Standard & Poor's Maintains Strong Outlook For Malaysia's Bond Market

Standard & Poor’s Maintains Strong Outlook For Malaysia’s Bond Market.

KUALA LUMPUR, Feb 8 (Bernama) — Despite the shaky prospects of the global economy, Standard & Poor’s Ratings Services maintains a strong outlook for Malaysia’s bond market, reflecting positive bond market developments, ongoing growth in Islamic finance and steady macroeconomic fundamentals in the country.

It said Malaysia’s bond market stands out by becoming the Islamic finance centre for Asia with smart regulations and a growing ecosystem around Islamic finance.

“About 70 per cent of Malaysia’s domestic debt issuance is in the form of sukuks, making it the world’s largest Islamic bond market, with over 60 per cent of the global sukuk issuances originating from Malaysia, it said in a statement.

Standard & Poor’s managing director Surinder Kathpalia said policymakers in emerging markets viewed Malaysia as a “poster child” for bond market developments, given that it was now the fourth largest bond market in Asia after Japan, China and South Korea.

“Malaysia’s bond market has a strong infrastructure and a record of solid growth due to a transparent and predictable regulatory environment, availability of independent credit research, existence of risk-free bonds of various tenures and a bond-pricing service,” he said in a statement.

Southeast Asian local currency bond markets, including Malaysia’s, continued to bustle last year, with local currency bond issues providing alternative funding and investment options for Asian issuers and investors when issuances in G3 currencies (US dollar, euro and Japanese yen) in Asia stalled.

Kathpalia said: “It wasn’t just companies in the Asean region that tapped the markets, those in Hong Kong, India and South Korea also issued bonds in the region.

Companies in Southeast Asia are likely to continue to seek alternative funding sources as those in the G3 markets (the United States, Japan and the Eurozone) become harder and more expensive to tap, he added

Islamic bonds – SA makes its move A possible sukuk

In a move that could position SA at the forefront of the global Islamic Sharia law-compliant sukuk (bond) market, national treasury has called on banks to submit proposals for the issue by government of a sukuk.

“A sukuk would create a benchmark for other emerging markets and corporates,” says treasury spokesman Bulelwa Boqwana.

The nature of the possible sukuk has yet to be clarified and banks involved in the tendering process are not permitted to divulge any information.

But a sukuk would differ markedly from a conventional bond. Islamic Finance Resource, an information service, explains that in their purest form sukuk are ownership claims on physical assets.

A sukuk issue would be to domestic and foreign investors and its size dependent on government’s funding requirements, to be unveiled in the next national budget, says Boqwana. That it would be a success seems assured.

“There is a lot of local and foreign interest in it,” she says.

For SA, a sukuk issue would open the door to a source of foreign investment beyond traditional Western funding, finance minister Pravin Gordhan said in a recent speech. Though not on the vast scale of the Western funding machine, the sukuk market is significant, with new issues in 2010 of US$50bn, Ernst & Young (E&Y) says. Sukuk issues hit $63bn in the first nine months of 2011, according to research firm Zawya Sukuk Monitor.

Behind the sukuk market there is also the huge Islamic financial services asset base, which E&Y puts at $1trillion. Deutsche Bank predicts this total could rise to $1,8trillion by 2016 and drive a significant increase in the global sukuk market, which now accounts for a mere 1% of all bonds in issue.

For Gordhan’s strategy to establish SA as the hub for Islamic product development in Africa, a sukuk issue would be a big step forward. But SA cannot afford to drag its feet. Kenya, which has expressed similar ambitions in Africa’s Islamic finance market, aims to issue its first government sukuk in June 2012. A $500m issue is planned.

Also in the running is Nigeria, which is set to issue its first government sukuk within 18 months. Senegal has also expressed interest in tapping into the sukuk market.

Alternative Finance

Nov 26, 2011 (LBO) – Sri Lanka’s Wealth Lanka Management (Pvt) Ltd, an investment house, and Al Tayseer Advisory Services Sdn. Bhd a Malaysia based consultancy has linked up to provide Islamic banking and bond market instruments, officials said.

The firm advices on Islamic banking and corporate finance and advisory services for specialist industries like steel, cement and cotton.

“We find Sri Lanka as an emerging market for Islamic finance with immense future growth potential,” Al Tayseer Advisors Services, chief executive and partner Fahd Hashim, told reporters in Colombo.

“Sri Lanka is the second fastest growing economy in Asia right now and growth is linked to public sector investment with imports of cement steel.”

Al Tayseer can help with setting up plants or acquiring them to supply commodities to Sri Lanka, Hashim said.

The firm was also working in Pakistan. Hashim said it was already advising a Pakistan based cement maker that is exporting to Sri Lanka. In addition to corporate finance the consultancy also advised in materials and energy efficiency and use of carbon credits.

Mangala Boyagoda, head of Wealth Lanka Management, a senior fixed income specialist in Sri Lanka said the new partnership could provide Shariah based bond market products to help create an interbank market in Islamic finance.

“You cannot develop Shariah banking without an interbank market,” Boyagoda said. “We are looking at the possibility of raising a Shariah government bond.”

Though several banks have Islamic finance units in the country, they have constraints in Treasury management due to lack of compliant products.

The partnership will also advice on setting up Islamic banking units or outsource such units for banks, finance companies and leasing firms, Hashim said.