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Malaysia to fund KL railway through Sukuk

By Nicky Burridge

The Malaysian government plans to raise up to RM30bn ($9.8bn) through Sukuk to fund the construction of a mass transport system in the country’s capital.

The Sukuk will be issued through Dana Infra, a finance ministry company that was set up by the government to fund infrastructure projects, according to a report by Bloomberg. The Sukuk will be ringgit-denominated and will have maturity of 65 years. The proceeds will be used to fund a 100 miles long light railway in Kuala Lumpur to ease traffic congestion in the city by carrying up to two million passengers a day. The first line is due to be completed in 2016.

Dana is expected to issue on behalf of the state-owned Mass Rapid Transit Corp (MRT) in three to four months’ time. MRT plans to fund the early construction work by taking out a bridging loan of RM500m ($164m) from a consortium of banks. The Sukuk is expected to have an AAA rating, due to its sovereign backing.

Azhar Abdul Hamid, CEO of MRT, said: “Getting funding isn’t a problem as we have government support.
“Dana Infra will sell between RM20bn to RM30bn of Sukuk in three to four months.”

Demand for the Sukuk is expected to be strong, as it is rare for Islamic bonds issued in Malaysia to have such long maturity dates. The majority of Sukuk issued in the country mature within 10 years.

Malaysia has pioneered the use of Sukuk for infrastructure projects. Earlier this year, newly privatized Plus Expressways, Malaysia’s biggest toll road company, announced plans to issue a record RM30.6bn ($10.1bn) Sukuk, to finance the purchase of five toll roads.