Finance  |  FEBRUARY 19, 2013 1:51PM

RM109 billion projects to fuel Malaysia sukuk market

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Malaysia’s biggest sukuk arrangers say sales by local companies will surpass 2012’s record this year as $35 billion of construction projects come on stream.

Issuance has reached RM10.4 billion in 2013, compared with RM33.6 billion in the same period a year earlier and the all-time high of RM95.8 billion, data compiled by Bloomberg show. Growth in the building market will strengthen this year following an 18 percent increase in 2012, according to Construction Industry Development Board Malaysia.

“Looking at the sales trend so far and the project financing in the pipeline for railways, roads and power plants, this will be another good year,” Mohd Effendi Abdullah, the Kuala Lumpur-based head of Islamic markets at AmInvestment Bank Bhd., the nation’s third-biggest manager of sukuk in 2013, said in a Feb. 15 interview. “Issuance could surpass 100 billion ringgit given the construction body’s robust projection.”

DanaInfra Nasional Bhd. and Syarikat Prasarana Negara Bhd. plan to sell as much as RM10 billion of Syariah-compliant debt in total to finance new rail networks in the capital under the development programme of Prime Minister Najib Razak, who faces national elections before the end of June. Issuers will gain confidence once the outcome of the poll is known, according to Kuala Lumpur-based CIMB Islamic Bank Bhd, the top underwriter of the securities for the past two years.

More Mandates

Tenaga Nasional Bhd., Malaysia’s biggest energy company, will raise funds through Islamic bonds and equity to build a RM2.47 billion power plant, a Nov 27 stock exchange filing showed. The contract was signed in January. Electricity producer Malakoff Corp. plans to sell RM5.9 billion of debt complying with the Koran’s ban on interest, according to a Jan 12 e-mailed statement from Malaysian Rating Corp., the smaller of the nation’s two ratings assessors.

The Bloomberg-AIBIM Bursa Malaysia Corporate Sukuk Index, which tracks 57 ringgit-denominated notes, fell 0.1 percent to 102.394 yesterday and reached a record 102.811 on Feb. 13. Yields on top-rated Malaysian company bonds that don’t adhere to religious tenets touched 4.28 percent on Feb. 14, the lowest level since July 2003, a central bank gauge shows.

“Construction-related project financing sukuk will dominate sales,” Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank, a unit of CIMB Group Holdings Bhd., said in a Feb. 15 interview. “There’re more mandates to be won.”


Mega Issue

Alhami Mohd Abdan, head of international finance and capital markets at OCBC Al-Amin Bank Bhd in Kuala Lumpur, says corporate sukuk sales are unlikely to surpass the record in 2013 given last year’s numbers were distorted by the unprecedented RM31 billion offering from highway operator PLUS Bhd.

“PLUS was a mega issue and there may not be another such big offering,” Alhami at the unit of Singapore’s Oversea- Chinese Banking Corp. said in an interview yesterday. “If we can achieve RM70 billion, that would be a great number.”

Worldwide sales of Islamic bonds have slowed this year as prospects for a global economic recovery boosted demand for stocks. Issuance reached RM16.4 billion, 21 percent less than the same period last year, according to data compiled by Bloomberg. Offerings totaled a record $143.8 billion in 2012.

Average yields on the debt rose eight basis points, or 0.08 percentage point, to 2.89 percent this year, 22 basis points off the all-time low of Jan 10, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. The premium investors demand to hold the securities over the London interbank offered rate, or Libor, has narrowed 14 basis points to 168 basis points.

Yield Forecasts

Islamic bonds sold internationally have returned 0.2 percent in 2013, lagging behind the 1 percent gain a year earlier. Emerging-market bonds declined 1.6 percent, compared with a 4.8 percent increase in the same period of 2012, according to JPMorgan Chase & Co.’s EMBI Global Index.

Forecasts that Malaysian bond yields will climb in the second half due to inflation will be no deterrent to new issuance given projects such as the rail lines in Kuala Lumpur are already in progress and need funding, CIMB’s Badlisyah said. Demand will keep borrowing costs from rising too much, he said.

Consumer price gains may quicken to 2 percent to 2.5 percent in 2013 from last year’s 1.7 percent average, according to a Feb. 15 e-mailed report from Malaysian Rating. The government’s five-year Islamic bonds offer a real yield of 2.1 percent, compared with 0.7 percent in Indonesia.

Chasing Capital

The statistics office may report tomorrow that inflation held at 1.2 percent in January, the least since February 2010, according to the median estimate of economists surveyed by Bloomberg.

Malaysia’s Shariah-compliant banking assets rose 21 percent to 469.5 billion ringgit in the first seven months of 2012 from a year earlier, according to latest figures from the Finance Ministry issued on Sept. 28. Islamic insurance assets increased 8.3 percent to 18.3 billion ringgit.

“There’s more Islamic capital chasing after Shariah assets,” Badlisyah said. “Demand for sukuk will still be robust as Islamic banks and insurers still need to match their assets and liabilities.”



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