MALAYSIA - Malaysia's Employees Provident Fund, the country's biggest pension fund, plans to increase its $1bn global sukuk programme by about 50% this year to meet government-set targets.
The Kuala Lumpur-based company, which manages more than 400bn ringgit ($131bn) of assets, will also start a $500m programme to invest in Asian bonds, Wan Kamaruzaman Wan Ahmad, general manager of treasury at EPF, said in an interview in the capital yesterday.
The Asian debt programme will aim to reap higher returns by investing in countries like Indonesia, which has a credit rating lower than investment grade, said Wan.
"The Asian fund will allow us to diversify," he said. "We can invest in more countries and ultimately the main criteria is the protection of the principal investment."
EPF, which currently doesn't invest in junk-rated bonds, plans to double its allocation for overseas investment to 20% of holdings in three to five years, from 10%, to comply with a target set by Prime Minister Najib Razak in October, Wan said.
"We plan to increase the global sukuk fund by half a billion dollars this year and even by $1bn if the market is conducive," Wan said.
EPF started the global sukuk fund in 2010, with holdings that include dollar-denominated debt issued by the Malaysian government and Ras Al Khaimah, one of the seven sheikhdoms that make up the United Arab Emirates, said Wan. The pension fund started buying stocks in overseas markets in 2006, accounting for about 9% of total overseas investment, he said.
About 68% of EPF's money is placed in fixed-income securities and properties, and the rest is in shares, said Wan.
Indonesia's dollar-denominated sukuk, which pay asset returns to comply with the religion's ban on interest, offer higher returns than Malaysia's equivalent.
The yield on the 8.8% Islamic note maturing in April 2014 climbed 13 basis points since the end of December to 3.26%, according to prices from Royal Bank of Scotland Group. The debt returned 9% last year. Malaysia's 3.928% sukuk yielded 2.8% and gained 6.5% in 2010, RBS prices show.
Indonesia is rated BB by Standard & Poor's, two levels below investment grade, or junk. Malaysia is ranked A-, the seventh-highest investment grade by S&P.
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