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Friday, 7 December 2012

Malaysia: Refinancing fuels record sukuk, firms take advantage of low yields to raise RM91b from bonds

KUALA LUMPUR: Malaysian companies are taking advantage of all-time low yields to refinance local-currency sukuk, accounting for 55% of 2012's record issuance.
Average costs for 15-year top-rated corporate debt fell 48 basis points this year to 4.6%, according to a Bank Negara index. Of the RM91bil of syariah-compliant securities issued in 2012, RM50bil was for refinancing, data compiled by Bloomberg show. Sime Darby Bhd, the world's biggest palm-oil producer, sold RM700mil of Islamic bonds on Nov 28 as part of a restructuring, pricing the portion due in 2027 at 4.35%.
The drop in yields is also making it cheaper for firms to retire short-term bonds and sell longer maturities after the premium on 10-year sukuk over those maturing in 2014 narrowed 19 basis points to 47 basis points this year. More companies are planning to sell Islamic notes in 2013 to lock in the lower funding costs, according to Maybank Investment Bank Bhd, the leading arranger this year.
“Our pipeline on bond and sukuk refinancing looks healthy,” Tengku Datuk Zafrul Tengku Abdul Aziz, head of Maybank's investment banking unit, said in a Dec 1 interview. “A number of our refinancing transactions are looking to price by the end of 2012. Companies are seeking cost-efficient funding and an extension of debt maturities to achieve cost savings.”
The Government sold its first 15-year ringgit-denominated syariah-compliant bonds in June, paying a coupon rate of 3.899%, which has helped set a benchmark for Malaysian companies, Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd, said in a Dec 3 interview. The notes yielded 3.84% today.
The Bloomberg-AIBIM Bursa Malaysia Corporate Index, which tracks 57 ringgit-denominated issues, rose to a record 102.1137 yesterday and has gained 3.6% since it started in February. Yields on bonds ratedBBB, the second-lowest investment grade at Malaysian Rating Corp (MARC), dropped 60 basis points, or 0.60 percentage point, to 15.06% this year, a separate Bank Negara gauge shows.
UEM Land Bhd, a state-owned property firm, plans to sell as much as RM2bil of Islamic bonds to repay debt and to redeem convertible shares, according to a Dec 3 e-mailed statement from MARC. MNRB Holdings Bhd, a reinsurance firm, said in an Oct 15 stock-exchange filing that it aimed to offer RM150mil of sukuk for refinancing.
UEM Group Bhd set the ball rolling in January by issuing RM30.7bil of sukuk, the world's single-biggest Islamic offering, to pay off existing debt and to fund the takeover of PLUS Bhd, the nation's largest highway operator. Power producer Malakoff Bhd sold RM9.3bil of syariah-compliant securities, while telecommunications provider Axiata Group Bhd and state-owned investment firm Johor Corp raised RM5bil and RM3bil respectively, for refinancing.
Sime, rated the highest investment grade of AAA by RAM Rating Services Bhd, also sold 10-year syariah-compliant bonds to yield 3.98% in November. Proceeds will “largely be used for refinancing and restructuring to longer-tenor debt,” Tong Poh Keow, chief financial officer, said in a Nov 30 interview in Kuala Lumpur.
“The sale will help us better manage cash flows and will also result in interest savings,” Tong said, declining to be more specific. “If market conditions continue to be favourable, we may consider selling sukuk again.”
Average yields on global Islamic bonds rose nine basis points to 2.85% in the first three days of this week after reaching a record low of 2.76% on Nov 30, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The difference between the average and the London interbank offered rate, or Libor, widened 10 basis points to 194 basis points, the highest level since Oct 12.
The notes returned 9.2% in 2012, according to HSBC, while debt in developing markets climbed 17.9%, JPMorgan Chase & Co's EMBI Global Composite Index shows.
Yields on Malaysia's 3.928% dollar Islamic bonds maturing in 2015 decreased one basis point to an all-time low of 1.3% yesterday, according to data compiled by Bloomberg. The difference in borrowing costs between Dubai's 6.396% securities due in November 2014 and Malaysia's debt was little changed at a record 88 basis points.
Declining syariah-compliant bond yields have also spurred a surge in new issues worldwide. Offerings climbed 22% to an unprecedented US$44.9bil, from the US$36.7bil sold in all of 2011, data compiled byBloomberg show.
Foreign investors raised holdings of Malaysian local-currency debt by 29% in October from a year earlier to a record RM221.9bil, surpassing the RM215.5bil reached at the end of September, according to data published on the central bank's website. They cut ownership of corporate bonds including sukuk to RM13.5bil from RM14.8bil.
“Longer-dated Islamic debt appeal to pension funds and insurance companies as they match their investment criteria,” CIMB Islamic's Badlisyah said.

(The Star Online / 07 Dec 2012)

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Malaysia: New legal framework for Islamic banking, takaful being enacted

JOHOR BAHARU: The new legal framework for Islamic banking and takaful is currently undergoing the legislative process towards its enactment, Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz said.
She said the new legal framework would not only streamline the legal requirements across sectors but would also ensure that the law was reflective of the nature and features of Shariah contracts.
It would also ensure that the degree of regulation would commensurate with level of risks that Islamic financial institutions, markets and products pose to the overall financial sytem, Zeti said.
"The greater clarity on the legal and prudential requirements underpinned by Shariah principles will enable participants of the Islamic financial system to align to their practices and expectations accordingly when undertaking Islamic financial business and transactions," she said.
She was delivering her keynote address at the last day of the Eighth World Islamic Economic Forum (WIEF) here.
Zeti said while Islamic finance practitioners and scholars continued to draw from the source of fiqh muamalat to create new and innovative instruments, the legal framework needed to be further strengthened to ensure alignment with new market developments.
This is to ensure that it continued to lend certainty and predictability to innovative products and financial transactions, she said.

(The Star Online / 06 Dec 2012)

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Sukuk boosting Islamic finance

The success of sukuk issuances by financial institutions underlinine the tremendous potential of Islamic finance industry, which has shown healthy growth despite the global financial crisis and the lull after it, said an expert.

"The present and future of Islamic finance and banking industry are very promising,” Ernst & Young Bahrain senior director Imtiaz Ibrahim told a session of the Accounting and Auditing Organisation for Islamic Financial Institutions (AAAOIFI) conference at the Diplomat Radisson Blu Hotel in Bahrain, according to a report in our sister publication, the Gulf Daily News.
"Islamic financial institutions are offering various deposit products on the basis of Wakala and Mudaraba, which are reliable sources of Sharia-compliant income for depositors and provides continuous liquidity stream to such institutions," he said. "The sukuk market is also flourishing and, recently, the market has seen complex and sophisticated sukuk structures being introduced by several financial institutions across the GCC."AAOIFI is fully cognisant of this transformation and has been taking measures to update or introduce new accounting standards.
"AAOIFI is currently developing sukuk standards and revising investment accounts and takaful standards, which will result in the harmonisation of accounting and financial reporting between international financial reporting standards and AAOIFI standards," he said. "The risk of losing trust of the general public in the Sharia compliance of Islamic banks could potentially pose a major threat to the industry and should not be ignored by stakeholders," added Ernst & Young executive manager Sohaib Umer.
(Albawaba Business / 06 Dec 2012)

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