Monday, September 9, 2013

TMR: Malaysia’s sukuk issuances market expected to see new boost in 2013

By Tanu Pandey   

Sukuk, the Islamic equivalent for bonds, has become an option for many when they need stable long-term financing. The instrument that performed extremely well in the last fiscal (2012) is expected to continue the trend this year.

In fact, this year the issuance of sukuk may even pick up after a little slackening trend in the last quarter of 2012, according to CIMB Islamic Bank Bhd executive director and chief executive officer Badlisyah Abdul Ghani.

CIMB, it may be mentioned here, was one of the top sukuk issuers globally in 2012.

In an email interview with The Malaysian Reserve (TMR), Badlisyah points out that the financing needs for the growing infrastructure sector in Malaysia is expected to give a further boost to the sukuk issuance market which may see infrastructure, blue chip companies and financial institutions dominating the sukuk issues this year.

TMR: 2012 was a record year for sukuk issuance. Do you hope to see the same trend in 2013 and which banks or financial institutions do you see leading the way?
Badlisyah: We anticipate another strong year for sukuk in the traditional markets where sukuk is actively pursued, ie, Malaysia and the Middle East (in particular Qatar, Saudi Arabia and the United Arab Emirates).

There was a slowdown of sukuk issuance in the last quarter of 2012 in the Middle East but this should pick up in 2013. We expect plenty of infrastructure and development projects to come on stream in the near- to medium-term and those projects would require long-term and stable funding source. We see a healthy deal pipeline at CIMB and expect to end this year on a high again. I would assume other significant players in the league table would also have a healthy deal pipeline and this bodes well for the market.

TMR: How would you rate the Malaysian market’s appetite for sukuk and Islamic financing and is there a possibility that it could outperform other financial instruments?
Badlisyah: Malaysia will see a lot of infrastructure projects in the coming years and sukuk has become a popular choice for a number of reasons, including a wider investor base (Islamic and conventional investors) which typically translates to better price tension in favour of the issuers; tax incentives that make borrowing cost cheaper and price transparency that makes it attractive to investors.

On a yearly basis since we entered the new millennium, sukuk has outpaced conventional bonds in terms of growth. The same can be said about Islamic financing in the banking sector in Malaysia. I do not see this trend changing especially with the new Securities Commission’s (SC) framework on Shariah-compliant stocks on Bursa Malaysia coming into force this year. To be eligible as a Shariah-compliant stock, the framework requires companies to ensure that the majority of their financing is Shariah-compliant. Being a Shariah-compliant stock allows a company to tap into a wider investor base, thus giving better liquidity to their stocks and better profiling.

TMR: What is the target for Islamic finance in Malaysia for 2013 and is it well on the trend?
Badlisyah: There are no specific targets for the Islamic finance industry on a yearly basis.

There is a 2020 industry target, set under the Financial Market Blueprint, of 40% overall share of market. We foresee that sukuk will continue to dominate the debt capital market space and we expect it to account between 70% and 75% of the total ringgit issuance this year, as seen in the last five years. We will continue to see steady growth in Islamic banking assets and deposits at north of 20% boosted by tax incentives as well as the revised Shariah screening framework by the SC.

TMR: Do you plan to increase sukuk issuance market share this year? Any big issues that you are looking at?
Badlisyah: In 2013, just like in other years before it, we are committed to deliver the best results for our clients in the sukuk market.

We always strive to be a significant player in the market and hopefully, we will land ourselves among the top sukuk arrangers/managers (if not the top) on the league table.

One of our key aims is to meet our clients’ needs through practical solutions and innovative ideas. We believe that our strong and long track record in sukuk as well as our enhanced distribution capabilities will allow us to perform well again this year. We expect to see infrastructure projects, bluechip companies and financial institutions dominating the sukuk issuers profile list this year. However, it is hard to say which deal will be a big issuance in the market.

TMR: What more can be done by the government and financial institutions to promote the growth of the sector?
Badlisyah: The Malaysian government has done more for Islamic finance than any other government in the world. Of course, there will always be room for improvement. The government just needs to continue supporting this growth through effective policies as needed from time to time.

If there is anything more that the government can do now is to undertake more of their own financial transactions through Islamic banking and finance industry. This will naturally boost the growth exponentially.

As far as financial institutions are concerned, they just need to do the business more effectively and efficiently, providing the same if not superior level of delivery and services compared to the conventional offerings.