Sovereign Wealth Fund Institute

The nations of Southeast Asia and the Gulf continue to build economic, social, and investment ties, especially due to the presence of Muslim culture embedded in both regions. Over the past few years trade between Malaysia and Qatar has increased. Malaysia and Qatar have announced a $2 billion joint investment fund that will target opportunities in both countries and bordered states. Each country will contribute around a billion into the joint fund. The prime ministers of both countries signed letters of intent on cooperation agreements in the areas of high education and tourism.

Malaysia is actively trying to increase foreign direct investment and diversify their economy. The nation has transformed itself from a raw material country to a nation with manufacturing, services, and Islamic finance. In fact, the Government of Malaysia has created economic incentive programs to develop targeted regions such as the Kuala Lumpur International Financial District (KLIFD). The KLIFD wants to be the hub for the Islamic finance industry.

Khazanah Nasional, a Malaysian sovereign wealth fund plans to invest directly into India in sectors such as financial services, infrastructure, and energy. India is one of the BRIC economies that had increased its economic growth tremendously this past decade. In addition, India is slowly opening up its economy to foreign investors by loosening some investment restrictions and regulations. Earlier in June, Khazanah and the Infrastructure Development Finance Company Limited (IDFC) agreed to set up a joint venture to produce a dedicated infrastructure development company that focuses on road transportation development. Khazanah would hold 80.1% of the equity share of capital in the proposed joint venture.

Khazanah Nasional is also evaluating proposals in India’s geothermal and hydroelectric business segments. In fact, much like the rest of Southeast Asia, India has strong demand for electricity and current power plants are not meeting demand.

The adoption of Islamic finance as a viable asset class is gaining traction among SE Asian sovereign institutional investors.  Malaysia’s Employees Provident Fund (EPF) is boosting fund allocation in Islamic bonds.  In October 2010, the fund held $650 million in sukuks.  They want to have a total allocation of $1.75 billion towards Islamic finance instruments.  Most of EPF’s Islamic finance allocation is managed by external managers.

In order for the sukuk market to be an effective hedge, the industry must grow.

Khazanah Nasional Berhad is a Malaysian sovereign wealth fund. Khazanah is planning to raise capital by issuing the world’s first yuan-denominated Islamic bonds, a blend of Chinese currency and Islamic financial structure. The raise amount is targeted at 500 million yuan (US$ 78.2 million), which is a small amount; however, we believe Khazanah and other Islamic financiers are testing the waters to Chinese investors. The sale of the Sukuk will likely be in Hong Kong, hence the yuan denomination. Hong Kong has a very successful Dim Sum market and is beginning to take market share away from London and New York in terms of debt raises.[Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view site content.]

According to the press release, “Khazanah Nasional Berhad (“Khazanah”) and Temasek  Holdings (Private) Limited (“Temasek”) are pleased to announce the establishment of M+S Pte Ltd (“M+S”) and Pulau Indah Ventures Sdn Bhd (“Pulau Indah”).  Owned 60:40 by Khazanah and Temasek respectively, M+S will develop land parcels in Marina South and Ophir-Rochor in Singapore. Pulau Indah, a 50:50 joint venture between Khazanah and Temasek, will develop projects in Iskandar Malaysia in Johor.  These joint developments were supported by the Prime Ministers of Malaysia and Singapore in their Joint Statements of 24 May 2010, 22 June 2010, 20 September 2010 and 27 June 2011.

M+S develops two key sites in Singapore

M+S Pte Ltd will develop four land parcels in Marina South and two land parcels in Ophir Rochor, each as an integrated development.  An indirect wholly-owned subsidiary of UEM Land Holdings Berhad (“UEM Land”), a real estate company within Khazanah’s portfolio, and an indirect wholly-owned subsidiary of Mapletree Investments Pte Ltd (“Mapletree”), a Temasek portfolio company, have been appointed to oversee the marketing and development of the project at Marina South.  For the Ophir-Rochor site, UEM Land and an indirect wholly-owned subsidiary of CapitaLand Limited (“CapitaLand”), another Temasek portfolio company, have been appointed to oversee the marketing and development.

Khazanah and Temasek are both committed to the successful commercialisation of these land parcels, which will include office, residential, hotel and retail components.

The gross development value of the project with a permitted gross floor area (“Permitted GFA”) of up to 501,020 sqm is estimated at approximately SGD11 billion (RM27 billion), subject to design and development plans.

Pulau Indah develops two new sites in Iskandar Malaysia

Khazanah and Temasek have worked together since last May to identify suitable sites in Iskandar Malaysia for joint commercial development. Two sites, one in Medini North and the other at the Heritage Cluster in Medini Central, have been confirmed.

Pulau Indah intends to develop serviced apartments, a corporate training centre, and commercial, retail, residential and wellness-related offerings on these sites. Khazanah and Temasek are currently in discussions and negotiations with potential partners and operators for the various components to maximize the commercial potential of the location.

The gross development value of the Iskandar project with a Permitted GFA of up to 1,365,675 sqm is estimated at approximately RM3 billion, subject to design and development plans.

Planning and design works for the projects had commenced in 1Q/2011.  With the signing of these agreements today, the projects will move towards design and further implementation and delivery of the initial phases over the next five years.

Khazanah’s Managing Director, Tan Sri Dato’ Azman Hj Mokhtar, said: “We are honoured to be undertaking these exciting developments at these key sites in Singapore and Iskandar Malaysia with our counterparts from Singapore, Temasek Holdings.  The development in Iskandar with Temasek will be highly complementary and builds on the momentum of existing and planned projects in Iskandar Malaysia, in which Khazanah has been involved since 2006.  Both these projects mark our first joint development investment with Temasek, and we look forward to a strong and fruitful partnership in both Singapore and Iskandar Malaysia.”

Ms Ho Ching, Executive Director & CEO of Temasek, added: ‘Both the Khazanah and Temasek teams put in tremendous effort, working very closely together to develop the best ideas possible for our joint projects. We were also very fortunate to have the expert and highly professional support of leading real estate companies like UEM Land from Malaysia as well as Mapletree and CapitaLand from Singapore. I am also especially grateful for the guidance, advice and support of very experienced industry leaders who will guide the Singapore developments as key Board members of M+S.  I look forward to the successful development of the projects both in Johor as well as Singapore.’”

Source: Khazanah Nasional Press Release

The IDFC press release states, “IDFC and Khazanah have agreed to enter into a joint venture (JV) to set up a dedicated infrastructure development company with a focus on road sector in India. Khazanah would hold 80.1 % of the equity share capital in the proposed JV and the balance would be held by IDFC. Khazanah and IDFC also propose to invest in convertible instruments issued by the JV.

The first investment of this JV will be in Jetpur Somnath Tollways Limited (JSTL), subject to receipt of necessary regulatory approvals and permissions, including those from the National Highway Authority of India. JSTL undertakes development of a project involving four-laning the Jetpur-Somnath section of the National Highway-8D in the State of Gujarat. 74% of the share capital of JSTL is currently held by IDFC Projects Limited (IDFCPL). The JV will initially acquire 48% of the share capital of JSTL from IDFCPL and will ultimately acquire the entire shareholding of IDFCPL in JSTL and hold 74% of the share capital of JSTL.”

Source: Infrastructure Development Finance Co Press Release

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According to the press release, “Khazanah investment portfolio rises by RM21 billion in 2010 to record a new high,

• Record Financial Performance:
  • Portfolio Realisable Asset Value (“RAV”) and Net Worth Adjusted (“NWA”) jumped by RM21 billion to RM112.6 billion (+23.5%) and RM75.0 billion (+39.4%) respectively
  • NWA has risen by RM41.7 billion or 125% since May 2004, a CAGR of 13% per annum
  • Portfolio performance has outperformed KLCI and most regional benchmarks in 2010
• Eventful year of major transactions and significant progress in executing strategic mandate
• Focus for 2011 firmly on Execution and Institutionalisation“

Read more: Khazanah Press Release

According to the Wall Street Journal, “Malaysian sovereign-wealth fund Khazanah Nasional Bhd. has raised around MYR1.18 billion (US$380 million) from the placement of 147 million shares in CIMB Group Holdings Bhd. (1023.KU), lowering its stake in the Southeast Asian banking group to 29.0% from 31.01%, a person familiar with the deal said Tuesday. The shares, representing around 2% of CIMB’s issued and paid-up share capital, were placed at MYR7.99 each to investors mainly in Asia and Europe, the person said.

CIMB’s shares closed Tuesday at MYR8.10. The placement was completed Monday night, the person said, at a 2% discount to their Monday closing level of MYR8.15.

UBS AG (UBS) was the sole bookrunner on the deal.”

Source: Wall Street Journal

According to the press release, “Khazanah Nasional Berhad (“Khazanah”) is pleased to announce that it has today issued a 5-year and a 10-year sukuk (“Khazanah SGD Sukuk”) for SGD1.5 billion (RM3.6 billion).

The Khazanah SGD Sukuk recorded several milestones, being the largest and longest termed sukuk issuance in Singapore, the largest SGD issuance by a foreign issuer in Singapore and the first SGD sukuk issuance out of the Malaysia International Islamic Financial Centre (“MIFC”) initiative. The sukuk, at USD1.1 billion equivalent, is also Khazanah’s single largest sukuk issuance to-date.
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According to The Star, “The Brunei Investment Agency, which is the financial and investment arm of the oil-rich sultanate, will take up a big stake in the construction of a five-star hotel in Kuala Lumpur’s Golden Triangle. The agency was also eyeing Johor, Sabah and Sarawak for investment opportunities following talks between Prime Minister Datuk Seri Najib Tun Razak and Sultan Hassanal Bolkiah. Najib said yesterday Brunei’s decision to continue to invest heavily in Malaysia was important as it reflected the confidence that the sultanate had in Malaysia.”

read more: The Star