A South Korean manufacturing conglomerate and a privately-owned Malaysian firm are in the midst of setting up a joint-venture to build an infrastructure project worth more than US$1 billion for the Malaysian government deploying Islamic funds which will be raised by the Korean party.
The South Korean firm would provide its expertise in manufacturing technology and the funds needed for the project, said South Korean-based Shariah Finance Co Ltd director for overseas operations Robert Jung-Soo Ryu.
"The South Korean firm is not an Islamic based company but the funding for the whole project will be Islamic. The main financial adviser of this project, I believe, is also an Islamic bank. We are trying to partner with them also, to fund the project to distribute the risk between the banks," he said at the 7th Annual Kuala Lumpur Islamic Finance Forum (KLIFF) in Kuala Lumpur, yesterday
Ryu said a special purpose vehicle would undertake the infrastructure project to be built in Malaysia.
He said the Malaysian firm company which owns the project will hold 51% of the SPV while the Korean firm holds the rest.
"The Malaysian company is already in the industry, however, because of lacking of technology to meet the need of the government, they have approached us to find a right partner in Korea.
"One of the conglomerates in Korea is able to pursue it and join them in a consortium. They will be investing funds to create the joint venture and the facility to meet the needs of the Malaysian government. The Korean firm will bring in the manufacturing technology to undertake the project targeted for completion in 2015," he said.
Ryu, however, declined to reveal the identity of the two companies involved in the deal as discussions with Malaysia's high level government officials are currently underway.
He said the project would take off once the letter of intent (LOI) is ready, adding that they had a meeting high level government officials in Malaysia last week.
"We are looking at the LOI to be ready sometime towards end of this year, maybe November," he said.
On Islamic finance, he said it is developing slowly in South Korea which has a Muslim population of about 135,000 only.
However, the Islamic finance sector in the country is getting support from the government and indirectly from the national pension fund which is interested in investing in Islamic products.
He pointed out South Korea does not have an Islamic retail market and there are no plans to open any retail-related Islamic products in the country.
"We feel that it will be good if we can create Islamic products that non-Muslims also can enjoy," he said.
Ryu said South Korea is currently working on its first sukuk to finance the Jeju Island airport project which is expected to materialise between the middle and end of next year.
"We are working very hard with the government to finance this new airport project which has not passed the government level yet. The government has agreed that some of the funds should be raised in sukuk," he said.
He added no decision has been made on the type of sukuk for the Jeju Island project and the South Korean government is working with Kuala Lumpur-based Islamic finance consultants from Amanie Business Solutions Sdn Bhd, led by Dr. Mohd Daud Bakar, on the sukuk.
Dr Daud has been invited by the South Korean government in January 2011 to discuss details on structuring the sukuk and its timing, he added.
(This story, written by Dalila Abu Bakar, appeared in The Malaysian Reserve on August 5, 2010. 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)
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