Cagamas plans to sell more sukuk

By Jason Ng
Cagamas Bhd, the national mortgage corporation, expects to sell more sukuks this year amidst the low interest rate environment.
Demand for sukuk, or Shariah-compliant bonds, presently outstrips supply within the market with the credit spread narrowing between conventional and the Islamic bonds, according to Cagamas CEO Steven Choy.
"Sukuk can sell better too due to the wider investor base," he said at the sidelines of the Malaysian Capital Markets conference in Kuala Lumpur yesterday. Cagamas, the second largest issuers of debt papers after the Malaysian government, aims to sell RM3 billion worth of sukuk as well as conventional bonds to meet its target of RM12 billion by this year end.
Some RM18 billion worth of bonds were issued by Cagamas amid the global credit crunch last year, far from a record level of RM25 billion back in 1999. The market presently "is awash with liquidity" and as investors hunt for bargains, the prices of sukuk have risen to the levels of conventional bonds, according to a bond analyst.
"Despite the narrowing difference, sukuk has an edge here as investors generally feel that demand would rise as foreign funds, particularly from the Middle East, return to the market," the analyst said.
Foreign investors bought about 15% from the total bonds sold by Cagamas, Choy said.

Sukuk made up about 60% of total issuance within the Malaysian market, according to recent data from the Securities Commission.
Cagamas was reported to be looking at floating rate notes to attract investors concerned about the possible rising interest rates. "[...] we believe interest rates have plateaued and may be on the way up," Cagamas' head of treasury and capital markets Angus Salim was quoted as saying. Floating rate notes are bonds that pay out coupons plus an interest based on the accepted market benchmark rate.

(This story appeared in The Malaysian Reserve on Oct 9, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)