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Tuesday, 17 June 2014

Societe Generale’s Debut Shows Malaysian Sukuk Advantage

Societe Generale’s plan to sell ringgit sukuk shows Malaysia’s advantage in luring debut sales as Islamic finance expands beyond its traditional strongholds.

France’s third-largest banking group by assets, has set up a 1 billion ringgit ($311 million) multicurrency Shariah debt program, according to a June 12 statement from RAM Rating Services, which assigns the notes its highest investment grade. That follows Bank of Tokyo-Mitsubishi UFJ’s announcement last week that it was planning a debut sukuk in Malaysia.

The country, which pioneered Islamic finance in the 1980s, is benefiting as new issuers from outside the Middle East and Southeast Asia are attracted to an industry whose international assets are forecast to double to $3.4 trillion by 2018, according to Ernst & Young. The SocGen sale will encourage foreign companies to test the market using Kuala Lumpur, said CIMB Group Holdings, the world’s top sukuk arranger.

“Malaysia is able to attract foreign names because it has well-established Islamic legislation and human capital,” Mohamed Azahari Kamil, chief executive officer at Asian Finance Bank in Kuala Lumpur, said in a June 13 phone interview. “For a European bank such as SocGen to have confidence in the Malaysian Islamic market, it’s a feather in the cap for the nation. It also shows that the French bank wants to be part of the Islamic finance industry’s growth.”
Dominant market

SocGen will hold a non-deal roadshow for the offer in Kuala Lumpur on Tuesday, a person familiar with the matter who asked not to be named as the information isn’t public yet said in a June 13 phone interview.

Malaysia accounts for $178 billion of the world’s $290 billion of outstanding sukuk, according to a June 4 Moody’s Investors Service report. It will remain the world’s biggest market for the “foreseeable future,” the company said. Saudi Arabia, which has around 10 percent of the debt, shows domestic market potential, while Kuala Lumpur will face rising competition from non-Islamic financial centers such as Singapore, Hong Kong and London, according to the report.

Shariah-compliant banking assets in Malaysia climbed to a record 556.5 billion ringgit, or 26 percent of the total, in 2013, according to central bank data. There are 287 Islamic funds domiciled in the country, the highest in any jurisdiction, KFH Research, the Islamic investment research arm of Kuwait Finance House, said in a June 10 report.

“SocGen’s plan to raise ringgit funding is testament to the maturity of the Malaysian Islamic finance market,” Nik Norzrul Thani, the chairman of Kuala Lumpur-based law firm Zaid Ibrahim & Company, said in a June 13 interview. “The offering will also reinforce Malaysia’s position as a global Islamic hub.”

Sukuk sales
Sales of Islamic bonds by overseas companies in Malaysia dropped by more than half to 2.42 billion ringgit last year from a record 5.89 billion ringgit in 2012, data compiled by Bloomberg show.

Bumitama Agri, a Singapore-listed palm oil producer, is the only foreign company to issue sukuk in Malaysia this year, selling 500 million ringgit of five-year notes in March. Japan Bank for International Cooperation and Ireland’s Electricity Supply Board are among overseas companies that have said they are interested in tapping the ringgit market.

Global issuance of bonds that comply with Islam’s ban on interest has reached $21.3 billion so far this year, 13 percent more than at the same point in 2013, data compiled by Bloomberg show. Sales in Malaysia surged 86 percent this year to 29.7 billion ringgit.
The Bloomberg-AIBIM Bursa Malaysia Corporate Sukuk Index, a benchmark that tracks the most-traded local-currency notes, has climbed 0.4 percent this year, following a 2.8 percent advance in 2013.

Precedent seen
SocGen will be the second company from Europe to sell ringgit-denominated sukuk, after HSBC Holdings, Britain’s biggest lender, sold 500 million ringgit of the notes in 2012.

The French bank’s AAA assessment reflects the group’s strong franchise in retail as well as corporate and investment banking in Europe, RAM said in its June 12 statement. The debt will be issued by special-purpose company ALEF SA II and will give holders legal recourse to SocGen, the ratings firm said.

The Paris-based lender is forecast to post a net income of 3.2 billion euros ($4.3 billion) for 2014, compared with $2.2 billion last year, according to the average estimate of 16 analysts surveyed by Bloomberg News. It has 148,000 employees and a market capitalization of 33 billion euros, data compiled by Bloomberg show.

“SocGen’s offering will definitely set a precedent that can be used to attract other potential issuers from overseas,” Badlisyah Abdul Ghani, chief executive at Kuala Lumpur-based CIMB Islamic Bank, said in a June 13 phone interview. “We should see more foreign companies tapping the ringgit market in the next few months, including those from new jurisdictions.”

(Jakarta Globe / 16 June 2014)
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