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Telekom Malaysia Berhad (TM) has successfully closed its Exchange Offer of RM3,000 million Islamic Stapled Income Securities for the existing RM3,000 million Tekad Mercu Bonds.

The Exchange Offer was launched on 20 June 2007 and closed on 28 June 2007. Holders of RM2,925 million, or 97.5%, of the existing Tekad Mercu Bonds accepted the Exchange Offer.

As a result of the Exchange Offer, TM has converted RM2,925 million of its existing debts to Syariah-compliant financing. The balance of RM75 million Tekad Mercu bonds has been purchased by TM and will be cancelled.

The RM2,925 million Islamic Stapled Income Securities issued in conjunction with the Exchange Offer is the first Syariah-compliant Stapled Income Securities ever structured and issued globally. It is also the first exchange offer of one form of highly structured securities for another in Malaysia.

Dato’ Abdul Wahid Omar, Group CEO of TM said : “The existing Tekad Mercu bonds were issued in 2003 to finance TM’s acquisition of Celcom. With the signing today, RM2.925 billion worth of the existing Tekad Mercu bonds will be converted to Islamic Stapled Income Securities. With the conversion of the Tekad Mercu bonds, more than RM4 billion of our borrowings are now based on Islamic principles. This amount represents about 95% of our domestic borrowings or about one-third of our total Group borrowings. Not only this adds diversification in our financing structure, but we also feel that this significant step will enable our TM’s shares to qualify as a globally Shariah-compliant stock based on the Dow Jones Islamic Index Shariah requirements.”

Citi Malaysia is the Principal Adviser and Sole Lead Arranger for the issue of the RM2,925 million Islamic Stapled Income Securities and Exchange Offer.

Sanjeev Nanavati, Head of Markets & Banking, Citi Malaysia said, “At Citi, we place a high level of priority on innovation and tailored solutions for clients. This transaction emphasizes that priority and capability. The Exchange Offer is a landmark transaction, especially in Islamic finance. We also achieved commendable time to market. For such a highly structured transaction, we completed structuring and execution including obtaining all tax, accounting, Syariah and regulatory approvals in 3 months.”

The RM2,925 million Islamic Stapled Income Securities consists of:

(a) (i) RM2,000,000 Class C Non-Convertible Redeemable Preference Shares (NCRPS) consisting of up to 2,000 Class C NCRPS of RM1,000.00 each; which are linked to
(ii) Sukuk Ijarah Class A of nominal value up to RM1,998,000,000.00; and

(b) (i) RM925,000 Class D NCRPS consisting of up to 925 Class D NCRPS of RM1,000.00 each; which are linked to
(ii) Sukuk Ijarah Class B of nominal value up to RM924,075,000.00

The exchange offer is on a like-for-like basis and the terms of the Sukuk are similar to the terms of the existing Tekad Mercu Bonds.