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Wednesday, 12 November 2014

Exim Bank Plans Sukuk as Shariah Assets Expand

The head of Malaysia’s state-owned trade financier said he plans to tap the global sukuk market for a second time, as Shariah-compliant assets look set to reach 40 percent of the bank’s total in 2015.
Export-Import Bank of Malaysia Bhd.’s assets that comply with religious tenets will rise to 2.4 billion ringgit ($718 million) this year, representing a 30 percent portion, from 2013’s 1.5 billion ringgit, Chief Executive Officer Adissadikin Ali said in an interview yesterday. The company is aiming to sell dollar-denominated Islamic bonds in the second half of next year, he said.
The state-owned entity became the world’s first trade financier to issue U.S. currency sukuk with its debut offering in February that helped plug a shortage of corporate Islamic dollar debt in Asia. The lender started providing Shariah-compliant loans in 2009 to support demand in an industry whose assets Bank Negara Malaysia projects will triple to $6.5 trillion worldwide by 2020.
“We are not short of business,” Adissadikin said in Kuala Lumpur. “Our plan is to grow by 30 percent every year and we have been beating the target consistently.”
The lender is expanding its Islamic finance business as part of Prime Minister Najib Razak’s drive to make the nation a global Shariah-compliant hub by 2020, Adissadikin said. Exim Bank met its full-year target of 5 billion ringgit for Islamic and conventional loans at the end of October and the figure may now climb to 6 billion ringgit this year, he predicts.

Pass Costs

The company’s planned sukuk will be its third in the international debt market and Exim Bank faces the prospect of higher yields as the Federal Reserve gears up to raise interest rates next year.
The bank will probably offer $200 million to $300 million of dollar sukuk with a maturity of five years or more sometime in the second half of 2015, Adissadikin said.
“Timing is not a priority as we can pass the cost to our clients,” he said.
Exim Bank sold $300 million of dollar Islamic notes due in 2019 at a coupon of 2.874 percent in February. The yield on the securities rose eight basis points, or 0.08 percentage point, to 2.55 percent today, according to data compiled by Bloomberg. The lender is rated A3, the fourth-lowest investment grade, by Moody’s Investors Service and A- by Fitch Ratings.
Average yields on global sukuk, which pay returns on assets to comply with the religion’s ban on interest, dropped 57 basis points this year to 2.85 percent, according to a Deutsche Bank AG Index. That’s down from 2014’s high of 3.44 percent on Jan. 2 and compares with the low of 2.77 percent in September.
Worldwide sales of the debt rose 10 percent to $38.8 billion in 2014 from a year earlier after reaching $43.1 billion in 2013 and an unprecedented $46.8 billion in 2012, data compiled by Bloomberg show.

Makes Sense

Exim Bank’s total banking assets may end the year around 8 billion ringgit, up from 5.3 billion ringgit in 2013, Adissadikin said. The company posted a net profit of 144.7 million ringgit last year, compared with 123.8 million ringgit in 2012, according to its annual report. Adissadikin declined to give an earnings forecast for 2014.
Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd., said it makes sense for Exim Bank to be offering Shariah-compliant financing given that it’s a significant part of the Malaysian economy.
“Exim Bank Malaysia acts as a strong ambassador for Islamic finance,” Badlisyah at the unit of CIMB Group Holdings Bhd., said in a phone interview in Kuala Lumpur yesterday. “The very fact that they issued a dollar sukuk this year and are able to offer wider solutions to their clients also allows them to stand out.”
(Bloomberg / 11 November 2014)
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