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Global sukuk on the rise with surging market confidence

Posted on November 3, 2012, Saturday

(SOURCE: Bond Pricing Agency Malaysia, RHB Research)

KUCHING: Global Islamic bonds (sukuk) is seeing a steady growth path as institutions and governments worldwide issue new bonds while new incentives for regulatory and advisory bodies are said to be inspiring confidence in the market.

RHB Research Institute Sdn Bhd (RHB Research) in a research note yesterday stated that Malaysia’s corporate sukuk issuance for the third quarter of 2012 (3Q12) gained momentum with a total of RM26.8 billion issued, compared with RM13.05 billion recorded in 2Q12.

The research house highlighted that ‘chunky issuances’, amongst others, came from Celcom and Tanjung Bin with RM5 billion and RM4.2 billion issued respectively.

As a result, the total corporate sukuk issuance as at September 30, 2012 stood at RM81.7 billion, already surpassing 2011’s total issuance of RM45.6 billion, it noted.

“Accordingly, (the) market opines that the total sukuk issuance this year could reach an all time high, surpassing US$150 billion.

“The World Bank expects the size of global Islamic assets to grow between 10 to 15 per cent annually over the next three years, underpinned by healthy demand and supply dynamics and the improving legislation framework.

“From the regulation perspective, Bank Negara Malaysia has recently released issuance of syariah standard on mudarabah contracts to all Islamic financial institutions (IFIs).

“This standard aims to provide guide to IFIs in developing their Islamic financial products and to enhance the country’s regulatory framework,” RHB Research elaborated.

Meanwhile on the global front, Islamic finance experts in Saudi Arabia and Malaysia had taken efforts to create common regulations for the syariah scholars.

“This renewed effort which came from Malaysia’s International Syariah Research Academy and the Middle Eastern counterpart will address, amongst others, the number of boards on which scholars can sit and regulations whether scholars can own shares in companies they advise.

“We believe this will further boost the market confidence and improve transparency in syariah governance,” it opined.

On the home front, the non-rated and ‘AAA’ segments had contributed 42 per cent and 30 per cent of the issuance shares respectively in the 3Q12.

The quarter also saw two foreign sukuk issuers, namely RM600 million Islamic Medium Term Notes (IMTN) from First Resources Ltd and RM240 million in IMTN from Development Bank of Kazakhstan (DBK), both rated AA2.

“From our analysis, it showed that the yields for government Islamic issuances (also known as GII) are still higher than the conventional sovereign bonds (MGS).

“The current 10-yr GII/MGS spread now stands at 14 basis points (bps) compared with the two-year average of 11bps. In addition, GII/MGS spread is the widest at the three-year tenure as the three-year MGS rallied in October,” RHB Research pointed out.

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