European sukuk sellers tapping Malaysia as crisis curbs lending

Malaysian tax breaks on sukuk are luring companies from Germany, France and Turkey to tap the world’s biggest Islamic bond market as Europe’s debt crisis curbs lending.

CIMB Group Holdings and AmInvestment Bank, among the top three sukuk arrangers in Malaysia this year, said they are seeing increased interest after the government extended tax exemptions for foreign issuers to 2014 in the September budget.

Ireland’s state-owned power producer is the only European entity that’s so far revealed plans to sell ringgit-denominated securities complying with religious tenets.

Global sales of Islamic notes climbed 84% in 2012 to an all-time high of $39.1bn, while syndicated loans in Europe, the Middle East and Africa fell 40% to $545.5bn, according to data compiled by Bloomberg.
Shariah banking assets in Malaysia rose 20.6% to a record 469.5bn ringgit ($154bn) as of July from a year earlier, the Finance Ministry said on September 28.

“We are getting enquiries from these countries because the European crisis is making it difficult to source financing in their home nations,” Mohd Effendi Abdullah, the Kuala Lumpur-based head of Islamic markets at AmInvestment Bank, the nation’s third-biggest Shariah-compliant debt underwriter, said.
“Many issuers are beginning to see Malaysia as a good source to tap Islamic funds.”

European roadshows held by the Malaysian International Islamic Financial Center, a government body set up in 2006 to promote the country as a Shariah-compliant hub, are starting to bear fruit, Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank in Kuala Lumpur, said.

Badlisyah and Effendi declined to name the companies considering selling notes in the Southeast Asian nation.
The Electricity Supply Board of Ireland is seeking approval from regulators for a sukuk, Dublin-based Dermot O’Reilly, business development executive at IDA Ireland, the international development agency, said in an e-mail on September 19.

Sales of Shariah-compliant debt by overseas companies increased 93% to 2.7bn ringgit this year, led by issuers from the Arabian Gulf, Singapore, and Kazakhstan.

Abu Dhabi National Energy Co and Singapore-listed First Resources sold 650mn ringgit and 600mn ringgit, respectively, this year. Gulf International Bank BSC and Saudi-Arabia-based Al Bayan Holding Co announced Islamic bond programs totaling 4.5bn ringgit.

“The trend of foreign investors selling ringgit sukuk is more visible as there’s greater awareness of what is available in Malaysia,” said Badlisyah, whose firm is a unit of CIMB Group, the second-biggest underwriter. “The debt crisis in Europe is also a factor that’s making companies look for alternative financing.”
Average yields on global Islamic bonds dropped four basis points, or 0.04 percentage point, to an all-time low of 2.87% in the first four days of the week, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
The difference between the average and the London interbank offered rate, or Libor, narrowed 14 basis points to 181 basis points, the least since January 2008.

Islamic bonds sold to international investors returned 8.4% in 2012, according to the HSBC/Nasdaq index, while debt in developing markets climbed 16.6%, JP Morgan Chase’s EMBI Global Composite Index shows.
The Southeast Asian nation pioneered the development of the global Shariah bond market with the sale of the first sovereign Islamic debt worth $600mn in 2002, according to the Malaysian International Islamic Financial Center.

Foreign issuers are interested in selling sukuk in Malaysia because it’s a cost effective destination with a diversified pool of investors, central bank Governor Zeti Akhtar Aziz told reporters in Kuala Lumpur last month.
Borrowing costs for top-rated companies in Malaysia dropped 35 basis points to 4.31% this year, the lowest level since 2003, according to a central bank index. Corporate sales of sukuk rose 34% to 52.3bn ringgit in 2012, data compiled by Bloomberg show.

Issuance reached an all-time high of 75.6bn ringgit last year following the single-biggest offering from highways operator PLUS Bhd. in December of 30.7bn ringgit.

(Gulf Times , 20 Oct 2012)


---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com