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Thursday January 13, 2011

Pembinaan BLT plans RM10b sukuk

Fund raised to build police quarters and facilities

PETALING JAYA: Pembinaan BLT Sdn Bhd, an entity under the Ministry of Finance Inc, is raising RM10bil worth of sukuk in order to fund the construction of police quarters and facilities under the “build, lease and transfer” (BLT) model.

The BLT model, a form of private finance initiative under the broad umbrella of public-private partnerships, has been used before to fund infrastructure projects in Malaysia.

A source said the fund was being raised via a non-financial public enterprise such as Pembinaan BLT so that the debt would not be reflected in the national balance sheet.

“Because it's not on the balance sheet, this will not be weighed should rating agencies review their sovereign ratings for the country,” the source pointed out.

According to sources with knowledge of the fund-raising exercise, the BLT model is used because all the projects are off-budget.

“There are no allocations for these projects under the budget, but they're getting built because of the findings of the Report of the Royal Commission to enhance the operation and management of the Royal Malaysian Police,” a source told StarBiz.

The royal commission, which was formed in 2005, identified unsatisfactory housing and work premises as major challenges facing the police force. Subsequent to that, Pembinaan BLT was formed to undertake development of police quarters and facilities throughout the country. Currently the company has 74 development projects nationwide which would be completed by 2014.

“The Government does not have to come up with any money for this until after the projects are completed, then payments will be made for the lease,” the source said.

Pembinaan BLT managing director and chief executive officer Mohammed Redza Mohd Yusof would hold a media briefing on the sukuk issuance tomorrow.

Meanwhile, OCBC Al-Amin Bank Bhd international finance and capital market head Alhami Mohd Abdan said in an email reply that the prudent track record of public-sector financial management continued to lend a high degree of credibility to the Government as an issuer for both the domestic and international markets.

Prime Minister Datuk Seri Najib Tun Razak had pledge to reduce spending after the budget deficit rose to a 22-year high, with a target to reduce the budget gap to 5.4% this year compared to 5.6% last year.

Alhami said “the prevailing and continued ample liquidity in the country provides a conducive environment for sukuk issuances for both public and private sector issuers”.

He added that there was still sufficient “leg room” for the domestic market to absorb a few more mega-sized issues from both public- and private-sector issuers.

Alhami said that due to the pull-back in issuance in the last couple of years stemming from the 2008/2009 financial crisis, there was also pent-up demand for more quality papers while the progressive building-up of confidence levels had whetted the appetite of investors for better yields.

According to RAM Holdings Bhd, as at Sept 30, 2010, the Government had issued RM103.38bil worth of sukuk with RM24.5bil issued last year while total sukuk issued by public- and private-sector entities stood at RM277.6bil.

Bank Negara said on the its website that there would be 29 government bond auctions this year, which would include both conventional and Islamic papers with maturity dates from three to 20 years.

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