Malaysian firm Hong Leong Bank Berhad (HLBB) completed a ground-breaking social sustainable securitisation worth a total of RM300 million ($71 million) for national mortgage broker Cagamas Berhad in August 2021.
The award-winning transaction marked the first concurrent double issuance in Malaysia of an Association of Southeast Asian Nations (ASEAN) sustainable and responsible investing sukuk (RM100 million), with an ASEAN sustainability bond (RM 200 million).
The issuance was backed by affordable home financing assets of HLBB and its subsidiary Hong Leong Islamic Bank Berhad (HLISB).
The bond opened up intrinsic value from an otherwise "regular and usually illiquid pool of home financing assets", HLBB says.
"The asset-backed securitisation transaction transformed a carefully selected pool of affordable home financing assets into socially sustainable capital market commodities. In doing so, the transaction helped increase the supply of socially sustainable bonds in the Malaysian bond market.
"Besides giving domestic bond investors high-quality bond and sukuk offerings, it also attracts investors with ESG mandates to deploy capital towards socially responsible investing in the country."
The proceeds from the transaction were to be used for "socially responsible financing".
Cagamas Berhad's issues achieved the highest credit rating of "AAA" from agencies RAM Rating Services Berhad and Malaysian Rating Corporation Berhad. The Malaysian bond market is dominated by renewable issuers with lower ratings, according to HLBB.
The improved rating of the HLB bond allowed investors to diversify their ESG portfolio with bonds with a focus other than renewables, HLB says.
Domenic Fuda, CEO at HLB, says: "We are proud to be involved in this securitisation transaction as it demonstrates how we can integrate ESG into everyday banking and play a crucial role in creating and sustaining a vibrant eco-system of communities and the environment."
The war in Ukraine will accelerate the shift towards renewable energy over the medium to longer term, Fuda predicts, although it has not yet had much impact on HLB operationally.
"We are prepared to help meet the growing demand for green investment opportunities and to support the transition to a low carbon economy," he added.
