Malaysia's Islamic capital market, especially its sukuk sector, is well on the road to recovery with the latest figures from the Securities Commission of Malaysia (SCM) confirming that the total size of sukuk issued by August 2009 has overtaken the entire figure for 2008.
According to SCM, by the end of July 2009, 18.3 billion Malaysian ringgits worth of sukuk were issued compared with 20.8 billion ringgits for the whole of 2008. But if the $1.5 billion Petronas Sukuk Al-Ijara issuance is included, then the figure increases to 24 billion ringgits by mid-August 2009. Similarly, the sukuk outstanding at the end of July 2009 totaled 167.73 billion ringgits compared with 152.8 billion ringgits in 2008. Perhaps more importantly, the percentage of outstanding sukuk to total outstanding corporate bonds in the Malaysian market increased from 57 percent in 2008 to 58.2 percent at the end of July 2009.
Indeed, in a report published in January 2009 and titled "Sukuk Market Declined Sharply in 2008, but Long-term Prospects Remain Strong", Standard & Poor's (S&P), the international credit rating agency, stressed that there are good reasons for optimism in the Islamic capital markets. S&P earlier reported that global sukuk issuances declined from $34.3 billion in 2007 to $14.9 billion in 2008. The decline in 2008 was primarily due to the impact of the global financial turmoil which led to a liquidity squeeze, widening of credit spreads and investors' wait-and-see attitude.
Both bankers and investors acknowledge that Asia will lead the recovery in the global sukuk market. So far this year, Indonesia has issued two sovereign sukuk -- one an international issue and the other a domestic rupiah issuance; Malaysia has issued three sovereign or quasi-sovereign sukuk; and Singapore has issued a reverse enquiry sukuk facility. This compared with the sole sovereign issuance out of the GCC (Gulf Cooperation Council) countries by the Bahrain central Bank on behalf of the Bahrain government.
Malaysia, says a SCM official, continues to lead in sukuk issuance, with the domestic market averaging an annual growth rate of 22 percent for the period of 2001 to 2007. At the end of 2008, for instance, 62 percent of sukuk outstanding globally were from Malaysia. Similarly, some 58.2 percent of outstanding corporate bond in Malaysia at the end of 2008 were sukuk. Malaysia also has an active secondary sukuk market with trading volumes averaging 1 billion ringgits per day.
An interesting development of the Malaysian sukuk market is the number of foreign issuers issuing sukuk out of Malaysia. Over the last few years these have included Shell, the World Bank, the International Finance Corporation (the private sector funding arm of the World Bank Group), Tesco Stores and Toyota Capital of Japan at the end of 2008. Malaysia indeed claims several world firsts in the sukuk market. These include the world's first global corporate sukuk by Kumpulan Guthrie in 2001; the world's first global sovereign sukuk by the government of Malaysia in 2002; the world's first exchangeable sukuk by Khazanah Nasional in 2006; and the world's first international subordinated sukuk by Maybank in 2007.
The buoyancy of the market going forward is perhaps underlined by the five-year EMAS $1.5 billion sukuk Al-Ijarah issued by Malaysian state oil company, Petroliam Nasional Bhd (Petronas), in August 2009, which was five times over-subscribed. The investor profile of the Petronas sukuk showed that 60 percent came from East Asia and only 13 percent from the Middle East & the US. This is in contrast to the $550 million Khazanah Exchangeable sukuk issued in 2008 when Middle East investors accounted for over 50 percent of the uptake. This suggests the beginning of a change in the investor demography for Asian originations away from the dependence on Middle East investors, and the growing involvement of Chinese capital in Islamic finance, perhaps as a risk mitigating diversification away from over-exposure to US treasuries.
Another encouraging development in the market is the introduction at the end of 2008 of a new framework for the listing of sukuk by Bursa Malaysia, the national stock exchange. Hitherto sukuk in Malaysia were listed on the Labuan International Financial Exchange (LIFX). Bursa Malaysia has since then been consolidating its role in this sector with a cross-listing and mutual recognition agreement with Nasdaq Dubai, and is actively seeking similar agreements with other exchanges such as the London Stock Exchange, the Luxembourg Stock Exchange -- both with about 15 sukuk already listed, and with the Hong Kong Stock Exchange.
Bursa Malaysia has indeed given issuers an incentive in that it is not charging any fees for sukuk listed on the exchange during 2009. It also hopes to attract sukuk issued outside Malaysia to list on the Bursa Malaysia.Similarly, Malaysia, according to the SCM, has a well-developed Islamic mutual fund and wealth management industry, especially equities and unit trusts. The latest SCM figures suggest that there were 143 Islamic unit trusts approved at the end of June 2009 with a total net asset value (NAV) of 19.71 billion ringgits or 12 percent of the total mutual fund industry in Malaysia.
This compared to 149 Islamic funds with a NAV of 17.19 billion ringgits or 12.8 percent of the market at the end of December 2008. The mutual fund sector, says the SCM, is the fastest growing segment of the Islamic capital market in Malaysia with an 80 percent year-on-year growth from 2007.
Out of the total 960 stocks listed on Bursa Malaysia in May 2009, some 848 were Shariah-compliant, with a total market capitalization of 561.01 billion ringgits.
By Mushtak Parker
© Arab News 2009
