Capitalise on foreign demand with dollar sukuk

There is global demand for Islamic bonds in easily convertible notes, according to an expert


Malaysia should consider issuing more foreign currency-denominated sukuk, if the country wants to rise and become a regional and international Islamic finance hub.

Franklin Templeton Investments (Middle East) Ltd CIO of global sukuk and MENA (Middle East and North Africa) fixed income Mohieddine Kronfol (picture) said the vision to make Malaysia a regional Islamic finance centre will be difficult if everything is denominated in the ringgit.

He said there is global demand for Islamic bonds in easily convertible notes and Malaysia must be able to cater to such demands.

“There have to be local market transactions in international currencies like the US dollar, and a currency regime that facilitates that or some support from the central bank.

“Malaysia has largely been attracting foreign companies to issue only in ringgit, and the bonds are bought domestically.

“For a global role, you need to cater to demand outside of Malaysia. That happens when the currency is more freely convertible and there are issuances in different currencies.

“There is indeed demand for Malaysian foreign currency-denominated sukuk,” Kronfol told reporters at the Franklin Templeton 2018 Islamic Forum in Kuala Lumpur yesterday.

He said having more inter- national issuances — particularly the US dollar-denominated ones — would help Malaysia leverage on its success in developing the domestic market, attract foreign issuers into the market and increase its prominence on an international sukuk level.

“Indonesia has now surpassed Malaysia in terms of US dollar-denominated issuances, while Malaysia has not issued a foreign currency-denominated sukuk for some time.

“This is probably because Malaysia has several financing options and a very developed domestic market.

“So, it is more of a conscious development choice that would propel the country, which hasn’t been a priority.”

Kronfol added that Malaysia’s issuance of more foreign currency-based Islamic bonds would also make it an attractive avenue for Chinese corporates looking for alternative sources of funding.

“Malaysia could play a role in attracting Chinese companies, but the issuances — for Malaysia, as well as other countries globally — need to be in the US dollar. That would go a long way in making Malaysia an international or regional hub.

“Chinese (companies) are looking for funding. If they can access different types of funding at competitive price points, they would consider it,” he said, adding that the biggest issuers from China tend to be real estate players or financial services providers.

As the largest fixed income market in Asia, China’s move towards becoming more global positions it to build gradually on its earlier participation — in small measures — in the Shariah- compliant space, potentially introducing Shariah-abiding initiatives into their financial ecosystem in the future.

“It won’t be high on their agenda, but we might see some positive developments — small ones for China, but possibly very important for us as investors and for the Shariah-accomodating industry,” Kronfol said.

He added that Franklin Templeton, as a global investment management organisation with over US$737 billion (RM2.88 trillion) in assets under management as at end-March 2018, is also consciously eyeing China as an appealing market.

“We have seen some yuan-denominated sukuk that have matured, but we haven’t seen a wide take-up from China.

“Going forward, if China looks to diversify its sources of funding, the sukuk market remains healthy and policy-makers take steps to make Malaysia more international, it’s likely that China could look to Malaysia for its sukuk needs in the next few years,” he said.