Malaysia can tap sukuk investors in UK with right policies


THE UK wants to deepen its trade ties with Malaysia, particularly in the Islamic capital market, and in return, Malaysia can tap into a bigger pool of international investors when it uses London as a platform to issue debts.

Throwing in the idea, Lord Mayor of the City of London Alderman Peter Estlin said the UK recognised Malaysia’s role and knowledge in Islamic debt instruments, as well as being the largest sukuk market with 50% of the global share and the innovator of green sukuk.

However, the issuance is largely domestic and not international, he noted. “As for the UK, the area (of Islamic debt market) hasn’t really developed in the same way as other segments of the market,” he told Bernama during his two-day official visit to Malaysia recently.

The situation was a golden opportunity for both the UK and Malaysia “because for us, there is a desire to see greater retail investment and we are ready to work closely and support Malaysia in the related area”, he added.

London Stock Exchange Group plc (LSE) was dubbed as home to the first sovereign sukuk issued outside the Islamic world in June 2014 when the UK government listed a £200 million (RM1.27 million) sukuk and to date, there are 74 sukuk listings on London’s markets with about US$55 billion (RM226 billion) raised.

Estlin — who also serves as the global ambassador for the UK-based financial and professional services industry from Nov 9, 2018, for a oneyear term — said if Malaysia is keen to attract global investors, it must provide a clearer investment policy.

He pointed out that among the first things to do is to ensure documentation is based on an international standard so that investors feel there is genuine risk protection in the case of construction risk to the extent that it is supported by an appropriate level of insurance and risk management.

These are the things that Malaysia could do and at the same time, it is important for the UK to understand Malaysia’s strategy and focus on where it could help, Estlin said.

“(Therefore), the question for Malaysia is, are you interested in attracting further international investments? If so, there’s a way that we can collaborate and encourage Malaysian issuers to leverage on the LSE as a way to get greater international capital,” he added.

The UK, he said, is particularly interested in sustainable financing for infrastructure projects that Malaysia seemes to focus on.

There are three related Islamic markets on the LSE — namely, the FTSE Shariah Global Equity Series, Shariah Fixed Income Indexes and Saudi Equity Indexes — and currently, there are 28 active sukuk with a total outstanding amount of US$27 billion.

UK-based institutions offering Islamic financial services have US$4.5 billion of assets.

Estlin’s two-day visit included meetings with Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus, Finance Minister Lim Guan Eng, attorney general Tommy Thomas, as well as representatives from Khazanah Nasional Bhd, the Securities Commission Malaysia and financial technology association.

“I’m here to listen to their ideas, especially with the new government. There might be opportunities that arise for us to collaborate,” he said.

Commenting further, he said the UK had issued a fair amount of sukuk over the years, but had not done so in the last 12 months, plus it has yet to do issuance for Malaysians.

“The reason why there hasn’t been any sukuk issuance in the UK is because we are about to have a political change. I did have a conversation with the UK councillors regarding green issuance and sukuk issuance, maybe we might issue another round of green sukuk but I cannot comment on that, it is up to the UK government,” he said.

Estlin said as the world moves towards sustainable financing that integrates environmental, social and governance (ESG) elements, he believes the ESG aspects are already embedded in sukuk.

“Sukuk is increasingly becoming more attractive as the available product in the market that focuses on sustainable financing. Sukuk and Islamic financing as a whole, fit into that sphere as the same as takaful insurance. As for the UK, the strength that we have is in terms of how we developed the insurance market to support the growth,” he added. — Bernama