Monday, September 9, 2013

TMR: RM4b Murabahah GII oversubscribed

By Kazi Mahmood

The inaugural issuance of government investment issue (GII) under Murabahah contract amounting to RM4 billion was oversubscribed 2.92 times, translating into a highly competitive yield, Bank Negara Malaysia (BNM) said last week.

The bank said the recent inaugural issuance of a murabahah- based GII issued on July 22 was an important development in the Islamic financial industry.

“The RM4 billion issuance of GII under the widely accepted structure of Murabahah was 2.92 times oversubscribed; the highest bid-to-cover year-todate, translating into a highly competitive yield,” the bank statement said.

The issuance of GII, the bank said, was based on Murabahah contract which is essentially a certificate of indebtedness arising from a deferred mark-up sale transaction of an asset, such as commodity (mainly crude palm oil), which complies with Shariah principles.

Maybank Islamic Bhd Islamic global markets director Aria Putera Ismail said the inaugural issuance of murabahah- based GII is timely as it potentially will attract participation from the Malaysiabased Islamic foreign financial institutions.

“It will attract Middle East investors who are looking for Shariah-compliant sovereign risk asset in the emerging market,” Aria said in the same statement.

Aria also said this will create a greater depth and active sukuk market, besides providing opportunities for more Shariah-complaint foreign exchange and hedging transactions to be taken place in the near future.

The much awaited product is another milestone in the standardisation and harmonisation of the Islamic finance industry across the globe, Bank Islam Malaysia Bhd treasury head Norashikin Mohd Kassim said.

“The issuance of GII under Murabahah is greatly welcomed by the market. The initiative is consistent with BNM’s support and innovative approach to meeting market requirements,” she said.

Norashikin also said the product was based on globally accepted Islamic concepts, thus greater participation from domestic and international investors is anticipated.

The primary issuances will continue to be conducted through competitive auction via the principal dealer network. Secondary trading of the GII will be based on bay aldayn concept where it involves buying and selling of the securities issued by the government of Malaysia as evidence of indebtedness.

The weighed average successful yield at the point of issuance was 3.389%, similar to the three-year Malaysian government securities which was trading around 3.396%.

The issuance was widely supported by principal dealers, both conventional and Islamic. Post-auction, the GII rallied 5.6bps amid RM1.7 billion worth of trades.

The Islamic money market is integral to the functioning of the Islamic banking system, firstly, in providing the Islamic financial institutions with the facility for funding and adjusting portfolios over the short-term, and secondly, serving as a channel for the transmission of monetary policy, a policy statement on the BNM website said.

Financial instruments and interbank investment would allow surplus banks to channel funds to deficit banks, thereby maintaining the funding and liquidity mechanism necessary to promote stability in the system.

The Islamic interbank money market (IIMM) was introduced on Jan 3, 1994, as a short-term intermediary to provide a ready source of short-term investment outlets based on Shariah principle.

Through the IIMM, the Islamic banks and banks participating in the Islamic banking scheme will be able to match the funding requirements effectively and efficiently. BNM issued the guidelines on the IIMM on Dec 18, 1993, to facilitate proper implementation of the IIMM.