World’s first Islamic subordinated bank debt
26 April 2007
Tom Young
Malayan Banking (Maybank) has issued the world’s first Islamic US-dollar subordinated bank capital sukuk.

The $300 million offering is further proof that subordinated bank debt can be sold to Islamic investors, despite questions over the product’s adherence to Islamic finance principles.

Selling debt as an asset jars with shariah law’s need for specific and identifiable assets in issuances.

This has meant Islamic debt issuances have always been difficult. The subordinated nature of this issuance, with creditors being compensated for their risk with higher return, added another layer of complexity.

But the success of the sukuk, which was eight times oversubscribed, and last year’s Khazanah Islamic exchangeable bond, offer further evidence that Islamic finance has a place for Western-style debt sales.

Linklaters acted for the lead arrangers (UBS, Asia Bank and HSBC), Allen & Overy advised Maybank on UK law aspects, and Zul Rafique & Partners advised Maybank on local aspects for the $300 million issuance.

The transaction also achieved a number of pricing benchmarks, including the tightest pricing ever achieved on a US-dollar issue from Malaysia.


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