IslamicFinance.de

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.”
That’s bad news for Najib’s government as it looks to simultaneously reduce the budget deficit and finance a US$444 billion public and private-sector spending program, at a time when the economy is growing at its slowest pace in two years. Islamic bond sales in Malaysia, the world’s biggest sukuk market, dropped 56 % in the third quarter from the previous three months, according to data compiled by Bloomberg.
Investors are shunning 10-year sovereign sukuk, as a sliding ringgit hurts sentiment and fuels capital outflows. The concern was reflected in a conventional sale of 2025 bonds last week that drew the fewest bids since December.