Malaysia has emerged as the leading market for sukuk (Islamic bonds) issuances, with a market share of around 45% of deals this year, according to a report by Standard & Poor’s. The report is also supported by figures released by the Securities Commission of Malaysia, showing the value of sukuks issued in the first half of the year at approximately US$512m. This is likely to surpass the total values for 2008 (around US$596m).
Although the sukuk market shrunk in the past twelve months, a number of high-value deals completed recently suggest a recovery is underway. For example, a string of law firms advised on the recent US$1.5bn issuance by Malaysian oil company Petronas. Allen & Overy advised on the Saudi Electricity Company’s US$1.8bn sukuk issue; while Norton Rose and Lovells advised on the Government of Bahrain’s US$750m sovereign sukuk issue.
While Singapore has positioned itself as a centre for international arbitration, Malaysia aims to become the regional Islamic finance hub. One investment the country is making is to allow five foreign law firms to set up locally to give advice on Islamic finance law. Zandra Tan, a partner at Malaysian firm Zul Rafique & Partners who advised the banks on the Petronas deal, said that the government’s initiatives are welcome.
“I think Malaysia is one of the leaders [in Islamic finance] because of the government's support, for example by setting up the Malaysian International Islamic Financial Centre (MIFC), and with these initiatives, Malaysian and foreign companies have a wider avenue to Islamic financing. They are encouraging it and it makes our work easier,” she said.
A number of foreign companies have used Malaysia to issue sukuks, including the IFC, Shell and Toyota Capital. Tan said that her firm has seen more instructions from foreign clientele recently.“We have seen a lot more enquiries from foreign funds wanting to come into Malaysia to set up, but at the end of the day it depends on how the authorities are going to change the regulations in order to make them more attractive. To an extent Malaysia is also more attractive to Middle East investors because of cultural similarities,” she said.
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