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Moody’s expects 10 per cent Islamic bond issuance growth over 2014-2015 in Malaysia

Publication Date : 05-06-2014


Local sukuk (Islamic bonds) issuance will likely see steady annual growth of around 10 per cent over 2014 and 2015 from US$33 billion issued last year.

Moody’s Investors Service analysts, led by the rating agency’s global head for Islamic finance Khalid Howladar, said in a report issued on Thursday that the growth in sukuk volumes would be driven by sovereign and related issuers, as well as private-sector corporates seeking to raise funding under Malaysia’s US$444 billion Economic Transformation Programme.

There would also be refinancing sought by Islamic banks to boost their capital bases under Basel III coupled with expected financing growth, Asean palm oil producers seeking to tap the local sukuk market, and domestic issuers looking to refinance US$40 billion of sukuk maturing over the next three years.

In Moody’s rated universe, Petronas and Axiata, rated at A1 stable and Baa2 stable, respectively, have maturing sukuk this year.

“Given the deep local capital markets and strong support from the government, Malaysia will remain the world’s largest sukuk market for the foreseeable future although regional and global competition will develop over the next two to three years,” Howladar said in a statement.

He added that some two-thirds of the approximately US$290 billion outstanding sukuk were issued in Malaysia, and expects the remaining one-third to stay fragmented because a growing number of new and emerging sukuk issuance markets, such as Indonesia, Singapore and Hong Kong would be tapping into this fast-growing asset class. Saudi Arabia is also showing strong domestic potential.

The report noted that ringgit issuances would dominate local volumes for the near-future, driven by the country’s large and deep base of domestic institutional investors, as well as supportive policies towards Islamic finance with international issuances accounting for less than 10 per cent of the US$178 billion in total outstanding sukuk.

In Asia, only three Malaysian corporates – Petronas, Axiata and Sime Darby (rated A3 stable) – have issued rated sukuk to international investors.

Although sukuk issuance was soft in the first four months of this year, with issuers raising a total of US$10.3 billion, Moody’s expect volumes to pick up in the second half of the year after the 26 per cent contraction last year resulting from the uncertain political environment, rising domestic interest rate environment and the broader effect of the US Federal Reserve’s tapering on emerging market bond and sukuk flows. 


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