Malaysia

Why commodity-linked #sukuks should be introduced

A sukuk is a sharia-based hybrid instrument that can have the features of both a conventional debt instrument and of equity. Sharia requires all financial contracts to be rooted in real sector activities. Sukuk has coupons paid at prefixed times in the future. However, the quantum of the coupon is not prefixed, but depends on the performance of the sukuk-issuing enterprise. This ensures that the sukuk holders partake in the risk of the enterprise. A sukuk can be issued for any commodity. The commodity-linked sukuk would not only be a win-win instrument for both investors and issuers, it would also be beneficial to society.

Crowdfunding Islamic Banks

As some areas of banking face competition from peer-to-peer lenders, #Malaysia’s Islamic Financial Services Act 2013 included provisions that can build some of the same types of disruptive innovation into the Islamic banking marketplace. One of the most important was the launch of the Investment Account Platform (IAP) in February 2016 which is a crowdfunding platform owned by Malaysian Islamic banks. The IAP serves as a way to measure customer interest in crowdfunding as an alternative to traditional bank deposits. The investment account growth in Malaysia demonstrates an opportunity for IAP and other innovative FinTech platforms. Islamic banks should realize that they have within their guiding principles a call to embrace risk sharing rather than risk shifting.

RAM Ratings reaffirms Litrak’s RM1.45b #Sukuk

RAM Ratings has reaffirmed the AA2/Stable ratings of Lingkaran Trans Kota’s (Litrak) Sukuk Musharakah IMTN I and II Programmes (2008/2023) with a combined value of up to RM1.45bil. The ratings reflect Lebuhraya Damansara-Puchong’s (LDP) robust traffic profile, underscored by its strategic alignment through major townships, which supports its strong debt-servicing capability. According to RAM Ratings, Litrak will preserve its strong cashflow-generating ability, with an average projected annual pre-financing cashflow of about RM215mil throughout the Sukuk’s tenure. This translates into solid debt coverage, enabling the company to maintain a strong finance service coverage ratio of at least two times over the same period.

Kuwait Finance House strengthens its #Malaysia operations and supports local Halal industry

Kuwait Finance House-Malaysia (KFH-Malaysia) is taking steps towards expanding its operations in Sarawak on top of the two existing branches at present. CEO David Power reinstated KFH's commitment to grow and expand after paying a courtesy call on Chief Minister Datuk Patinggi Tan Sri Adenan Satem. He added that there were 15 branches throughout Malaysia since its establishment in 2006, two of them in Sarawak. He noted they were evaluating the performance of the two existing branches first and consider to set up another branch. KFH Malaysia is looking forward to stronger business ties in the state in the long term to provide Islamic financial services and products to the people of Sarawak.

#Malaysia’s leadership in Islamic finance a catalyst for ESG-driven investment

RAM Ratings sees Malaysia’s leadership in Islamic finance as a catalyst for environmental, social and governance (ESG)-driven investment. RAM Ratings CEO Foo Su Yin said for ESG growth the government needs to follow a similar path to that which has led to Malaysia’s leadership position in Islamic finance. PRI managing director Fiona Reynolds said that fiduciary duty remains the biggest barrier to ESG integration. She added that investors and policymakers need to work together to ensure sustainability issues continue to gain traction. There are compelling national-interest reasons for policy makers to promote the incorporation of ESG factors into investment practices in China, Hong Kong, India, Malaysia, Singapore and South Korea.

#Malaysia’s transport binge to spur #sukuk sales

Malaysian corporate sukuk sales are rebounding from a four-year low. RHB Investment Bank sees issuance rising 7% to RM60.2bil in 2016, encouraged by Bank Negara’s monetary easing in July. AmInvestment Bank forecasts as much as RM70bil. Sukuk sales have picked up after Najib kicked off US$16bil of road and subway projects this year in partnership with the private sector. This month the Public Sector Home Financing Board sold RM3.4bil of Government-guaranteed Islamic notes, while Lebuhraya Duke Fasa 3 Sdn. offered RM3.64bil of syariah debt to finance a highway in Kuala Lumpur. Fundraising is needed for construction of 1,800km of roads being built in Sabah and Sarawak. Other potential issuers include Prasarana Malaysia, which is financing a RM10bil extension of Kuala Lumpur’s light-rail network.

Gulf sukuk issuance forecast to remain stagnant for months

Corporate and infrastructure sukuk issuance in the Gulf region and Malaysia has continued to stagnate so far this year and this may carry over to the coming quarters, according to S&P Global Ratings. Despite the slump, essential infrastructure funding requirements, low interest rates, and investors' appetite for Islamic assets in their portfolios continue to be supportive for the world's core corporate sukuk markets.

In the GCC, corporate and infrastructure sukuk issuance totalled $2.5 billion in the first eight months of 2016, compared with $2.3 billion for the preceding eight months. Versus the same periods in 2013 and 2014, issues are down sharply from $5 and $6.5 billion, respectively, S&P said.
"Further out, we see possible brighter prospects for issuing corporate and infrastructure sukuk over the medium to long term. We estimate that Gulf government spending on projects alone - including infrastructure contracts awarded over 2016-2019 - could be about $330 billion," said S&P Global Ratings analyst Karim Nassif.

Moody's: Islamic banks' strong liquidity profiles driven by retail strengths and government sukuk availability

Moody's Investors Service says that the liquidity coverage ratios of Islamic banks in key Asian and GCC countries highlight sound liquidity profiles and broad compliance with Basel III regulatory requirements.
"In the report, we highlight that a key driver of LCR performance is the funding profile of banks and, in this context, over-reliance on corporate deposits and unsecured wholesale funding means higher potential liquidity pressures," says Simon Chen, a Moody's Vice President and Senior Analyst. "However, banks with a greater proportion of retail deposits that are considered more 'sticky', typically display stronger LCRs," adds Chen.

Malaysia Plans Indonesia Shariah Stock Trading Link by 2017

Malaysia’s stock exchange operator is discussing a tie-up with Indonesia’s bourse and plans further alliances to mobilize funds targeting the world’s almost $12 trillion in Shariah-compliant equities.

Bursa Malaysia Bhd. is in talks with the Indonesia Stock Exchange to explore various forms of cooperation such as allowing cross listings and hopes to start collaborating by mid-2017, Jamaluddin Nor Mohamad, Bursa’s Islamic capital market director said in an interview in Kuala Lumpur. Bursa plans to forge partnerships with exchanges in Asia and the Middle East to develop the Islamic capital market, he said.
Malaysia already tightened compliance rules for Shariah stocks in 2013 as it sought to draw overseas funds who have a stricter view on permitted investments. Shariah law forbids investments in shares of companies involved in activities considered unethical such as gambling, prostitution, alcohol and pork-related businesses.
Some 669 stocks, or 74 % of the total shares listed on Bursa Malaysia, comply with Shariah principles, according to the Securities Commission. The market regulator reviews the list twice a year based on the companies’ audited financial statements.

Bank Islam unfazed by developer loans proposal

Bank Islam Malaysia Bhd said the proposed move to allow developers to provide loans to house buyers will not have a severe impact on the bank, as it will continue to focus on its target market.
“For us, we don’t see any reduction in (our) approval rate, mainly because our target market remained stable,” its deputy CEO Khairul Kamarudin told reporters after launching the bank’s Visa Infinite Business Credit Card-i (business card-i) here yesterday. “Our target market has always been the middle income (segment) and we will continue focusing on our target market and we are seeing the same approval rate (going forward)”. Khairul said the bank’s approval rate last year was 70%, and slightly better this year at 71%, to date. He also said the bank has not experienced high loan rejections despite the current uncertain economic conditions. “People (borrower) who are eligible last year are also eligible this year. For the ones who have their applications get rejected are maybe for the ‘high ticket’ properties,” he added, noting that the bank is more focused on providing loans for affordable housing.

Opinion: Halal and Tayyib – the next wave

If we look back at the emergence of the Muslim Lifestyle markets as a global phenomenon, we can see an interesting pattern developing. From 2004 - 2007, Malaysia was the epicenter of the Halal movement, bringing the terms ‘Halal market’ and ‘Halal industry’ into the global business vocabulary. Bidding to become a global Halal hub, the development of their Halal food sector made Malaysia a role model for other countries looking to position themselves in this fast-growing marketplace. Abdalhamid David Evans, Founder, HalalFocus.net/ImaratConsultants.com, will be speaking about this topic at the Muslim Lifestyle Expo 2016 in Event City, Manchester on the 30 October 2016.

MARC affirms ‘AAA’ rating for Aman Sukuk’s RM10b IMTN

The Malaysian Rating Corp Bhd (MARC) has affirmed its ‘AAA’ rating on special purpose vehicle Aman Sukuk Bhd’s (Aman) Islamic medium-term notes (IMTN) programme of up to RM10 billion with a stable outlook. MARC said the rating reflects the credit strength of the government as the sole paymaster of the sublease rental payments that are sufficient to meet the principal and profit payments under the IMTN programme.
In the statement the rating agency added the stable outlook reflects its expectations that the sublease rental stream backing the transaction will continue to be supported by timely receipt of payments from the government.
Aman is a wholly owned funding vehicle of Pembinaan BLT Sdn Bhd (PBLT), the developer of 74 projects comprising quarters and facilities for the Polis DiRaja Malaysia. The projects, which are located throughout the country, were developed under a build, lease and transfer (BLT) project model. As at end of August 2016, PBLT has fully completed the construction of the 74 projects with a value of RM7.5 billion, of which 73 projects have been awarded with certificates of completion and compliance (CCC).

Interview with Mr. Khairul Kamarudin, Deputy CEO of Bank Islam

In this interview deputy CEO of Bank Islam in Malaysia, Khairul Kamarudin, talks about the challenges Bank Islam had to face during the years. The bank had heavy losses in 2005 and 2006 and had to manage the misconceptions of the public as well. Today, Bank Islam’s customers have grown to more than 5 million. The bank was one of the four founding Islamic banks to form a consortium that launched the Investment Account Platform (IAP) in 2015. The IAP platform facilitates direct investment by investors into viable ventures of their choice. Bank Islam is involved in several social projects and foundations, like the Projek Bantuan Rumah (Housing Aid Project) and Promoting Intelligence, Nurturing Talent and Advocating Responsibility (PINTAR) Foundation.

Islamic Finance: Demand for more shariah-compliant products

While the number of Islamic products in #Malaysia has grown in the last 10 years, there still aren’t enough to cater for the needs of local investors. According to Rohani Mohd Shahir, president of the Association for Islamic Financial and Wealth Management Malaysia (AIFiWM) the growing demand is due to a greater awareness of compliance for religious purposes. There is a lack of Islamic real estate investment trusts (REITs) and fewer shariah-compliant stocks in Malaysia today due to the tightening of regulatory requirements. To increase the number of listings available, AIFiWM is championing a move to restore the shariah-compliant status of companies that were once deemed compliant.

Mohammad Faiz new Islamic Finance Consultative Group Chairman

The International Accounting Standards Board (IASB) has appointed Datuk Mohammad Faiz Azmi as chairman of the Islamic Finance Consultative Group. Commenting on his appointment, Mohammad Faiz said he hoped to be able to continue the good work of the IASB in the area of global finance. He appreciates IASB's commitment in helping the emerging markets adopt their International Financial Reporting Standards (IFRS). IASB Chairman Hans Hoogervorst said Mohammad Faiz had always been a valued member of the IFRS community and is renowned for his expertise in Islamic Finance.

KFH #Malaysia appoints David Power as its CEO

Kuwait Finance House (KFH Malaysia) has appointed David Power as its new chief executive officer (CEO). Power, who has been Kuwait Finance House (KFHK) group chief retail and private banking officer since 2014, is now replacing Ahmed S. Al Kharji. KFH Malaysia had also appointed Nor Azzam Abdul Jalil as its deputy CEO and chief (consumer banking) effective June 1, and David Wee Kim Peng as chief operating officer, effective April 1. KFH Malaysia was established on Aug 8, 2005.

Khazanah Said to Weigh $500 Million Exchangeable #Sukuk Sale

Khazanah Nasional, the Malaysian sovereign fund, is considering selling as much as $500 million of exchangeable sukuk. The state-owned firm is currently choosing banks for the potential offering. Khazanah has been reducing stakes in listed Malaysian companies through Islamic debt offerings that can be converted into shares. The fund last sold $500 million sukuk that can be exchanged into shares of Tenaga Nasional, the country’s biggest power producer, in 2014. It is also the largest shareholder of IHH Healthcare, Asia’s biggest hospital operator. Sales of Islamic bonds in Malaysia surged 60% this year to 45.8 billion ringgit ($11.4 billion), while offerings of global sukuk climbed 19% to $28.1 billion.

#Malaysian insurers to target Europe in Islamic finance push

Malaysia’s Islamic insurers are considering a move into Europe by targeting the continent’s growing Muslim population. Amat Taap Manshor, chief of the Financial Accreditation Agency (FAA), said it may not happen right away but a lot of Islamic insurers are looking to target the Muslim middle classes in the UK, Germany and France. Manshor made the comments during the signing of a memorandum of collaboration between the FAA and the British accreditation council (BAC). The partnership hopes to offer financial services globally accredited courses in Islamic finance.

'MBSB's Islamic banking strategy will spur growth'

#Malaysia Building Society's (MBSB) move to strengthen its presence in Islamic banking is in line with majority shareholder Employees Provident Fund’s (EPF) endeavour. MBSB president Datuk Ahmad Zaini Othman said being a prominent Islamic player would help the firm’s growth plan. MBSB aspires to graduate from a non-lender into a full-fledged Islamic bank to increase its competitiveness. For the first six months ended June, MBSB’s net profit dropped 53.4% to RM97.8 million, despite an 11.6% jump in revenue to RM1.6 billion. The first-half results were below estimates, with operating income declining 1.8% as management continued to focus on corporate loans portfolio in place of the higher-yielding personal financing portfolio.

Islamic finance body IILM auctions first four-month #sukuk

#Malaysia-based International Islamic Liquidity Management Corp (IILM) has lengthened maturities in its Islamic bond programme by auctioning $500 million of four-month sukuk. Previously, the IILM has issued three-month and six-month papers, which were introduced to manage short-term funding needs. The IILM sold the four-month sukuk at a profit rate of 1.37389%, attracting 17 bids worth a combined $1.3 billion. It also sold $840 million of three-month sukuk at a profit rate of 1.24411%, attracting orders of $1.6 billion via 14 bids. The issues were bought by 11 primary dealer banks.

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