Global sukuk issuance exceeds RAM’s projection, Malaysia still leads

KUALA LUMPUR: RAM Rating Services Bhd said global sukuk issuance as of end-November 2016 totalled US$72bil (RM319.9bil), surpassing its earlier projection of US$55bil to US$65bil (RM244.3bil to RM288.8bil) for the year.

In a statement on Monday, RAM said Malaysia retained its top spot with a 41.7% market share, followed by Indonesia (16.4%), the United Arab Emirates (11.0%), Turkey (7.1%) and Pakistan (6.7%).

The ratings agency noted that the corporate sector posted a 35.5% year-on-year jump in global sukuk issuance to US$30.6bil (RM135.9bil) as of end-September this year versus US$22.6bil (RM100.4bil) in the same period last year.

The top three issuers were originated from Malaysia, the UAE and Qatar, namely the Public Sector Home Financing Board (US$0.96bil), Emaar Sukuk Ltd (US$0.75bil) and the State of Qatar (US$0.72bil), respectively. 

A total of US$5.9bil of global sukuk was issued in September, bringing the year-to-date (YTD) issuance to US$58.9bil for the month.

RAM also highlighted that a total of RM9.6bil of domestic sukuk was issued in September, leading to a YTD issuance value of RM99.5bil.

“True to tradition, local-currency sukuk issues were dominated by the financial services and infrastructure and utilities sectors,” it said.

RAM head of Islamic finance, Ruslena Ramli, said large issuances from the financial and infrastructure sectors had been a boon to the sukuk market, and were likely to remain a key catalyst of future growth.

“As of end-November this year, the issuance value of domestic Islamic debt securities stood at RM125.3bil, exceeding RAM’s full-year projection of RM100bil to RM120bil,” she said.

SOURCE: Bernama/5 Dec 2016

Azimut and Maybank to jointly manage sukuk fund, seek new markets

Nov 15: Italian money manager Azimut Holding SpA will jointly manage its Islamic bonds fund with Maybank Asset Management Group to cater to growing demand for hard currency sukuk products, the two firms said on Tuesday. The partnership will allow the fund to penetrate new markets including Malaysia and Singapore, where Maybank Asset Management already operates, the firms said in a joint statement. 

Azimut, through its wholly-owned Turkish asset management arm, launched its global sukuk fund in 2013 which has over $130 million in assets. Maybank Asset Management launched a U.S. dollar-denominated sukuk fund of its own in 2014. Sukuk funds remain tiny compared to their conventional fixed-income counterparts, but the sukuk market has widened in recent years thanks to an increasing number of issuers and investors. Turkey, Pakistan, Bahrain and Malaysia are among the sovereigns that have issued dollar-denominated sukuk in the past year. (Reporting by Bernardo Vizcaino; Editing by Eric Meijer)

SOURCE: Reuters/15 Nov 2016

Sukuk issuance to drive growth in Islamic finance

Dubai: Much of the growth in Islamic finance is expected to come from capital markets business relating to sukuk (Islamic bond) according to Standard Chartered Saadiq.

“Sukuk is now mainstream component of capital markets in core Islamic finance markets such as Malaysia and the UAE. While Malaysia dominates the local currency issuance, the GCC leads in international sukuk issuance. There is a healthy pipeline of issuance across the world while we expect more issuers to come to the market over the next year,” said Ahsan Ali, Global Head of Islamic Origination.

Growing financing needs of sovereigns, sovereign related entities, corporates and financial institutions are expected to increase demand for capital market issuance across GCC in the future. Although a significant share of capital market issuance in the recent past have been dominated by conventional bond issuance and loan syndications, Ali expects GCC issuers to issue sukuks along with conventional bonds.

“Bulk of the further capital market issuances will be primarily driven by sovereigns and financial institutions. While sovereigns in the oil exporting countries will be seeking market funding for budget needs, the demand from financial institutions will be driven largely by liquidity and liquidity management needs,” said Ali.

Global sukuk issuance has been moderating since 2015 is expected to remain subdued this year and in 2017 according to rating agencies Moody’s and Standard & Poor’s.

The sukuk market experienced a correction in 2015 when Bank Negara Malaysia (the Malaysian central bank) decided to stop issuing short-term sukuk and switch to other instruments for liquidity management for Islamic financial institutions.

Challenging conditions

New sukuk issuance volumes have remained subdued so far for the first half of 2016 at $40 billion (Dh14.7 billion). This has been driven by more challenging economic conditions in emerging markets and the GCC’s move to tap conventional liquidity from international investors, as quantitative easing has been driving yields to zero or even negative rates in various markets.

The volume of issuance in the first half of 2016 was not that encouraging, particularly when compared with conventional issuance. Muslim-majority countries, such as Malaysia, Indonesia and the GCC countries account for around 90 per cent of total sukuk issuance, this is expected to remain unchanged in the near future.

Going forward, a pickup in issuance from Bank Negara Malaysia, coupled with the deficit financing needs of the GCC members and their drive to promote Islamic finance, is expected to boost issuance.

Saudi Arabia, despite strong religious affinity and a very prominent Islamic banking sector, remains relatively underweight in both international and domestic sukuk volumes. Like Malaysia, the country enjoys a deep base of local investors, issuers, intermediaries and service providers.

Source: Gulf News/19 Nov 2016

Malaysia: Overwhelming response to sukuk

KUALA LUMPUR: Malaysia has strengthened its position as a top investment destination with the overwhelming response to the government’s newly-priced global sukuk issuance, which reflects global investors’ continued confidence in the country.

Investors from a combined base of more than 195 accounts subscribed for the government’s 10-year and 30-year benchmark global trust certificates (wakala global sukuk), attracting an aggregate interest of more than US$6.3 billion (RM24.5 billion) and representing an oversubscription of 4.2 times.

Finance Ministry secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said Malaysia remained among the faster-growing economies in the region and continued to successfully pursue fiscal consolidation while maintaining monetary and financial stability.

“This is a remarkable achievement as demonstrated by the tight pricing and excellent response to this landmark sukuk,” he said in a statement yesterday.

The government, via special purpose entity Malaysia Sukuk Global Bhd, has successfully priced the 10-year and 30-year benchmark sukuk papers at 3.18 and 4.08 per cent, respectively.

The new sukuk format uses non-physical assets to underpin an agency-based transaction known as wakala, instead of the traditional use of physical assets (commodity murabaha). 

The sukuk used vouchers representing entitlement to travel units and syariah-compliant shares, the statement said.

This could serve as a model for other sovereigns which have previously faced some difficulty in identifying and transferring tangible assets, such as buildings, for use in sukuk issuance.

The wakala sukuk are expected to be assigned ratings of “A-” by Fitch Ratings and Standard and Poor’s Ratings Services, and “A3” by Moody’s Investors Services.

The issuance is Malaysia’s fifth global sukuk, after previous issuances in 2002, 2010, 2011 and 2015.

It was priced after a roadshow across global financial centres, including Hong Kong, Singapore, Abu Dhabi, Dubai, London and New York, besides Kuala Lumpur.

CIMB, HSBC, J.P. Morgan and Maybank acted as the bookrunners and lead managers for the offering.

SOURCE: New Straits Times Online / 22 April 2016

Malaysia: Overwhelming response to sukuk

KUALA LUMPUR: Malaysia has strengthened its position as a top investment destination with the overwhelming response to the government’s newly-priced global sukuk issuance, which reflects global investors’ continued confidence in the country.

Investors from a combined base of more than 195 accounts subscribed for the government’s 10-year and 30-year benchmark global trust certificates (wakala global sukuk), attracting an aggregate interest of more than US$6.3 billion (RM24.5 billion) and representing an oversubscription of 4.2 times.

Finance Ministry secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said Malaysia remained among the faster-growing economies in the region and continued to successfully pursue fiscal consolidation while maintaining monetary and financial stability.

“This is a remarkable achievement as demonstrated by the tight pricing and excellent response to this landmark sukuk,” he said in a statement yesterday.

The government, via special purpose entity Malaysia Sukuk Global Bhd, has successfully priced the 10-year and 30-year benchmark sukuk papers at 3.18 and 4.08 per cent, respectively.

The new sukuk format uses non-physical assets to underpin an agency-based transaction known as wakala, instead of the traditional use of physical assets (commodity murabaha). 

The sukuk used vouchers representing entitlement to travel units and syariah-compliant shares, the statement said.

This could serve as a model for other sovereigns which have previously faced some difficulty in identifying and transferring tangible assets, such as buildings, for use in sukuk issuance.

The wakala sukuk are expected to be assigned ratings of “A-” by Fitch Ratings and Standard and Poor’s Ratings Services, and “A3” by Moody’s Investors Services.

The issuance is Malaysia’s fifth global sukuk, after previous issuances in 2002, 2010, 2011 and 2015.

It was priced after a roadshow across global financial centres, including Hong Kong, Singapore, Abu Dhabi, Dubai, London and New York, besides Kuala Lumpur.

CIMB, HSBC, J.P. Morgan and Maybank acted as the bookrunners and lead managers for the offering.

SOURCE: News Straits Times Online / 22 April 2016

Malaysia's Value Proposition - Sukuk

Malaysia's in-depth experience and solid fundamentals in Islamic finance developed over 30 years, coupled with its strength in the domestic sukuk market, offers strong exciting value propositions to government agencies, multinational corporations and multilateral development banks/ financial institutions across the world to originate sukuk out of Malaysia. 

Facilitative Environment 

Malaysia provides a facilitative framework for sukuk issuance; both for local and international issuers. In addition to issuing ringgit sukuk, the current issuance framework allows for issuers to issue a non-ringgit sukuk in Malaysia:

• Facilitative approval process for issuance of Ringgit-denominated sukuk:
  • Deemed approval granted to sovereigns, quasi-sovereigns, Multilateral Development Banks (MDBs) and Multilateral Financial Institutions (MFIs) rated "AAA".
  • 14 working days to foreign Multi-National Corporations (MNCs) and foreign corporations.

• Facilitative approval process for issuance of non-ringgit denominated sukuk:
  • Deemed approval granted to sovereigns, quasi-sovereigns, MDBs and MFIs rated "BBB" on foreign rating scale.
  • Governing laws of Malaysia, England or United States may be used for bond documentation.

• For both ringgit and non-ringgit denominated sukuk:
  • Both resident and non-resident issuers are free to utilise proceeds from the issuance onshore and offshore.
  • The issuers are also free to hedge to the full amount of the underlying commitment.

Malaysia's facilitative environment encompasses a sound infrastructure platform, consisting of the Electronic Trading Platform (ETP) and the Real-time Electronic Transfer of Funds and Securities (RENTAS) system. These systems allow for an efficient platform for the trading of bonds, with a high level of post-trade transparency and market liquidity. For global investments, flexibility is also accorded for foreign investors to leverage on international clearing and settlement systems.

Malaysia has an active secondary market, which gives investors the option to either hold sukuk investments until maturity or to take profit. The secondary market enables greater trading activity and attracts more investors including foreign-owned corporations, who are continuously tapping the market for funding. 

This eventually augments the depth and liquidity of the sukuk market. Investors will benefit from the wide array and increasing size of sukuk transactions as they look towards diversifying their asset portfolios. 

In this aspect, Malaysia offers well-developed value propositions, which enables a dynamic scenario that benefits both issuers and investors. 

Strategic Location 

Malaysia, with its strategic location serves as a link between the East and West. The country is well-positioned to facilitate cross flow of funds and greater economic linkages between South East Asia and the Middle East. Foreign players who wish to seize the opportunity of these largely untapped and fast growing markets will find Malaysia an excellent gateway for this purpose. 

As the economies of these regions continue expanding, Malaysia is expected to play a pivotal role as a regional financial hub and gateway, particularly for transnational investments and the sourcing of funds. 

Through its various global economic inter linkages, Malaysia provides financial institutions with access to the financial pipelines of the region to tap surplus funds and the wealth of high net worth investors. 

Liberal Foreign Exchange Administration (FEA) Rules 

Malaysia's liberalised foreign exchange administration rules enhance Malaysia's competitiveness and business efficiency, while promoting financial and economic stability.

The relaxation in rulings was made in tandem with the readiness of the Malaysian economy to support the country's growth and competitiveness, whilst creating a conducive business environment for international financial institutions.

Apart from enhancing Malaysia's competitiveness and business efficiency, the liberal FEA rules enables greater trade in foreign currencies. With regards to sukuk issuances, the relaxed FEA rules enable foreign entities to raise ringgit and foreign currency-denominated funds from Malaysia. The international issuers can issue multi-currency sukuk and have the flexibility to swap domestic currency funding into other currencies.

Tax Neutrality

Tax neutrality has been accorded to Islamic finance instruments and transactions executed to fulfill Shariah requirements. There is no additional stamp duty and tax payment incurred in the usage of Islamic products. 

Malaysia's tax neutrality framework is to promote level playing field between conventional and Islamic financial products. Tax neutrality reduces the cost of doing business in Islamic finance, thereby contributing to the overall competitiveness and spurs the development of Islamic finance.

Diversity of International and Local Financial Institutions

Malaysia's diversity of market intermediaries consists of investment banks, local and foreign Islamic banks, brokers and fund managers who engage in a number of activities ranging from underwriting complex financial transactions to advising on sophisticated transaction structures.

Most of these intermediaries have participated in Malaysia's many notable sukuk issuances. As such, they possess a proven track record and in-depth experience. Capitalising on the inherent strengths of Malaysia's intermediaries enables issuers to benefit from a smoother issuance process while reducing costs. The reputation of these intermediaries adds further credibility to the issuance.

Malaysia's market intermediaries are also internationally recognised for their innovative capability in structuring sukuk. This is attributed to their expert use of various Islamic principles or a combination of principles to produce truly customised sukuk offerings.

Adopt Global Legal and Regulatory Best Practices

Malaysia's legal framework caters for Islamic finance matters. There is a dedicated judge at the High Court level for Islamic finance matters. The Kuala Lumpur Regional Centre for Arbitration has specific capabilities to deal with Islamic contract matters. This legal framework enables the enforceability of Shariah-based contracts for Islamic finance while providing governance and legal redress for Islamic financial institutions. It also provides for strong investor protection.

In particular, the Capital Market Services Act 2007 (CMSA) defines the parameters for permitted capital market activities in Malaysia, while reinforcing the protection framework and promoting international best practices among financial institutions. These and other such regulatory guidelines have been instrumental in providing industry consistency and clarity for the Islamic Capital Market (ICM) in Malaysia. In addition, Malaysia's regulatory guidelines have also set benchmarks for other countries in developing their own Islamic Capital Markets (ICM). 

The legal and regulatory framework is constantly reviewed taking into consideration latest market, products and Shariah issues to ensure continuous development in the ICM.

Well-Developed Shariah Governance Framework

The Securities Commission Malaysia (SC) has established a Shariah Advisory Council (SAC) to advise the SC on issues related to the Islamic Capital Market (ICM) to ensure consistency with Islamic principles. The approach was taken, by recognising the importance of Shariah compliance in the Islamic financial system, which possesses distinctive characteristics when compared to the conventional system.

The SAC is also responsible for analysing specific issues related to the operations of ICM to provide guidance and advise to investors, the government and industry. 

SOURCE: MIFC