Sukuk 1 Malaysia (S1M) with 5% per annum profits

Great news to all Malaysians! The Ministry of Finance will be issuing Sukuk 1 Malaysia (S1M) 2010) under Financial Funding Act 1983 with a total amount of 3 billion on 21 June 2010. Bank Negara Malaysia (BNM) had been appointed to issue the S1M on behalf of the Ministry of Finance.

Let’s have a look to the key features of this plan as issued by Ministry of Finance on 10 May 2010.

This S1M is sort of like fixed deposit but this is a Government savings bond with guaranteed 5% per annum fixed profits for maturity period of 3 years. The current FD rates among local banks for 12 months (1 year) is about 2.8% whereas for 36 months (3 years) is about 3%. Thus, the 5% return is definitely attractive to the investors.

The profit payment is paid on a quarterly basis by the Government to the respective agent banks and then to the S1M 2010 holders' deposit account within one working day after the profit payment date. For example, if the profit payment date is on 21 December 2010, the agent bank will credit the quarterly profit payment on 22 December 2010. The schedule of payment is as below:

Another characteristic of this S1M 2010 is the resealeable feature which is not found in FD. The minimum sell or purchase per investor is RM 100 (in multiple of RM 100) and there is no maximum investment as long as there is availability of the allocation. The pricing follows daily prices based on principal at par plus accrued profit and additional administrative cost of 0.1% of the amount purchased to the agent banks. Do you understand this term? I think only those who study economics or works in banks will understand that. Let's see the below example

Example 1.
If I sell RM10,000 of S1M 2010 on 2 October 2010 which is 11 days after the first quarter profit payment date, the amount received will be as follow:

• Profit payment = RM 10000 x 5%/4 x 11/91 = RM 15.10
• Amount received = RM 10000 + RM 15.10 = RM 10015.10

Example 2.
If I buy RM10,000 of S1M 2010 on 2 October 2010 which is 11 days after the first quarter profit payment date, the buying prices will be as follow:

• Profit payment = RM 10000 + 5%/4 x 11/91 = RM 15.10
• Buying price = RM 10000 + RM 15.10 = RM 10015.10
• Additional 0.1% additional costs: 0.1% x RM 10000 = RM 10
• Total amount to be paid = RM 10015.10 + RM 10 = RM 10025.10 

This feature allows the S1M holders to sell their sukuk at anytime with no surrender charge when you wish to terminate the plan. Apart from that, the profits gained are exempted from tax. 

Sounds attractive? So, where can you purchase Sukuk 1 Malaysia? The lists of banks are as follow:

1. Affin Bank Berhad
2. Alliance Bank Malaysia Berhad
3. AmBank (M) Berhad
4. Bangkok Bank Berhad
5. CIMB Bank Berhad
6. Citibank Berhad
7. EON Bank Berhad
8. Hong Leong Bank Berhad
9. HSBC Bank Malaysia Berhad
10. Malayan Banking Berhad
11. OCBC Bank (Malaysia) Berhad
12. Public Bank Berhad
13. RHB Bank Berhad
14. Standard Chartered Bank Malaysia Berhad
15. The Bank of Nova Scotia Berhad
16. United Overseas Bank (Malaysia) Bhd
17. Alliance Islamic Bank Berhad
18. Affin Islamic Bank Berhad
19. AmIslamic Bank Berhad
20. Bank Islam Malaysia Berhad
21. Bank Muamalat Malaysia Berhad
22. EON Capital Islamic Bank Berhad
23. Kuwait Finance House (Malaysia) Berhad
24. Hong Leong Islamic Bank Berhad
25. Maybank Islamic Berhad
26. OCBC Al-Amin Bank Berhad
27. Public Islamic Bank Berhad
28. Standard Chartered Saadiq Berhad
29. Bank Kerjasama Rakyat Malaysia Berhad
30. Bank Simpanan Nasional
31. Agrobank

The minimum purchase is RM 1000 (in multiple of RM 100) and the maximum purchase is RM 50,000. The subscription period is from 20 May 2010 to 9 June 2010.  All you need to do is to bring your IC and go to any of the listed banks above. You may pay either by cash or debit through your existing deposit account at the agent bank. No charges will be imposed.

After your application has been processed, you will be given a customer application slip as below:

However, this slip doesn't guarantee that you had successfully purchased the S1M. Sounds confusing? During this subscription period, you may attempt to purchase up to RM 50,000. The issuance date for S1M 2010 will be on 21 June 2010. Bank Negara will send a confirmation letter on how much you had successfully subscribed or you may check at your agent bank on 21 June 2010. 

During registration, the bank may either deduct the total amount subscribed from your existing savings account (Method A), earmark your account (Method B) or received payment by cash (Method C). If let say you subscribed RM 10,000 but the allowed subscription is only RM 5000, the bank will on 21 June 2010  credited back extra RM 5000 to your savings account (Method A), deduct RM 5000 from your savings account (Method B) or credit back extra RM 5000 to your registered savings account (Method C). Thus, it is advisable to update your savings book on 21 June 2010 onwards.

The logical reason behind these different subscription period and issuance date is to ensure all Malaysian have the chance to enjoy this profits benefit. I used this example to explain to my mother. (I hope my understanding is correct)

1. The Government allocates only 100 units and each unit cost RM 1.
2. There are 100 subscribers and some of them purchase RM 20, RM 50 or even RM 100. 
3. The Government will try to allocate the fund to ensure all the 100 subscribers will able to purchase the fund. Thus, the only allowed subscription per investors for this example is RM 1 per investors.

How about the responses? The previous Sukuk Simpanan Rakyat 2009 (exactly same features) with 5 billions fund (with 2.5 billion in 2 different sales period) had received overwhelming response. The second sales period was sold out in 9 days.

As contrast to Sukuk 1 Malaysia, it is very surprise to learn that the subscription so far received a poor response. According to the Star dated 21 May 2010, response has been lukewarm to S1M 2010 according to a local banks poll. A few banks claimed that they only received 10 depositors while there is one bank which claimed they received none. On average, the depositors are aged between 40-50 years old. I myself had asked the staff at Hong Leong Bank and was told that the response was not that good as compared to the previous sukuk.

As for me, it was no surprise as there is little promotion or the public may generally lack knowledge on this government savings bond. I did not know about it until a friend working in a bank told me on this. As compared to ASM, the profits are of course lower (2008-7.8%, 2009-6.4%) but one should noted that the allocation for ASM is limited (the previous new allocation was limited to RM 20,000 purchase). During subscription period, one need to queue up as early as 6.30 am to purchase ASM but you can simply walk in at anytime to buy sukuk during the subscription period. In addition, there are wide choices for agent banks for S1M compared to limited few banks & post office for ASM. Thus, I personally felt that this is a must investment in additional to your ASM. As compared to Amanah Saham 1 Malaysia, the yet to be declared dividend was predicted to be approximately 4% but of course as an investor, we hope the figure will goes beyond that. Let's cross finger and hope the AS1M dividend will be as high up to 6%.

So, wait no more. If you have additional money and intended to place it in fixed deposit, I would suggest you to purchase this Sukuk 1 Malaysia. Hurry to any of the agent banks and subscribe before or on 9 June 2010.  The earlier, the better.

Happy investing!~