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Sunday, 28 September 2014

Malaysia: After landmark sukuk, Japan's BTMU seeks to offer Islamic ringgit loans

KUALA LUMPUR, Sept 25 (Reuters) - Bank of Tokyo-Mitsubishi UFJ (BTMU), Japan's largest lender, hopes to secure a licence for its Malaysian unit to expand operations by providing Islamic loans in the local currency.
This would allow BTMU Malaysia, a wholly owned unit, to meet the needs of existing clients for Islamic loans in ringgit, the unit's chief executive Naoki Nishida told Reuters on Thursday.
He said the bank might obtain the licence next year and hoped to start such lending in the near future, though other issues such as accounting systems also needed to be resolved.
Nishida was speaking after BTMU earlier in the day became the first Japanese commercial bank to issue Islamic bonds, selling $25 million of sukuk in a U.S. dollar tranche and 2.5 billion yen ($22.9 million) in a yen tranche.
Its issue underlined growing interest in Islamic finance among big, international conventional banks. Goldman Sachs raised $500 million with its debut sale of sukuk earlier this month, while France's Societe Generale set up a sukuk programme in Malaysia this year.
Currently, BTMU's Islamic operations are only allowed to provide loans in currencies other than ringgit and they conduct nearly all transactions in U.S. dollars.
That is the reason why BTMU's first sukuk issue, part of a $500 million multi-currency sukuk programme established in Malaysia in June, was not denominated in ringgit.
"We did not choose ringgit because of the lack of ringgit assets on our books," said Nishida, noting that issuing ringgit sukuk at this stage would have entailed negative carry on the cost of funding.
BTMU Malaysia serves large Malaysian firms and government-linked companies, particularly those with operations abroad in the oil and gas, palm oil and real estate sectors.
BTMU was conservative with the size of its first sukuk issue, which was at the bottom of its target range of $50 million to $100 million.
The one-year sukuk were privately placed with a mix of local and foreign institutional investors, which the bank declined to name. Pricing details were not disclosed.
Nishida said it took time to explain to investors the structure of the sukuk wakala and the decision to issue in yen.
"With yen, there were additional explanations, additional questions," he said. "Although yen-denominated sukuk were new and not familiar to investors, we were able to find a certain amount of appetite."
Funds raised from the sukuk will go mainly towards growing BTMU's Islamic business in Malaysia and Saudi Arabia. It has also attracted business from Singapore, Brunei and Indonesia.
BTMU's $500 million Malaysian sukuk programme, which allows for issues with maturities of up to 10 years, is sufficient for the bank's current Islamic operations, which are still in an early stage of development, Nishida said.
The bank, a unit of the Mitsubishi UFJ Financial Group , will decide on the size and tenor of its next sukuk issue based on the level of anticipated loan growth, though it remains open to other methods of raising funds.
Nishida said BTMU had found it more expensive to issue sukuk than raising funds through options such as loans and conventional bonds, as it had to meet investors' targets for returns and the sukuk's prices were benchmarked to global bonds previously sold by the parent company. But this premium may shrink as the bank proceeds with more sukuk issues, he added.
He said BTMU would approach Japanese investors for its future issues, as part of its efforts to promote sukuk to companies from Japan. "We hope with our experience, more Japanese companies in Malaysia and Japan will consider issuing sukuk."
BTMU's programme is a boost to Malaysia's efforts to diversify its Islamic capital markets, which so far have been dominated by local-currency deals.
The wakala programme uses tangible assets and commodity-linked receivables from BTMU's Malaysian subsidiary to underpin transactions. Kuala Lumpur-based RAM Ratings assigned an AAA rating to the programme, which has the parent company as guarantor; CIMB Investment Bank and Mitsubishi UFJ Securities International advised on the deal.
(Yahoo News / 25 September 2014)
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