Malaysian Sukuk to Fuel Record Quarterly Sales

Malaysia’s record RM30.6 billion ($9.7 billion) corporate sukuk sale from PLUS Bhd. And offerings planned to follow may help carry Islamic bond sales to their best quarter ever in the first three months of 2012, reports Bloomberg.

The highway operator’s offering is more than the $7.3 billion total of Shariah-compliant securities sales from companies worldwide last quarter. Issues from Malaysia’s state-owned power producer Sarawak Energy Bhd. and Albaraka Turk Katilim Bankasi AS, the Turkish unit of Albaraka Banking Group BSC, may push sales past the previous all-time high of $10 billion set in the final quarter of 2007.

Average yields for global sukuk dropped 75 basis points last year to 3.99 percent, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Malaysian companies are seeking funding as the nation starts a 10-year $444 billion program to build roads, railways and power plants.

“With the record offering from PLUS, it will definitely be a bumper quarter for sukuk sales,” Badlisyah Abdul Ghani, Kuala Lumpur-based chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Group Holdings Bhd., said in an interview with Bloomberg on Jan 3. “The relatively low yields and strong demand will ensure that the deal pipeline remains healthy this year, especially in Malaysia.”

Offerings of Islamic bonds in Malaysia, the world’s biggest sukuk market, rose 51 percent last year to RM45 billion, according to data compiled by Bloomberg. Global sales climbed to $26.5 billion in 2011, compared with $17.5 billion the previous year.

Kuala-Lumpur-based CIMB, the top arranger of sukuk in 2011, has some deals this quarter involving refinancing and fresh funds for infrastructure projects that were delayed from the last three months of 2011, Badlisyah said, declining to elaborate. The Southeast Asian nation’s government is pursuing a $444 billion development program to build railways, roads and power plants.

“Given the infrastructure financing under the $444 billion development plan, sales of sukuk in Malaysia will be better in 2012 than last year,” he said.

The difference between average Islamic bond yields and the London interbank offered rate, or Libor, narrowed 16 basis points to 273 in 2011. Offerings from the six-nation Gulf Cooperation Council, which comprises Bahrain, the United Arab Emirates, Kuwait, Saudi Arabia, Oman and Qatar, climbed to $7.3 billion in 2011 from $4.5 billion in 2010.

“Global sales of Islamic bonds will continue given the growth in the GCC,” Mohamed Azahari Kamil, chief executive officer at Kuala Lumpur-based Asian Finance Bank Bhd., said in an interview yesterday. “There’s still a lot of appetite as Middle East fund managers are hungry for Shariah-compliant instruments for their portfolio diversification.”

[By Elffie Chew, Bloomberg, Jan 4, 2012]