Malaysia remains key source of Islamic debt papers

The rise in sukuk supplies are largely driven by BNM and local currency corporate issuance


MALAYSIA remains the main issuer of Islamic debt papers or sukuk this year besides countries from the Gulf Cooperation Council (GCC) region.

Fitch Ratings Inc said the rise in sukuk supplies are largely driven by Bank Negara Malaysia (BNM) that has been issuing more short-term Islamic Treasury Bills to aid liquidity for Islamic financial institutions.

The international rating agency said the increase in Malaysia’s sukuk market is also contributed by local currency corporate issuance.

“Notable corporate deals included energy service firm Serba Dinamik Sdn Bhd’s US$300 million (RM1.25 bilion) sukuk, rated BB-by Fitch — the first dollar high-yield sukuk offering in the Asia-Pacific region,” it said in a statement last week.

Fitch added that the Malaysian market showed how as the Shariah-compliant investor base grows, the cost of sukuk issuance becomes more competitive relative to conventional bonds.

“We think new issuance volumes in the coming years will also be supported by refinancing activity. Nearly two-thirds of the US$99.4 billion of outstanding Fitch-rated sukuk at the end of first half of 2019 mature in less than five years,” it said.

RAM Rating Services Bhd said for the first quarter of this year, Malaysia continued to be the top sukuk issuer globally, issuing US$13.9 billion or 35.1% of the US$39.5 billion issued from January to March.

Indonesia was second with a 17% market share of Islamic debt papers worth US$6.7 billion and Saudi Arabia 15.3% (US$6.1 billion).

Fitch highlighted international sukuk issuance from major Islamic finance market was almost unchanged in the first nine months of this year compared to the same period a year ago.

It added that sukuk issuance in the first nine months of this year was close to US$29.3 billion on average for the same period from 2012 to 2016.

“Sukuk issuance with a maturity of more than 18 months from the GCC region, Malaysia, Indonesia, Turkey and Pakistan totalled US$30.6 billion in the first nine months of this year compared to US$1 billion in the same period last year.

“This supports our view that volumes normalised rather than declined last year after hitting record levels in 2017,” it said.

GCC issuers have continued to access the sukuk market to diversify their funding mix and develop the Islamic debt markets in the region, the international rating firm stated.

Citing GCC debt markets as still relatively developing, and individual sovereign funding decisions can profoundly affect total supply, substantial international US dollar-denominated issuance in 2019 included deals from Turkey, Indonesia, Islamic Development Bank Trust Services Ltd and First Abu Dhabi Bank, raising a total of US$6.5 billion.

Moving forward, Fitch believes macro-economic and geopolitical conditions will also affect sukuk issuance.

“Lower oil prices which we forecast to average US$65 per barrel (bbl) this year and US$62.5/bbl next year, down from US$71.6/bbl in 2018, tend to increase borrowings by oil-exporting sovereigns.

“Meanwhile, the dovish shift in global monetary policy in 2019 has reduced borrowing costs (we do not forecast the US Federal Reserve to raise the interest rates again until 2021),” it said.