Sukuk market in Malaysia enjoys advantages of proactive stance
'Sukuk pipeline this year has been significantly bigger, and it has been this way for the last six to seven years'
Malaysia's sukuk, or Islamic bond, market benefits from having a large and diverse investor base, including some non-Islamic as well as Islamic investors, and strong growth in sukuk assets in recent years has underlined the advantages of Malaysia's proactive stance on market development
Malaysia's corporate sukuk market "is significantly, bigger in terms of new issuances this year than the conventional corporate bond market," Arshad Mohamed Ismail, the head of global banking businessat May Bank, a significant player not only in Malayasia but also in global terms, tells The National.
"Malaysia is a huge market where issuers are free to issue conventional bonds as well as sukuk [and where] you have conventional investors and Islamic investors," he says. Global investors "have beciome very familiar with the sukuk financual contract."
"In Malaysia, as of September 2017, we have seen approximately 51 billion ringgit (Dh44bn) of corporate sukuk issuances [this year] and on the conventional bond side of the equation we have seen approximately 18bn ringgit of issuances," says Mr Ismail.
"The sukuk pipeline this year has been significantly bigger, and it has been this way for the last six to seven years where the aggregate value of sukuk issuances tends to be significantly bigger than the aggregate value of corporate bond issuances."
Issuers in the Malaysia are large listed entities, he says. "The general advice when it comes to issuing fixed income instruments is that if there is nothing that prevents an issuer from issuing sukuk to prefer them because that enables issuers to tap into a larger pool of investors."
As a percentage of GDP, the Malaysian bond market - Islamic and others - is "the third-largest in Asia after only Japan and South Korea." Mr Ismail points out. "We are at around 95 per cent [of GDP] and in terms of size that is significant.
"We have been funding all our major infrastructure projects in the country via issuances of sukuk and other industries also have turned to the sukuk market to fund their expansion requirements and other needs
"It is an established and robust market," he notes." Regulations are well designed and there is a significant degree of certainty within the sukuk market and within the fixed income market in general, due efforts by the Securities Commission over the last 20 years or so."
The Philippines-based Asian Development Bank (ADB) plans to have an Islamic infrastructure issue, the ADB assistant general counsel Ashraf Mohammed tells The National. "Standardisation of products within the Islamic financing industry" has increased its attraction such issues he said.
It is no longer a case where "every country has its own version of Islamic finance. If you go to the main Islamic finance countries there is a standardisation of products", he adds. "For instance, we will use an international law firm in Dubai to structure a transaction in Pakistan or Indonesia. This is a really good development for Islamic finance."
On a vist to Japan in 2015, the Malaysian prime minister Najib Razak said that,"it is apparent that Asian countries need to invest in tangible infrastructure assets, and I would say without hesitation that the Islamic finance model is eminently suitable for these purposes".
Updated: October 4, 2017 06:55 PM