Inflows in debt vehicles issued by Muslim Southeast Asian nations have increased in the recent past. Malaysia and Indonesia are greatly benefiting from their current monetary easing policies, relaxed tax policies and government infrastructure spending programs. The Pan-Borneo Highway project adds to other sukuk issuances, among them a $1.3bn-offer by Sarawak Hidro, the state-owned developer of Malaysia’s biggest hydropower project, also on Borneo Island. Other infrastructure sukuk in the queue are a $440mn-issuance for the bridge connecting Peninsular Malaysia with Penang island and a $892mn-issuance for a highway network. Indonesia’s government is also enlarging the scope of sukuk-backed investment in roads and railways. However, the state budget is only capable of contributing 30%, which means that a large number of future issuances can be expected, with its uptake spurred by generous tax incentives.
Executives of Indonesian and Malaysian stock markets signed on Tuesday a Memorandum of Understanding (MoU) on the establishment of a World Sharia Stock Market Center. Signing of the document was conducted by Indonesia Stock Exchange President Director Tito Sulistio and his Malaysian counterpart Tajuddin Bin Atan. The planned center aims to develop Sharia products and portfolios for stock markets, but also to train human resources to become competent, professional and skillful persons in the industry. Global Sharia financial market was estimated to expand to USD 3.24 trillion by 2020.
Australian Islamic investment company Crescent Wealth and KAF Investment Funds have jointly launched the KAF Australian Islamic Property Fund (KAIPF). Crescent Wealth corporate strategy director Omar Khan said the fund would achieve 9-10% annual return to investors, a target driven by the appetite of Malaysian investors for Australian property. The KAIPF is Malaysia’s first fund that provides non-institutional investors direct access to Australian commercial property. The launch of KAIPF brings the total number of funds under KAF to 18, with close to RM2.3 billion worth of assets under management.
Khazanah Nasional, the $27 billion Malaysian sovereign fund, is weighing a bid for control of the insurance operations of billionaire Quek Leng Chan’s Hong Leong Financial Group. Khazanah is considering an offer for Hong Leong Financial’s 70% stake in Hong Leong Assurance and its 65% holding in Hong Leong MSIG Takaful. The bid could be valued at about 3.2 billion ringgit ($799 million). Hong Leong Financial said last month that Malaysia’s central bank had no objection to the sale of its stakes in the two insurance units.
Badlisyah Abdul Ghani, the former CEO of CIMB Islamic Bank, has been appointed deputy CEO of pilgrim fund Lembaga Tabung Haji. Badlisyah gained fame when he disputed the authenticity of banking documents released by The Wall Street Journal relating to 1Malaysia Development, which touched on US$700 million being transferred to Prime Minister Datuk Seri Najib Razak’s personal accounts. While an internal inquiry was ongoing at CIMB, Badlisyah resigned in mid-August last year. It is not clear how Badlisyah is already stated on the company website as deputy CEO, when no formal announcement has been made in this respect.
Over the last two decades, Islamic finance and socially-responsible investments (SRI) have become essential part of the development discourse. These two have seen the most rapidly growing areas of finance, of which Islamic financial assets have grown by 15-20% a year and its volume in 2014 exceeded US$2 trillion (RM8 trillion), while the SRI assets globally in the same year soared from US$13 trillion to US$20 trillion in two years. The principles of Islamic finance share common threads with SRI. These commonalities provide opportunities for Islamic finance to broaden its portfolio by tapping into the large amount of SRI funds available in global market.
Malaysia already started in August 2014, when it launched its Sustainable Responsible Investment Sukuk Framework to facilitate the financing of SRI initiatives. SRI sukuk can act as a compass for investors in the creation of shared value within society.
The Pan-Borneo Highway in East Malaysia, a jumbo project estimated to cost 27 bin ringgit ($9.16 bn), is finally starting to take shape as the federal government prepares to launch initial funding to start the construction. The selected group of banks includes the four top Malaysian lenders: CIMB, AmInvestment Bank, Maybank and RHB. About 60 per cent of the project will eventually be funded with proceeds from ringgit-denominated Islamic bonds to be issued through federal government funding vehicle DanaInfra Nasional. The first batch of bonds, wrapped with a federal government guarantee, is expected to raise around 10 billion ringgit. The launch is timed for August or September.
Malaysia’s second-largest pension fund plans to buy more bonds to hedge against another interest-rate cut as it moves further toward becoming a full-fledged Islamic entity. CEO of Kumpulan Wang Persaraan, Wan Kamaruzaman Wan Ahmad said the fund is considering lowering its 5% minimum return target because of the uncertainty in global markets. He also added that this low interest-rate environment, low corporate returns, lower dividend yields will prevail for a much longer period. KWAP bought 30-year Malaysian government bonds at a yield of 4.613% on June 29, days after the UK voted to leave the European Union. Wan Kamaruzaman said the fund will likely keep its 2% allocation to UK assets, despite the results of the referendum, because it adds diversification to the portfolio.
Indonesia's Islamic bond yields have fallen faster than Malaysia's in the past three months, as the nation's higher-yielding notes do better at attracting foreign investors. Yields on rupiah sukuk due 2019 slid 37 basis points in the period, compared with 24 basis points for equivalent paper in Malaysia. Indonesia's three-year Islamic bonds pay 7.16%, while those in Malaysia yield 3.26%. Indonesian bonds are the best performers in South-east Asia this year after the government passed a tax amnesty bill on undeclared income held overseas. Bank Negara Malaysia lowered borrowing costs for oil, as well as its projection for consumer prices to 2%-3% in 2016, from 2.5%-3.5 %. Currently both nation's currencies are seeing a revival.
1Malaysia Development (1MDB) agreed to the Request for Arbitration filed by International Petroleum Investment Company (IPIC) and Aabar Investments (Aabar). 1MDB is confident of its legal position and reiterated that, notwithstanding the dispute with IPIC, it would continue to honour its current debt obligations. Last month, 1MDB paid the RM1.579 million interest coupon on the RM2.4 billion Bandar Malaysia sukuk, due 2024. In May, 1MDB made a scheduled coupon payment amounting to RM143.75 million on its RM5 billion 5.75% Islamic Medium-Term Notes due 2039.
Swiss insurer Zurich Insurance Company has bought MAA Takaful (MAAT) from MAA Group and Solidarity Group Holding to expand its insurance and takaful business in Malaysia. Zurich Insurance Malaysia CEO Philip Smith said the company will be able to provide a wide range of insurance and takaful solutions across multiple customer segments, supported by the technical and servicing expertise in the wider Zurich Group. The acquisition cost RM525 mn and about RM400 mn was paid at the closing of the transaction. The remaining amount will be paid on the third anniversary after the closing.
1Malaysia Development (1MDB) has paid the RM1.579 million interest coupon on the RM2.4 billion Bandar Malaysia sukuk due in 2024. This is the second interest payment made by 1MDB since its dispute with the Abu Dhabi’s state-owned investor, International Petroleum Investment (IPIC). The first payment was in May, when 1MDB made a scheduled coupon payment amounting to RM143.75 million on its RM5 billion 5.75% Islamic medium-term notes due 2039. The two payments strongly indicated that the company had ample liquidity to make interest payments. According to 1MDB president Arul Kanda Kandasamy 1MDB was focused on resolving the dispute with IPIC and would continue to honour current debt obligations.
Maxis Broadband, a unit under telecommunications group Maxis, is planning a sukuk issuance to raise as much as MYR10 bn for acquisitions and capital expenditure. CIMB Investment Bank is the sole principal adviser and sole lead arranger for the programme, while CIMB Islamic Bank is the shariah adviser for the programme. The Islamic Development Bank (IDB) has issued a MYR350 mn ($86.6 mn) sukuk for project financing and other development activities. IDB president Ahmad Mohamed Ali said the successful issuance of sukuk in Malaysian Ringgit is a testimony to the increasing interest for sukuk.
After the listing of RHB Bank, attention is now on whether BIMB will do the same with Bank Islam Malaysia. Bank Islam is the oldest and largest standalone Islamic bank in Malaysia with an asset size of RM55.46 bn as at March 31. It also owns a 59.9% stake in insurer Syarikat Takaful Malaysia, while its other core business is BIMB Securities. BIMB, in turn is 53.6% controlled by pilgrim fund Lembaga Tabung Haji (LTH). It is believed that the bank still holds the dream to move into the big league and grow market share. However, it will not be able to achieve mega Islamic bank dream unless it mergers.
There is evidence both in the Quran and Hadith that supports wealth succession planning and management. A starting point for a discussion on Islamic wealth management would be the Quranic verses in Surah al-Kahf (Surah no. 18). There are lessons that we may draw from these Quranic verses. These verses indicate that although a person cannot foresee future events, he/she should take measures and have plans to manage their unfavourable effects on life and family welfare. That parents may have a succession plan through which the wealth earned could be transferred to children in the safest possible way.
Malaysia is adapting to fintech revolution by adjusting its financial regulatory guidelines with an Islamic angle. According to Muhammad bin Ibrahim, governor of the Central Bank of Malaysia, the recent Islamic finance initiative could be the next game changer. The Investment Account Platform (IAP) is a platform that connects lenders, banks and enterprises seeking funds, one that could shift the role of Islamic lenders to investment intermediaries. Serving as a central marketplace to finance small and medium-sized enterprises (SMEs), the IAP was launched by six Malaysian Islamic banks: Affin Holdings, Bank Islam Malaysia, Bank Muamalat Malaysia, Maybank Islamic, Bank Kerjasama Rakyat Malaysia and Bank Simpanan Nasional.
Malaysia has been rocked for more than a year by a financial scandal involving Prime Minister Najib Razak, a state investment firm, and an alleged frenzy of embezzlement. Authorities in a half-dozen countries have launched investigations into suspicions that several billion dollars was looted from complicated financial transactions involving 1MDB and parked around the world. Over the past year, Najib has purged 1MDB critics from his cabinet, curbed domestic investigations, and moved to prevent further discussion of the scandal. Najib has dramatically strengthened his control of the country. A state-level election and two parliamentary by-elections were won handily by Najib's ruling coalition, further bolstering his position.
In #Malaysia Danajamin Nasional is guaranteeing a 17-year sukuk murabahah programme amounting to RM300 million for Chellam Plantations. The first tranche of the programme amounting to RM150 million with a tenure of up to 17 years, was issued and subscribed last Friday. Funds from the sukuk issuance will support Chellam Plantations’ new planting in Kalimantan and expansion in Indonesia. Proceeds from the sukuk will also be used to refinance its outstanding borrowings and finance its capital expenditures. Joint lead arrangers of the transaction are RHB Investment Bank and OCBC Al-Amin Bank.
Sarawak Hidro, the state-owned developer of Malaysia’s biggest hydropower project, plans to offer 5.5 billion ringgit ($1.3 billion) of sukuk without a government guarantee. The electricity generator is weaning off government guarantees to ease the nation’s fiscal burden. Sarawak Hidro’s plant on Borneo island is part of Prime Minister Najib Razak’s $444 billion development plan to become a developed economy by 2020. Malaysia aims to cut its ratio of debt to gross domestic product to 45% by 2020, from 54.5% at the end of last year.
Malaysia’s Employees Provident Fund is allocating an initial fund size of 100 bn ringgit (US$24.64 bn) – equivalent to 14.67% of 681.71 bn ringgit in total AUM as at March 31, 2016 – to shariah investments, making the Shariah-compliant allocation the largest in the world thus far.
The move is in accordance with the EPF’s plan to roll out its shariah-compliant fund – also known as EPF-i – in January 2017. What sets the fund apart from its conventional counterpart is that the former is not exposed to banking and insurance stocks. Meanwhile, contributors are free to choose from among the two schemes.
Shahril Ridza Ridzuan, chief executive officer of EPF, says the fund has been investing in shariah-compliant assets for more than five years and about 45% of its existing total assets – worth 295 bn ringgit – already conform to Islamic principles.
In fact, prior to the launch of EPF-i, the EPF had assured investors that its investment considerations are in line with ESG practices, as it does not invest in businesses related to gambling, adult entertainment and alcohol.