Prime Minister Najib Razak’s plan to revive Malaysia’s faltering economy is getting no help from the country’s Islamic bond market.
Yields on government 10-year sukuk, used by companies to gauge the cost of Shariah-compliant financing, are at their highest level in 18 months relative to two-year securities, according to data compiled by Bloomberg. And with the slide in Brent crude prices sapping Malaysia’s oil-export revenue against a backdrop of looming U.S. interest-rate increases, investors say longer-term borrowing won’t be getting cheaper anytime soon.
“With the U.S. expected to raise interest rates soon, Malaysia’s yield curve will remain steep next year,” said Elsie Tham, a senior fund manager at Kuala Lumpur-based Manulife Asset Management Services Bhd who oversees more than US$1 billion. “Companies will find it challenging to raise funds because of slower economic growth.”
The Islamic Development Bank indicated that it may issue green sukuk bonds compliant with religious law and increase lending for climate-related projects with an announcement at the United Nations global warming conference in Paris at the end of the year.
“Estimates for the 2030 agenda indicate that we need to move from billions to trillions of dollars of support annually for sustainable development,” Savas Alpay, chief economist of the IDB, said in a phone interview. “Traditional sources of development finance will not be enough. We must also look at non-traditional sources. We will be using Islamic finance to bring new resources to the table.”
Khazanah Nasional Bhd, Malaysia’s state-owned sovereign wealth fund, issued green sukuk last November after introducing guidelines for socially responsible debt in August 2014. It was the second entity after the London-based International Financial Facility for Immunization announce plans to sell ethical-based sukuk.
As Islamic bond issuance heads for a record year, nations making up the six-member Gulf Cooperation Council are losing share to new borrowers such as the U.K., Hong Kong and South Africa. Global sales of Shariah-compliant debt reached $36.7 billion. GCC market share fell down from more than 50 percent a year earlier as Bloomberg figures show. With non-Muslim countries being lured by the growing Islamic investor base.
Growth of Shariah-compliant banks in Qatar is poised to outpace that of the UAE lenders as borrowing rises amid $200bn in government spending for the 2022 soccer World Cup. Qatar's four Islamic lenders will almost double their asset base to $100bn by 2017, Standard & Poor's has said in a report. Last year, the assets of the largest Shariah-compliant bank in the country, Qatar Islamic Bank, grew five times faster than those of the biggest one in the UAE, Dubai Islamic Bank. Spending for the world's most-watched sporting event will spur lending for roads, stadiums and hotels.
At the Global Islamic Finance Forum (GIFF) 2012 in Kuala Lumpur the new Thomson Reuters Global Sukuk Index and the MYR-denominated Bloomberg AIBIM Bursa Malaysia Corporate Sukuk Index were brought into public. The Islamic finance industry demonstrates a growth of more than 15% a year, its leading area being the Islamic debt capital market, primarily constituted of Sukuk. According to Thomson Reuters, the Global Sukuk Index is likely to contribute to the increase in secondary market trading as well as to the facilitation of cross-market relative value trading among different asset classes.
Today Bloomberg announced the launch of a new corporate sukuk index - Malaysian Ringgit (MYR). The index has been developed together with the Association of Islamic Banking Institutions Malaysia (AIBIM) and Bursa Malaysia. The purpose of the Bloomberg AIBIM Bursa Malaysia Corporate Sukuk Index is to serve as a benchmark for investors of ringgit-denominated Islamic bonds in Malaysia. It will track and measure the performance of the most liquid and credit-worthy Islamic corporate bonds in the country.
Banks in the United Arab Emirates may choose to refinance more than $3 billion of bonds due this year should pricing remain at current levels, as they search to extend the average maturity of their debt.
UAE banks have about $3.49 billion of bonds and sukuk maturing in 2012, according to data gathered by Bloomberg. This data also shows that Profit at UAE banks is starting to recover from the worst financial crisis since the 1930s, which curbed lending and forced them to take provisions against some of Dubai’s government-related entities.
Abu Dhabi Commercial Bank PJSC sold $500 million of five-year dollar-denominated sukuk in November.
Libya’s central bank is arranging a law to give permission to lenders and issuers to sell Islamic bonds as part of its efforts to evolve banking services after the fall of Muammar Qaddafi.
Mustafa Abdel Jalil, an Islamic jurist and former justice minister who heads the ruling National Transitional Council, stated that Libya’s banking industry will be made Shariah-compliant.
Bloomberg shows that global sales of sukuk climbed to $18.9 billion in 2011, compared with $13.5 billion in the same period last year.
Because of the need to hedge against an increase in U.S. treasury yields and the fact that investors shift toward shorter maturities, Dubai's Islamic bond due 2014 could provide better returns than its 2020 security.
The yield gap between the Dubai government's 6.396% sukuk, due 2014 and its 7.75% security due 2020 widened 11 basis points this month, led by a drop in yields on the shorter-dated notes. The statement came from Bloomberg.
Al Baraka Bank Egypt expects its sale to raise the sale of 10-year Islamic bonds this summer until EGP1bn ($168m). this was reported by Bloomberg. The bank will use the funds to help restructure liabilities" and to finance "growth plans".
Bloomberg, attended by Bank Negara Malaysia, has launched a Malaysian Foreign Currency Sukuk Index (BMSSUTR), a non-ringgit denominated index.
The new Bloomberg index will provide a global benchmark for the performance of sukuk bonds and the possibility to track movements of foreign currency issues.
In the annual report of Dubai Islamic Bank there was stated that while UAE's biggest Islamic lender tried to push mortgage financing in Dubai, the lender paid $102m in order to buy a controlling stake in Tamweel. This information was given by Bloomberg.
Gross domestic product can expand by 1 percent to 2 percent more than the central bank’s March forecast of 4.5 percent to 5.5 percent, Najib told the Foreign Correspondents Association in Singapore yesterday. Measures including developing the Islamic finance industry will aid growth, he said, adding that the government will probably sell Shariah-compliant global bonds denominated in dollars.