KLCC Property refinancing Islamic bonds

KLCC Property Holdings Bhd, co-owner of the 88-story Petronas Twin Towers in Kuala Lumpur, is refinancing its Islamic bonds after market yields dropped to the lowest level in more than two years.

The company will sell RM880 million (US$274 million) of 10-year securities to repay RM799 million of Syariah-compliant debt held by parent Petroliam Nasional Bhd, according to a Sept. 26 stock exchange filing. KLCC will pay a RM35.3 million penalty to redeem the securities, which were due to mature in November this year and next, the statement said. The developer didn’t disclose who will buy the bonds.

Average yields on Malaysia’s highest-rated corporate notes fell to 4.82 percent on Sept. 21, the lowest level since February 2009, according to an index compiled by Bank Negara Malaysia. Builder Encorp Bhd is also seeking to refinance some of its RM1.6 billion of sukuk, Cheong Hong Kit, the company’s finance manager, said in an interview in Kuala Lumpur.

“Borrowers are taking advantage of the low-yield environment and strong demand for paper,” said Edward Iskandar Toh, a bond manager at Areca Capital Sdn Bhd, which oversees RM500 million of assets in Kuala Lumpur. “Credit risk remains a concern in a difficult environment, hence rising demand for high-grade bonds,” especially sukuk, he said.

Yields on longer-maturity Syariah-compliant bonds, which pay returns on assets to comply with Islam’s ban on interest, may drop further as Europe’s debt crisis deters investors from that region’s assets and as the U.S. pumps funds into the world’s biggest economy, Toh said.

By Bloomberg