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Wednesday, 24 September 2014

Malaysia Sales Gather Pace With Biggest Sukuk of 2014

The world’s biggest Islamic debt offering of 2014 from Malaysia’s sovereign wealth fund will push the nation’s sukuk sales beyond 50 billion ringgit ($15.4 billion) for only the second time in 16 years.
1Malaysia Development Bhd. plans to sell as much as 8.4 billion ringgit of the notes, adding to the 46.9 billion ringgit sold so far that’s almost double the amount a year earlier. After 2012’s record issuance of 95.8 billion ringgit, which was distorted by a local toll-road operator’s unprecedented 31 billion ringgit sale, CIMB Group Holdings Bhd. and Asian Finance Bank Bhd. see 100 billion ringgit as being achievable in the next few years.
Prime Minister Najib Razak’s $444 billion development program contributed 21.2 billion ringgit to the sukuk total this year, data compiled by Bloomberg show. Bank Negara Malaysia’s decision to keep the benchmark policy rate on hold last week will also encourage issuers to tap the market given the likelihood increases will follow, according to CIMB.
“The sukuk market in Malaysia is a lot more active this year because of ongoing infrastructure spending,” Mohd. Effendi Abdullah, head of Islamic markets at Kuala Lumpur-based AmInvestment Bank Bhd., the country’s third-biggest sukuk arranger, said in phone interview yesterday. “This momentum is expected to overflow into 2015 as more corporates from neighboring countries may also tap the ringgit sukuk market.”

Sales Forecasts

1MDB’s Islamic bonds are planned before year-end and will finance the construction of a 2,000 megawatt coal-fired power plant in the state of Negri Sembilan, south of Kuala Lumpur, said two people familiar with the matter who asked not to be named because the information hasn’t been made public. The sukuk will be sold by Jimah East Power Sdn., which is 70 percent owned by the sovereign wealth fund and 30 percent by Japan’s Mitsui & Co. Ltd.
CIMB Islamic Bank Bhd. is working on a number of deals worth about 10 billion ringgit, which could come to market before year-end, said Badlisyah Abdul Ghani, the chief executive officer at the Shariah-compliant unit of CIMB Group, this year’s biggest sukuk manager. Issuance in Malaysia could reach 70 billion ringgit in 2014, he said.
AmInvestment Bank is forecasting total sales of 60 billion ringgit to 70 billion ringgit this year. That would exceed 2013’s 49 billion ringgit, data compiled by Bloomberg dating back to 1999 shows. The debt pays returns on assets to comply with Islam’s ban on interest.

Rising Yields

Kuveyt Turk Kira Sertifikalari, a Turkish asset leasing company, plans to raise as much as 2 billion ringgit from sukuk, according to a bulletin published on the Capital Markets Board in Ankara in September. PT Adira Dinamika Multi Finance, Indonesia’s largest consumer lender, may issue as much as $150 million of Islamic notes in Malaysia, while Japan Bank of International Cooperation is also considering a ringgit sale.
“This has been a good year for sukuk, driven mainly by infrastructure spending,” CIMB’s Badlisyah said in a Sept. 19 phone interview in Kuala Lumpur. “Malaysia’s growth rate of 6.3 percent in the first half of 2014 is positive and will help spur further sukuk issuance for project development.”
Corporate and government borrowing costs are rising in Malaysia after the central bank increased the benchmark policy rate in July for the first time since 2011 before keeping it unchanged on Sept. 18. Eleven of 21 economists surveyed by Bloomberg predict Governor Zeti Aktar Aziz will raise borrowing costs again before year-end, while the remainder see no change.

‘Strong Pipeline’

Average yields on conventional five-year bonds sold by the nation’s AAA-rated companies climbed 25 basis points, or 0.25 percentage point, to 4.21 percent this year, according to a central bank index. They reached 4.29 percent on Aug. 14, the highest level since April 2010.
“We expect ringgit sukuk issuance to pick up in the fourth quarter, with a strong pipeline supply from the infrastructure and financial sectors,” Angus Salim Amran, the Kuala Lumpur-based head of financial markets at RHB Investment Bank Bhd., a unit of RHB Capital Bhd., said in an e-mail interview yesterday. “We expect this year’s sukuk issuance to be in line with last year.”
Malaysia, which pioneered Islamic finance 30 years ago, is the world’s biggest sukuk market and accounts for $178 billion of the $290 billion outstanding globally, according to a June 4 report from Moody’s Investors Service.
The Bloomberg-AIBIM Bursa Malaysia Corporate Sukuk Index, a benchmark that tracks the most-traded local-currency notes, gained 1.8 percent in 2014 to a record 106.99 after rising 2.8 percent in 2013.

‘Strong Possibility’

1MDB is turning to the ringgit-denominated bond market for only the third time since 2009 as it finances projects that are part of the government’s 10-year development program. The company, which is also building a new financial district in Kuala Lumpur, has outstanding debt of 30.6 billion ringgit, according to data compiled by Bloomberg.
The fund came under scrutiny in parliament last year after singling out Goldman Sachs Group Inc. to manage $6.5 billion of conventional bonds. The New York-based investment bank made about $500 million in commissions and trading gains for managing three sales of dollar notes, which opposition politicians said were excessive.
“While 1MDB’s planned sukuk is the biggest this year, there may be more such funding in the future given Malaysia’s development program and the expected infrastructure spending in Asia,” Mohamed Azahari Kamil, chief executive officer at Asian Finance Bank Bhd. in Kuala Lumpur, said in a phone interview yesterday. “There’s a strong possibility that issuance could reach 100 billion ringgit in the next few years.
(Bloomberg / 23 September 2014)
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Pakistan: Orix Leasing to tap Islamic finance market

KARACHI: Orix Leasing Pakistan Limited (OLPL) plans to tap the high growth Islamic finance market.
The company has chosen an innovative way to attain its objective. It has entered into a non-binding Memorandum of Understanding (MoU) with Standard Chartered Bank (Pakistan) Limited (SCBPL) with regard to a prospective merger/amalgamation of Standard Chartered Leasing Limited (SCLL), a subsidiary of SCBPL with and into OLPL or acquisition of SCBPL’s 86.45 per cent equity stake in SCLL.
The MoU further provides the acquisition of SCBPL’s 100pc stake in Standard Chartered Services of Pakistan (Private) Limited and acquisition of SCBPL’s 20pc stake in Standard Chartered Modaraba.
The Orix company Secretary Effat Assad went on to state: “This stake is held 10pc directly and 10pc indirectly through SCSPL”.
Yet he cautioned that there was no certainty that the MoU would result in a binding transaction.
“The transaction structure and implementation plan would be subject to: due diligence of SCLL, SCSPL and SCM by OLPL which would commence shortly,” the company secretary informed and added that the MoU would result in binding transaction also after all necessary regulatory clearance for the approved structure; execution of definitive transaction agreements and satisfaction of various conditions, including regulatory and corporate approvals contained in the definitive transaction agreements.
A source in the knowledge of the proposed deal said: “Orix Leasing which caters mainly to smaller cities and Small and Medium Enterprises (SMEs) is vying to get a piece of the action in Islamic finance market.”
He stated that it was a prudent move in many ways. “The SCBPL will add value to OLPL while the Standard Chartered Modaraba, being a multi-purpose modaraba, would give access to Orix in several Islamic instruments, such as Ijarah, Musharaka and others,” said this person, though he hastened to add that it must not be construed to mean that the current business of Orix Leasing is un-Islamic.
The proposed merger with SCBL owned leasing and Modaraba would provide Orix the opportunity to enter businesses that already has a ready network and professional staff, he argued and pointed out that Modaraba sector also enjoyed the benefit of zero tax when 90pc of the profit was distributed to the stakeholders.
The source, who asked not to be named for he was not authorised to speak for Orix or SCBPL, believed that the Standard Chartered Bank had decided to spinoff the Leasing and Modaraba so as to concentrate in the core business of banking.
The board of directors of Orix Leasing also announced results for the financial year ended June 30, 2014 posting profit after tax (PAT) at Rs516 million, translating into earning per share (eps) at Rs6.29. It represented a giant leap of 53pc from PAT at Rs338m and eps at Rs4.12 the previous year.
(Dawn.Com / 23 September 2014)
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