Malaysia plans to issue dollar sukuk to repay 1MDB debt

Malaysia's government will begin meeting investors on Monday to discuss a potential dollar-denominated sovereign sukuk, as it looks to repay some of the debt raised by its struggling state fund 1MDB.

The fund's debt of over $11 billion is weighing on Malaysia's sovereign credit rating and has also been a factor contributing to ringgit weakness in recent months.

The government has appointed CIMB, HSBC and Standard Chartered to arrange meetings in Kuala Lumpur on Monday, Singapore on Tuesday, Hong Kong on Wednesday, Abu Dhabi and Dubai on Thursday, London on Friday and New York the following Monday, a document from lead arrangers showed.

No details on the size and tenor of the issue were provided, but sources with knowledge of the deal previously told Reuters that it would be up to $2 billion with a maturity of more than five years.

The Malaysian government would use the proceeds for sharia-compliant purposes including the redemption of 1MDB's $1.25 billion sukuk that matures in June, the document showed.

Prime Minister Najib Razak this month ordered the auditor general to examine the fund's accounts, after allegations of corruption and mismanagement.

The fund, which owns real estate and power assets, will eventually be dismantled and most of its assets will be disposed of, sources have told Reuters.

A draft prospectus seen by Reuters showed the bond issue would use the wakala format, in which certificates are issued by an originator to purchase assets that are given to an agent for management.

(Reuters / 02 April 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance helps diversify investors

The growing Islamic finance market helps economies diversify their investor base, says Mohamed Damak, Director and Global Head of Islamic Finance at Standard & Poor's.

Damak told that recently there were new players in the market for sukuk -- securities similar to bonds -- which marked a “significant and growing interest” in Islamic finance.

“In 2014, we have seen sukuk issued by the U.K., sukuk issued by Luxemburg and South Africa,” Damak said. “Why are these issuers doing that?”

Damak argued that issuers outside Golf Cooperation Council and Asia chose to issue sukuk in order to attract investors from the Middle East and Asia, and therefore diversify their investor base.

For countries like the U.K., Damak said it was more about setting a benchmark for private sector issuers and encouraging them to see sukuk, which is expected to hit $115 billion in 2015, as a complimentary root of financing.

“We don’t think there is a competition between Islamic banking and conventional banking or that any model trying the take over the other. We think there is significant and growing interest in Islamic finance in several countries and that could be seen in recent sukuk transactions from non-traditional issuers,” Damak said.

Damak said two thirds of sukuk issuance was coming from Malaysia, which issued $50 billion worth of sukuk in 2014. But the Malaysian central bank has not issued any sukuk in 2015, which Damak said might result in a ”major slowdown of the sukuk market” if this trend continued.

Turkey contributes three percent of the total sukuk issuance, a rate that is growing with both the government and private financial institutions expressing more interest in the market, Damak said.

Sukuk is the Arabic name commonly used in reference to what is regarded as an Islamic equivalent of bonds. But unlike bonds, it accrues no interest and hands partial ownership of a property, earning proportional rent for the buyer, who also accepts vulnerability to the risks involved.

(World Bulletin / 02 April 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com