M'sia weighs second global sukuk

MALAYSIA should sell a second sovereign global Islamic bond, the central bank chief said yesterday, as the country steps up efforts to pull away from rivals that are gaining ground in the US$1 trillion industry.

The Southeast Asian country has the world's largest Islamic bond, or sukuk, market, with US$66 billion or 62.6 per cent of global outstanding sukuk issuance as at end-June.

Its lead in the sukuk market has helped make Malaysia one of the world's top centres in syariah finance, along with the Gulf, but a growing number of financial centres such as Hong Kong, Singapore, and London are also building niches in the industry.

"We have mentioned to the government that it would be good to raise funding again and have our name in the market," Malaysian central bank governor Zeti Akhtar Aziz said in an interview.

Malaysia last tapped the global Islamic bond market in 2002 when it raised US$600 million through the sale of its first international sukuk.

Zeti said the sukuk market worldwide would be hit by the US financial sector crisis but there was still strong demand for Islamic paper.

"In all markets, it has increased the cost of financing and ... it's too early to tell going forward to what extent the number of issues will be affected," she said.

"But we have in the pipeline several issuance still of those who want to raise financing and of course the demand for the paper is immense."

Islamic banks have so far been relatively unscathed by the financial crisis that has claimed the scalp of several top US lenders a fact that is attributed to the syariah's strict insistence on transparency and the need for specific assets to underpin transactions.

But Malaysia's CIMB Islamic Bank, the world's top sukuk arranger, warned last month that global sales of new Islamic bonds in 2008 would struggle to match last year's US$16 billion due to the credit crisis.

Zeti said there the central bank would consider giving out more Islamic licences to foreign lenders as there were still unexplored opportunities in the industry.

"We believe that the market is still very untapped," she said.

"Any licences that are issued in the future will only be those that have the capability for international banking or insurance business in the Islamic sector."

Malaysia has 14 full-fledged Islamic banks, including three Middle Eastern banks Kuwait Finance, Saudi Arabia's Al Rajhi Banking and Investment Corp and Asian Finance Bank, which is owned by Qatar Islamic Bank, RUSD Investment Bank Inc and Global Investment House of Kuwait.

Syariah assets comprise 17.8 per cent of the country's financial assets and the central bank wants this share to grow to 20 per cent by 2010.

Reuters