Malaysia tops Persian Gulf on Sukuk

Malaysia is leading the Persian Gulf in the global sukuk market this year with 78 per cent of total issuance amid a surge in government-backed debt as Prime Minister Datuk Seri Najib Razak seeks re-election.

Malaysia’s Education Fund will price RM1.5 billion of state-guaranteed Islamic bonds today, which will take sales in 2013 to US$4.3 billion, compared with US$1.2 billion in the Gulf Cooperation Council (GCC). The government has backed US$10.7 billion of the securities since the start of 2012, double the previous year.

DanaInfra Nasional Bhd, Syarikat Prasarana Negara Bhd and Tenaga Nasional Bhd are seeking to raise a total of RM12.6 billion from Shariah-compliant bonds to build railways and power plants, part of a 10-year Economic Transformation Programme. Middle East offerings will pick up as more companies switch to sukuk from loans to take advantage of low borrowing costs, according to HSBC Holdings Plc.

"Although competition is heating up, I believe the push from the Malaysian government in maintaining the nation as the sukuk hub of the world will ensure our leading position," Tengku Datuk Zafrul Tengku Abdul Aziz, chief executive officer of Kuala Lumpur-based Maybank Investment Bank Bhd, the top arranger this year, said in an e-mail interview yesterday.

Malaysia’s state-owned education fund is seeking to price a 10-year portion of sukuk at 28 basis points to 38 basis points above government securities that don’t comply with the Koran’s ban on interest, two people familiar with the matter who asked not to be named as the details are private, said yesterday.

The company will offer a spread of 43 basis points to 53 basis points for 15-year notes, they said.

Syarikat Prasarana plans to offer RM6 billion of sukuk this year to finance the extension of a light railway in Kuala Lumpur, Azhar Ghazali, the media affairs manager, said in an e-mail on January 4.

DanaInfra may sell RM1.5 billion of Islamic bonds every quarter, Chief Operating Officer Kamal Mohd Ali told reporters in Kuala Lumpur on January 15.

Sukuk yields that are almost half those in emerging markets are supporting offerings in Asia and the Middle East.

Borrowing costs on global Islamic notes rose seven basis points this year to 2.88 per cent, 21 basis points off a record low on January 10, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. Average rates on developing-nation bonds are 4.8 per cent, up 32 basis points since December 31, according to a JPMorgan Chase & Co gauge.

Shariah-compliant debt returned 0.3 per cent in 2013, according to HSBC, while JPMorgan’s EMBI Global Index shows emerging-market securities lost 1.8 per cent.

Companies and governments in the Persian Gulf are also planning to raise funds through the Islamic debt market. Malaysia and the Middle East should be about equal in terms of sales, according to HSBC Amanah Malaysia Bhd.

"Issuers from the Middle East who previously tapped the loan market are beginning to see sukuk as a viable option," Chief Executive Officer Rafe Haneef at the Kuala Lumpur-based Shariah unit of HSBC Holdings, said in an interview yesterday. "They can get size and better pricing from the sukuk market as well as a more diversified investor base."

In the six-member GCC, which includes Saudi Arabia and Qatar, average yields on Islamic notes climbed six basis points, or 0.06 percentage point, to 2.98 per cent in 2013 after reaching an all-time low of 2.75 per cent in January, according to the HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index.-- Bloomberg