A Malaysian state investment agency plans to sell this year what could be the world's first convertible Islamic bond, enhancing its bid to become a hub for Islamic finance, sources said on Wednesday.
Khazanah Nasional Bhd., which owns stakes in some of Malaysia's largest firms and wants to trim some of these holdings, plans to sell the bonds by year-end and raise at least $500 million and possibly as much as $1 billion, sources said.
Rumours of an upcoming Khazanah Islamic convertible - which bankers believe would be the first of its kind - have circulated previously in Malaysian markets. But the expectation has been that the issue would total only $500 million.
Under the issue's structure, which is still being worked out, investors would be able to exchange the bonds into shares of some of Malaysia's top firms.
One person familiar with the plan said companies being considered included toll road operator Plus Expressways, state carrier Malaysian Airline System, mobile phone operator Maxis Communications, state power utility Tenaga Nasional or Telekom Malaysia.
Another source said the choice of companies had not been determined.
Khazanah senior executives were in New York, where the agency was taking part in a Malaysia investment roadshow for global investors, and were not immediately available for comment.
Islamic law forbids the use and payment of interest, which it considers to be usury. So Islamic bonds are usually structured by a profit-sharing plan or arranged so that the bond-holder's income is akin to a rental payment on property.
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