KUALA LUMPUR: Malaysia's Axiata Group Bhd joins a growing number of companies using mobile-phone airtime to back Islamic transactions as Asian subscribers are forecast to dominate the global market in three years.
The nation's biggest telecommunications operator, with businesses in India, Indonesia and Sri Lanka, set up its first multi-currency sukuk programme worth US$1.5bil backed by telephone minutes, according to a July 19 stock exchange filing.
Emirates Telecommunications Corp, the sheikdom's largest phone company, established a US$1bil syariah-compliant debt plan supported by similar assets in November 2010.
Cellphone owners in Asia will account for about 65% of seven billion worldwide by 2015, according to a February report from Tokyo-based research company ROA Holdings Inc.
More Islamic bond issuers are using airtime as an asset class due to the limited pool of commodities such as land and property, Mohamad Akram Laldin, who sits on the Malaysian central bank's syariah advisory council, said in a July 30 interview.
“Airtime isn't physically tangible but its value, amount and quantity can be calculated and fixed, therefore it can be used as a syariah-compliant asset,” Abas A Jalil, chief executive officer of Amanah Capital Group Ltd, a consultancy company in Kuala Lumpur, said in a July 30 interview. “This is what we call innovation in Islamic finance, whereby more commercially viable products will be introduced in the future.”
Phone minutes are also used to underpin Islamic loans in Malaysia.IDOTTV Sdn Bhd, which helps arrange funding backed by airtime, expects sales of airtime vouchers to expand to RM150mil (US$48mil) per day by the end of the year from RM45mil now, based on talks with banks,chief operating officer El Hadj Azahari Pawan Teh said in an interview in Kuala Lumpur on Wednesday.
Syariah-compliant loans to individuals grew 27% to RM28.2bil in 2011 and reached RM29.2bil
this year as of June, according to central bank data.
IDOTTV uses mobile-phone minutes to back the loans in the same way crude palm oil facilitates trades based on the Islamic principle of Tawarruq, IDOTTV's Azahari said.
In Tawarruq personal financing, a client buys an item on credit from a bank on a deferred-payment basis and then sells it for cash to a third party. “Demand for airtime is expected to rise further as Islamic banks look to expand their deposits and credit card business using Tawarruq,” he said.
Record sukuk sales
Axiata, based in Kuala Lumpur, plans to issue Islamic bonds denominated in euros, U.S. dollars and the Singapore currency, giving the group wider access to a pool of investors including those in Asia, the Middle East and Europe, the company said in its stock exchange filing.
The sukuk program is rated BBB- by Standard & Poor's, the lowest investment grade, it said.
Sales of sukuk, which pay returns on assets to comply withIslam's ban on interest, are off to a record this year as average yields at an all-time low encourage companies to tap the market. Issuance climbed 65% to US$28.6bil, compared with the same period of 2011, according to data compiled by Bloomberg.
Average yields on sukuk fell 11 basis points, or 0.11 percentage point, this week to a record low of 3.17% and have declined 82 basis points this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
The difference between the average and the London interbank offered rate, or Libor, narrowed 17 basis points to 219 basis points and is down from 273 basis points at the end of last year. Malaysia's OSK-UOB Islamic Fund Management Bhd isn't interested in purchasing Axiata's Islamic bonds because the company considers securities backed by phone minutes as being less safe than debt underpinned by land and property, which can be sold off in the event of a default.
“Sukuk using airtime vouchers involves a lot more risks than asset-backed debt,” Chan Cheh Shin, who manages RM850mil as the head of Syariah-compliant bonds at Kuala Lumpur-based OSK-UOB, said in an interview on Wednesday. “I'm not keen on such sukuk.”
Islamic notes returned 6.3 % in 2012, according to the HSBC index, while debt in developing markets climbed 12.1%, JPMorgan Chase & Co's EMBI Global Composite Index shows.
The Bloomberg Malaysian Sukuk Ex-MYR Index, which tracks non-ringgit denominated sukuk listed in Malaysia rose 0.06 % to 109.08 this week. It gained 4.5% this year.
India, China, Indonesia, the Philippines and Vietnam will lead growth in mobile-phone users, according to ROA's report entitled Asian Mobile Market Forecast 2012-2015.
The number of subscribers in Malaysia will increase 8.8 % this year from about 40 million in 2011, the Kuala Lumpur office of US-based research company Frost & Sullivan predicted in a July 31 e-mailed statement. Other mobile-network operators may also consider phone airtime as an underlying asset for future Islamic bond offerings, especially if a property that could be used to back sukuk is already tied to a mortgage, according to Kuala Lumpur-based law firm Lee Hishammuddin Allen & Gledhill.
“It may especially appeal to telecommunications companies that face legal issues in using real estate or tangible assets for their sukuk,” Megat Hizaini Hassan, a partner and head of the Syariah-compliant finance practice at the company, said in an e-mail yesterday. “Legally it would be possible to use airtime as the asset for the underlying asset-transaction documents required for the Syariah structure.
(The Star Online / 03 August 2012)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com