Our last ALB special report on Malaysia reflected a country with a thriving Islamic finance market, with sukuk issues far out-stripping those coming out of the Gulf. Malaysia was also well on-track to become the focal point of Islamic finance globally. A year on, those aspirations have remained, as the country retains its status as the largest issuer of sukuk, accounting for 64.6% of the total global issued outstanding as at end-June 2010.
 
In line with the International Islamic Finance Centre (MIFC) initiative to develop Malaysia into a multi-currency global fund raising platform for Islamic finance, a number of foreign currency sukuk were issued, including those by the government, Nomura Holdings Inc and Khazanah Nasional Bhd, during the first eight months of 2010.
 
The first seven months of 2010 witnessed 15 new sukuks listed on Bursa Malaysia – the country’s national stock exchange – amounting to US$23.31bn, according to the Economic Report for 2010/2011 released by the Ministry of Finance in October 2010. A landmark issue by the Malaysian government last year resulted in the world's largest US dollar benchmark sovereign sukuk that amounted to a staggering US$1.25bn with a yield of 3.928%. It was oversubscribed six times.

“Malaysia’s advantage in Islamic finance is in the fact that we were the first country to establish a clear framework of laws to govern Islamic finance transactions. We were the first country in the world to pass an Islamic banking pact, and the first country in the world to establish a pure Islamic bank. Off the back of that, we have effectively  dominated the global Islamic finance industry in terms of the issuances of Islamic bonds, and we continue to issue approximately 60% of sukuks in the world today,” Munir said. 
 
 However he maintains that it must be noted that many of these bonds are issued for the local market. “They don’t necessarily have a wide investor base. Investors in the different markets have not, up to this point, moved across borders as extensively as they have for the conventional finance sector,” he said.
 
According to Gan, other notable issuances this past year includes Nomura Holdings Inc's issue of US$100m in July –  also the first sukuk listing by a Japanese international entity – and  Khazanah’s August 2010 a 5-year and 10-year sukuk of US$1.18bn oversubscribed by 4.3 times.
 
The sukuk was also the first Singapore dollar-denominated issuance. “In terms of volume, the numbers of issuances have not increased significantly but what is significant is that foreign companies are looking to the Malaysian Islamic finance market – from jurisdictions as diverse as Australia to the Japan to the Middle East,” Gan said.
 
According to a number of respondents interviewed, many agreed the upswing kicked off approximately 18 months ago and continues to grow steadily. “Efforts have been made to attract these foreign investors for some time, but we have seen a very apparent uptake in foreign investor interest in the last 18 months. The Bank Negara initiative called the MIFC has reaped positive results from it active marketing efforts of Malaysian sukuks around the world,” Gan said.
 
As part of its efforts to enhance diversity and depth of the MIFC initiative, Deutsche Bank AG was licensed as an International Islamic Bank (IIB) in March 2010. The liberalisation measure received a good response. During the first-half of the year, three new key players were licensed as Islamic fund management companies ( IFMCs) — Franklin Templeton GSC Asset Management Sdn Bhd, Saturna Sdn Bhd and OSK-UOB Islamic Fund Management Bhd — bringing the total IFMCs to 14 as at end-June 2010.
 
According to Shooklin & Bok corporate partner Khong Mei Lin, the firm has seen a number of bigger issuances this year, compared to previous years. “We’ve seen a lot of advances – Bank Negara is very encouraging in this respect. Improvements have been made in terms of updating of the various guidelines, trying to improve and streamline the products. There has also been a lot of encouragement in terms of directing customers to Islamic financing as well. With the remission of stamp duty, there are cost savings to the investors as well as exemptions for tax in certain cases.” Shooklin & Bok advised on sukuk Salim – one of the bigger and more innovative issuances last year. ** please provide more info.
 
Other firms such as Skrine have seen a consistent pipeline of deals both domestically and instructions from overseas. According to the firm, deals have hailed from China, Hong Kong, the Middle East and Europe , making up 40% of workflow, with the rest from its domestic market.
 
Beyond the sukuk market, assets of the takaful industry expanded 19.6% to US$4.59bn, accounting for 9.1% of total insurance industry assets as at end-July 2010, from US$4.1bn recorded at the end of 2009. The increase was attributed to the increase in family funds, which comprised 84.6% of total takaful assets.
 
Net contributions for family and general takaful recorded growth of 23.8% to US$728m compared to US$562m between January and July 2009. The Islamic banking system, including the development finance institutions, continued to expand in terms of market share of assets, deposits and financing in the first seven month of 2010.ALB

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