Nomura Sells Sukuk to Support Shariah Ambition: Islamic Finance

Nomura Holdings Inc. plans the first sale of dollar-denominated Islamic bonds in Malaysia by a Japanese company, supporting its expansion in an industry with $1 trillion of assets.Japan’s largest brokerage will sell $100 million of Ijarah sukuk that will mature in 2012, Nomura said in a statement in Kuala Lumpur today. The securities will be priced to yield 160 basis points more than the London interbank offered rate, said Jamelah Jamaluddin, chief executive officer of Kuwait Finance (Malaysia) Bhd., the sale arranger.

Nomura Sells Sukuk to Support Shariah Ambition: Islamic Finance

The notes complying with Shariah’s ban on interest will allow Muslim investors to diversify, according to CIMB-Principal Islamic Asset Management Bhd. and Amundi Islamic Malaysia Sdn. Nomura set up a fund unit in Malaysia last year to offer services to Muslim investors worldwide. Nomura won a stock broking license in the Southeast Asian country in 2009 and has banking operations in Qatar, Bahrain, Dubai and Saudi Arabia.

The brokerage “wants to be directly involved by going into the market themselves instead of watching it from the outside,” Noripah Kamso, who oversees $1.6 billion of Shariah assets as chief executive officer in Kuala Lumpur at CIMB-Principal Islamic, said in an interview yesterday.

Sukuk issued by international companies see “healthy” demand as funds seek to invest in different industries and geography, according to KFH Research Ltd., a unit of Kuwait Finance House, the country’s biggest Islamic bank. The Islamic finance industry’s assets may quadruple to $2.8 trillion by 2015 from about $700 billion in 2005, said the Kuala Lumpur-based Islamic Financial Services Board, a standards-setting body.

Diversify Funding

The Ijarah note will allow Nomura to “diversify its funding sources and tap the large and growing Islamic finance market for the first time,” Takumi Shibata, chief operating officer of Nomura Holdings, said in the statement.

Ijarah is an agreement whereby the owner leases an asset or equipment to its client at an agreed rental fee and for a predetermined lease period. The ownership of the leased equipment remains in the hand of the lender.

General Electric Capital Corp., the world’s biggest non- bank finance company, sold $500 million of sukuk in Malaysia on Nov. 19 to yield 1.75 percentage points more than similar- maturity U.S. Treasuries. The company offered a 1.55 points spread when it raised $1.5 billion on Nov. 10 selling bonds of a similar maturity that don’t meet Islamic standards.

“We view the sukuk product similar to other non- conventional financial products, as a potential source of our alternative-funding bucket,” Aris Kekedjian, CEO of GE Capital Middle East and Africa, wrote in an e-mail yesterday.

Malaysia Sukuk

The yield on GE’s 3.875 percent notes maturing in November 2014 has fallen nine basis points, or 0.09 percentage point, this year to 4.1 percent, according to prices from Royal Bank of Scotland Group. The difference in yield with similar-maturity Treasuries widened 90 basis points to 252, reflecting the rally in U.S. debt.

Malaysia’s 3.928 percent Islamic note due June 2015 fell 11 basis points in yield to 3.44 percent today, the lowest level since the bonds were sold on May 27, according to prices from HSBC Holdings Plc.

Shariah-compliant bonds returned 6.1 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index, while debt in developing markets gained 5.5 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

The spread between the average yield for emerging-market sukuk and Libor narrowed two basis points yesterday to 4.31 percentage points, according to the HSBC/NASDAQ Index. That’s down from 4.67 points at the end of last year.

Malaysia accounts for more than 60 percent of the $130 billion outstanding sukuk. The market has attracted issuers from the Persian Gulf, including National Bank of Abu Dhabi PJSC, the United Arab Emirates’ second-largest lender by assets, which sold 500 million ringgit ($156 million) of Islamic bonds in its first offering of debt in the country on June 22.

Global sales of Islamic notes have fallen 24 percent to $6.5 billion this year as the financial crisis prompts companies to delay projects. That has boosted appetite among investors for new issues, said Amirudin Abdul Hamid, assistant investment manager in Kuala Lumpur at Amundi Islamic Malaysia.

“If you have a conventional structure and an Islamic structure, the yield is usually similar in Malaysia, but sukuk is better because there are so many conventional bonds in the market and so little sukuk,” he said.

–With assistance from Pooi Koon Chong in Kuala Lumpur, Dana El Baltaji in Dubai. Editors: Simon Harvey, Sandy Hendry