Sukuk and Bond
Two interesting yet somehow related news:
1. Innovative sukuk offering
- The global offering - the first to be structured on wakala principles - has set many milestones
2. Greek bailout Mark II - it's a default
It's about the whole "Euro-PIIGS" crisis (that's Portugal, Ireland, Italy, Greece and Spain, for those you who were on vacation for the past 18-months or so), and note the difference in "interest rate" for the "borrowings" below:
On one hand,
The sukuk, which was assigned a credit rating of A- by Standard & Poor’s and A3 by Moody’s, was offered in two tranches with the five-year US$1.2bil (RM3.6bil) paper priced at 2.991%, and the 10-year US$0.8bil (RM2.5bil) at 4.646%. |
On the other hand,
The situation in Italy is serious. At US$262bil, total sovereign claims by international banks on Italy exceeded their combined sovereign exposures to Greece, Ireland, Portugal and Spain, which totalled US$226bil...the yield on Italy's 10-year government bonds had risen to 5.6% on July 20, and Spain's, to 6%, against 2.76% on German comparable bunds, the widest spread ever in the euro era. |
Excerpts from the two columnists' article:
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During the roadshow, the teams highlighted Malaysia’s strong ma-cro-economic fundamentals, the strength, depth and stability of the financial and capital markets as well as the comprehensive structural, government and economic transformation programmes to attain a developed and high-income nation by 2020.
The size of the order book grew rapidly to reach over US$9bil (RM27bil) within eight hours of its launch, reflecting an oversubscription rate of 4.5 times.
The final allocation was well-spread out globally to 320 investors, with Middle East investors taking up 29%, Malaysian investors 27%, other Asian investors 22%, European investors 14% and US investors 8%.
Malaysia has again demonstrated leadership in Islamic finance by offering longer tenure sukuk under wakala principles.
By TAN SRI DR WAN AZIZ WAN ABDULLAH
Source: http://thestar.com.my/columnists/story.asp?col=atyourservice&file=/2011/7/30/columnists/atyourservice/9169982&sec=At%20Your%20Service
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Greek bailout Mark II – it’s a default
For the first time, investors became aware of the chains of contagion and are only now beginning to really think about them.
This europeanisation of the Greek debt lends some credibility to the programme. Other new features include:
(i) reduction in interest rates to about 3.5% (4.5% to 5.8% now) and extension of maturities to 15 years (from 7 years), to be also offered to Ireland and Portugal;
(ii) the European Financial Stability Facility (EFSF), its rescue vehicle, will be allowed to buy bonds in the secondary market, extend precautionary credit lines before States are shut-out of credit markets, and lend to help recapitalise banks; and
(iii) buy collateral for use in the bond exchange, where investors are given four options to accept new bonds carrying differing risk profiles, worth less than their original holdings.
They are all expected to state Greece is in default when it begins to exchange its bonds in August for new, long-dated debt (up to 30 years) at a loss to investors (estimated at 21% of their bond holdings).
This is not a comprehensive solution. It shifted additional risks towards contributing members with stronger finances and their taxpayers as well as private investors, and reduces incentives for governments to keep their fiscal affairs under strict check.
History suggests growth and austerity just do not mix. In practical terms, it is harder for politicians to stimulate growth than cut debt.
The surest way to build confidence is to get recovery onto a sustainable path only growth can do that. Without it, the risk of a double-dip recession increases.
By TAN SRI LIN SEE-YAN
Source: http://biz.thestar.com.my/news/story.asp?file=/2011/7/30/business/9202091&sec=business
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In summary, Latest warnings from the financial markets in Europe and Wall Street send the same message: get your acts together and grow. This needs statesmanship. The status quo is just not good enough anymore.
Check out also on the Dollar crash for some reading pleasure. Remember, the crash of the USD doesn't necessarily mean the end of the American empire.
