operating Co


Financing structure with main objectives to ensure Certainty of Funds and Optimum Financing Cost through market-driven pricing that is near sovereign rates. This will be achieved via the following:

DANAINFRA METHODOLOGY

Timing the issuance Raising a right mix of instruments and maturity

Strategising fundraising to lower overall financing cost via:

Identify potential issuers and strategic investors Arrange for possible strategic investment

Structuring the best methods to raise funding primarily through

capital markets:

Balance between cost efficiency of the debt repayment strategy and the Government’s operating expenditure appetite

Repayment through Government’s contribution on deferred payment basis

Developing the most effective payment structures based on the

Government’s fiscal appetite

Presenter

Presentation Notes

1. Strategising fundraising to lower overall financing cost via: Timing the issuance to take advantage of market situation Raising a right mix of instruments and maturity profile to obtain optimum financing cost


The proposed Mass Rapid Transit project (“MRT Project”) is one of the projects under Greater Kuala Lumpur - Klang Valley Public Transport Masterplan

First phase, Sungai Buloh – Kajang Line (“SBK Line”) is a proposed passenger rail line running from Sungai Buloh to Kajang covering a distance of 51 kilometres

The Project was launched on 8 July 2011 As of to date, 45 packages have been awarded amounting to RM18.64 billion. There are 40

remaining packages to be awarded latest by end of 2012, out of which 13 packages have been called and in-progress, with the balance of 27 packages yet to be called.

Total project cost will be confirmed upon awards of all contracts by first quarter of 2013

Expected amount required for the Project until 30 June 2013 is RM8.0 billion

MRT PROJECT


The The team behind DanaInfra is from Prokhas Sdn Bhd, a company also wholly-owned by MoF, Inc

The Prokhas team actively involved in DanaInfra is made up of about 20 professionals of bankers, accountants and lawyers with experience in financial transactions

The team, with prior experience in executing deals, is now on the opposite side as the issuer

DANAINFRA TEAM


The financing programme is structured as a combined Islamic Commercial Papers / Islamic Medium Term Notes Programme (“ICP/IMTN Programme”) and Syndicated Islamic Revolving Credit Facility (“RC-i Facility”)

Total Size : First phase with combined limit of up to RM8.0 billion Backed by Guarantee from the Government of Malaysia RC Facility provided by the JLAs, serves as a back stop mechanism to

ensure availability of funds at all times

Repayment through contribution by the Government on a deferred payment basis

CASE STUDY - FINANCING PROGRAMME


10/3/2012 9

The guarantee backing the ICP/IMTN is an irrevocable and unconditional obligation by the Government in favour of the Facility Agent (on behalf of the Sukukholders) whereby the Government guarantees the payment by DanaInfra of the Guaranteed Amount.

As an infrastructure project undertaken for the benefit of the Rakyat, the Government envisages that the MRT Project to be funded in a cost-efficient manner so that any cost-savings can be passed on to the Rakyat. Additionally, due to the nature of the project and the long gestation period, the repayment profile of any fund-raising will naturally have to be long-tenured. As such, the current proposed mode of financing, backed by the Government Guarantee, is the most viable and efficient from a cost and size perspective.

GOVERNMENT GUARANTEE


Tax and Stamp Duty Remission

ICP / IMTN PROGRAMME – SALIENT TERMS

Issuer DanaInfra Nasional Berhad

Facility ICP / IMTN Programme of up to a nominal amount of RM8.0 billion

Guarantee Irrevocable and unconditional Guarantee from the Government of Malaysia

Purpose To finance the construction and development of the MRT Project

Programme Size Up to RM8.0 billion subject to the combined limit under the RC Facility. DanaInfra has the option to upsize the Programme size to accommodate MRT Project cost requirement

Programme Tenure Up to 50 years from the date of first issuance

Islamic Principles Murabahah and/or such other Islamic principles (including but not limited to Wakalah, Musyarakah, Ijarah, Bai’ Inah or Bai’ Bithaman Ajil) to be determined prior to each Sukuk issuance

Assets Assets of the financial institutions

Profit Payment Frequency IMTN – semi annually

Mode of Issue IMTN (i) Bought Deal (ii) Direct Placement (iii) Bookbuilding

ICP (i) Competitive Tender (ii) Direct Placement (iii) Bought deal


Remission of tax and stamp duty under Loans Guarantee (Bodies Corporate) (Remission of Tax and Stamp Duty) (No.3) Order 2012

Flexibility under the legal documentations:

TAX AND LEGAL CONSIDERATIONS

Options to change Islamic principles from Murabahah to Wakalah, Musyarakah, Ijarah, Bai’ Inah or Bai’ Bithaman Ajil to be determined prior to each Sukuk issuance

Islamic Principles

Option to upsize the Programme size to accommodate total project cost of MRT Project upon awards of all contracts

Upsizing of Programme

size


PARTICIPATING FINANCIAL INSTITUTIONS

Joint Lead Arrangers / Joint Lead Managers

AmInvestment Bank Berhad

CIMB Investment Bank Berhad

Maybank Investment Bank Berhad

RHB Investment Bank Berhad

Joint Lead Managers Affin Investment Bank Berhad

Bank Islam Malaysia Berhad

Hong Leong Islamic Bank Berhad

HSBC Bank Malaysia Berhad

Standard Chartered Bank Berhad

Principal Advisor & Facility Agent CIMB Investment Bank Berhad

Shariah Advisor CIMB Islamic Bank Berhad


Book building exercise for the maiden issuance commenced on 9 July 2012

with the opening of book order to the investors.

Summary of the book building result upon closing of book order on 10 July 2012 is as follows:

The maiden Sukuk was issued on 20 July 2012 with an issue size of to RM2.4

billion. A total of 59 investors participated in the book building exercise. 45 investors

were allocated between RM5 million to RM420 million.

Tenure Issue Size Pricing All in Yield Total Book Order Total Book Cover

7 yr 10 yr 12 yr 15 yr

RM300 m RM700 m RM500 m RM900 m

MGS + 26 bps MGS + 26 bps MGS + 28 bps MGS + 28 bps

3.62% 3.74% 3.87% 4.04%

RM2.81b RM3.10b RM2.28b RM4.71b

9.37 times 4.43 times 4.56 times 5.23 times

RM2.4b RM12.91b 5.38 times

BOOK BUILDING EXERCISE


As is the case with other Government Guaranteed issuances, the fair expectations on the pricing

of DanaInfra’s maiden Sukuk have been based on certain range of spread over MGS by each respective tenure.

The actual pricing on the close of bookbuilding, however, consisted of compressed spreads over MGS due to the strong investors’ interest demonstrated since the Investors’ Briefing held by DanaInfra.

Summary of the opening and final pricing upon closing of book order on 10 July 2012 is as follows:

Despite the price guidance of up to 33bps for the Sukuk, DanaInfra and the Joint Lead Managers managed to achieved a competitive pricing level at MGS plus 26 bps for the 7- and 10-year Sukuk and MGS plus 28 bps for the 12- and 15-year Sukuk, thereby meeting DanaInfra’s target pricing levels. The 10-year pricing at time of book close marked a new benchmark for GG issuance.

Tenure Issue Size Opening Price Guidance Final Pricing Final All in Yield

7 yr 10 yr 12 yr 15 yr

RM300 m RM700 m RM500 m RM900 m

MGS + 20 up to 33 bps MGS + 20 up to 33 bps MGS + 20 up to 33 bps MGS + 20 up to 33 bps

MGS + 26 bps MGS + 26 bps MGS + 28 bps MGS + 28 bps

3.62% 3.74% 3.87% 4.04%

RM2.4b

PRICING MANAGEMENT


Performance of DanaInfra’s bookbuilding comparatively to other GG issuances around the same

period are as follows: Rank in terms of the rates, DanaInfra is either ranked 1st or 2nd for all-in-rates across

tenures, with SME Bank being 1st for the tenures similar to DanaInfra, (SME was issued when MGS rates were at one of its lowest points this year)

In terms of spreads above MGS, DanaInfra ranked 1st across tenures since 2011 (based on our estimate) excluding SPPK as it was issued directly by the Government

PRICING COMPARATIVE

After DanaInfraJCorp PTPN DanaInfra SME Bank

(%) (%) (%) (%)7 3.68% 3.62% 3.60%10 3.84% 3.85% 3.74% 3.69%12 3.87%15 4.04%

Tenure (Years) BookBuild Before Danainfra


INVESTORS’ PROFILE

Asset Management, RM600 mil, 25%

Development Financial Instituition, RM185 mil, 8%

Financial Instituition, RM735 mil, 30%

Government Agency, RM305 mil, 13%

Insurance, RM575 mil, 24% Final Allocation

Asset Management Development Financial Instituition Financial Instituition Government Agency Insurance

Allocation RM’m 7Y 10Y 12Y 15Y Total % Asset Management Companies 65 245 120 170 600 25.0 Development Financial Institutions 70 40 75 - 185 7.7 Financial Institutions 100 230 110 295 735 30.6 Government Agencies 55 145 50 55 305 12.7 Insurance Companies 10 40 145 380 575 24.0 Total 300 700 500 900 2,400 100.0


Capital Market Masterplan 2 (“CMMP 2”) and Framework Under CMMP 2, the Securities Commission (“SC”) stated the need to broaden

the capability and capacity of the Malaysian bond market

One of the initiatives to achieve this is by offering longer-dated papers to the market

Another initiative is by promoting greater retail participation in the bond and sukuk market. The phases of introduction by SC are as follows:

Phase 1 : Eligible issuers are the Malaysian Government or any company whose issuances are government guaranteed, subject to the issuers’ funding requirement

Phase 2 : Expansion of issuers, with the issuance of relevant regulations and guidelines by January 2013

MOVING FORWARD


Exchange Traded Bonds/Sukuk In line with CMMP 2 and following the success of DanaInfra’s maiden issuance,

DanaInfra has decided to broaden its investors’ base by issuing Exchange Traded Bonds/Sukuk (“ETB”), with the following:

Proposed allocation of one-fifth (1/5) of future issuances to retail investors as ETB, which amounts up to RM5.0 billion in the next five (5) years

Based on the MRT Project’s requirements, Series 2 of DINB’s IMTN Programme is expected in the 4th Quarter of 2012, with issuance size of up to RM 1.5 billion of which up to RM 300 million will be allocated to retail investors

DINB is currently working with SC, Bursa Malaysia, the JLAs and other related parties to roll out the product

The timing of the ETB rollout is subject to addressing relevant issues such as the rules and guidelines, market educational and awareness programmes as well as issuance process and platform

Long-Dated Sukuk

DanaInfra is also planning to issue longer-dated bonds, for which institutions with appetite for such papers, subject to optimum pricing being achieved

FUTURE ISSUANCE BY DANAINFRA


10/3/2012

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