Growth in Islamic bond market in Asia

Growth in Islamic bond market in Asia
By Thomas Cho | Posted: 22 November 2012 2149 hrs
   
SINGAPORE: Growth in the Islamic bond market, or sukuk, has been inching higher in the region.

Sukuk issued in Asia accounts for about 40 percent or US$17 billion out of the total global issuance of US$43 billion this year.

Such Islamic bonds are popular with investors from the Middle East and has opened up new opportunities for Asian companies.

Singapore-listed Noble Group is the latest to consider Islamic bonds for its financing needs.

The commodities trading firm has announced that it will issue some 300 million Malaysian ringgit (US$98 million) of two-year Islamic bonds at 4.22 per cent per annum profit rate.

It joins a growing list of companies in Asia which have also raised money through Islamic financial products.

Experts say such alternative form of financing can attract new potential investors from the Middle East.

Sukuk are different from conventional bonds because it has to comply with Islamic law or the Shariah.

Shariah prohibits the fixed or floating payment or acceptance of specific interest or fees for loans of money. It also disallow investing in businesses that provide goods or services like liquor and gambling, which are considered contrary to Islamic principles and prohibited.

Lenny Feder, Group Head of Financial Markets at Standard Chartered Bank, said: "They are as good as normal bond, but it is different. There is a massive community of individuals or companies that want to invest in a Shariah compliant or Islamic compliant format, so I think there is plenty of interest and people are very confident in the structure of Islamic bonds."

Malaysia is still the top destination for Islamic finance.

More than 70 sukuk worth over US$15 billion have been issued from Malaysia so far this year, according to Dealogic as at end September.

With the World Bank expecting global assets managed in line with Islamic law growing to US$1.3 trillion this year, it is definitely a market too hard for issuers to ignore.

Another company that has issued Islamic bonds in Malaysia is Singapore-listed palm oil plantations operator Golden Agri Resources.

Golden Agri-Resource recently sold 1.5 billion Malaysian ringgit (US$489 million) five-year medium-term notes at a profit rate of 4.35 percent per annum.

Malaysia's Bank Rakyat also launched 1 billion Malaysian ringgit Sukuk on Tuesday.

Richard Fung, Director of Investor Relations at Golden Agri-Resources, said: "We believe the Islamic bond is interesting to Golden Agri because it allows us to broaden our investor base. This is a market particular strong in Malaysia in terms of depth as well as breadth and this product allows us to access investors normally we are not able to."

Experts say sukuk are also gaining popularity because firms are finding it tougher to borrow money from banks.

Bank lending in Asia now accounts for some 60 per cent of corporate finance compared to 80 per cent a decade ago.

Toby O'Connor, Chief Executive Officer of The Islamic Bank of Asia, said: "You are seeing a lot of big banks pulling back their funding lines and they are certainly not interested in providing loans with a lot of tenors. They are massive infrastructure projects going on in this part of the world as well as the Middle East and the sukuk market is a great opportunity to diversify one's funding sources."

Indonesia has also shown keen interest to be a big player in Islamic financing. Jakarta has issued a US$1 billion of 10-year sukuk with periodic distributions of 3.3 per cent per annum.

This is an initial part of the Indonesian government's establishment of a US$3 billion sukuk issuance programme.

- CNA/de


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