The Malaysian Reserve

RM100b corporate bonds, #sukuk issuances to be expected

The Securities Commission Malaysia (SC) is expecting up to RM100 billion worth of corporate bonds and sukuk issuance this year. The regulator said the Covid-19 outbreak and the resultant disruption on businesses have affected fundraising activities. Thus any non-payment of profit arising from the current challenging operating landscape is very likely due to credit rather than Shariah issues and would therefore be dealt with from a credit perspective. SC deputy CEO Datuk Zainal Izlan Zainal Abidin said that Malaysia continues to maintain its leadership in the Islamic capital markets (ICMs). The SC noted that ICM represented 63.57% of Malaysia’s capital market, with market size of RM2.04 trillion as of December 2019, an 8.23% growth over 2018. The SC added that the Islamic fund management industry also witnessed new and innovative investment product offerings. These include Islamic exchange-traded funds based on gold, SRI Islamic funds, as well as social and green sukuk.

Covid-19 fund amassed RM8.1m in donations

THE Covid-19 fund, launched by Malaysian Prime Minister Tan Sri Muhyiddin Yassin on March 11, received a RM5 million contribution yesterday. The donations came from Spanco Sdn (RM2 million), followed by DRB-Hicom, MMC Corp and YTL Corp who contributed RM1 million each. Property developer Titijaya Land has contributed 520,000 face masks for frontliners. With the above donations, the fund has amassed a total of RM8.13 million in contributions. The government has launched the Covid-19 fund to help affected Malaysians. Similarly, the Malaysian Department of Islamic Development has also launched another fund to help the Muslim communities affected by the outbreak. Separately, some Malaysians are criticising the setting up of funds and are calling on ministers to take pay cuts instead.

#Sukuk issuance stalls on subdued economy

Sukuk issuance could potentially take a hit this year, dragged by subdued economic growth. In 2018, when Malaysia’s GDP growth slowed to 4.7%, sukuk issuances fell by 2.6%. In 2019, when real GDP growth moderated further to 4.3%, sukuk issuances slipped by 2.3%. However, the current low interest-rate environment will prevent sukuk issuances from falling too significantly this year. According to Malaysia Rating Corp (MARC) chief economist Nor Zahidi Alias, the downside risk remains especially if the Covid-19 outbreak continues to be unmanageable and lockdown periods across global economies continue. Policymakers globally are using fiscal and monetary tools to soften the impact of the Covid-19 outbreak. The US Federal Reserve’s move to lower its benchmark to a near-zero rate prompted central banks across many sukuk active markets to cut their interest rates.

Shariah gold ETF rises as safe havens in demand

Malaysian Affin Hwang Investment Bank expects gold prices to average higher in 2020, helped by sustained accommodative monetary policies among major central banks. Using the TradePlus Shariah Gold Tracker exchange-traded fund (ETF) as an avenue to invest in the precious metal, Affin Hwang believes the ETF’s fair value is RM2.30. In 2019, the price of gold surged by 18.9% year-on-year (YoY) to US$1,523.1/oz compared to a decline of 2.1% in 2018 to US$1,309.3/oz. In the near term, Affin Hwang Capital believes concerns over the recent Covid-19 outbreak will likely continue to drive safe-haven flows into gold. Due to geopolitical concerns and low-interest rates, the World Gold Council noted that holdings in gold-backed ETFs hit an all-time high of 2,885.5 tonnes in 4Q19 compared to 2,858.8 tonnes in 3Q19 mainly from North American and European-listed funds.

Digital platform to drive takaful demand

Malaysia has firmly established itself as an Islamic hub in the world through leadership and innovative product offerings. As such, the creation of an Islamic finance-enabling ecosystem is the key driver of the Malaysian takaful industry’s growth. The takaful sector continues to enjoy faster growth than the conventional insurance sector. Family and general takaful premiums rose by 29.6% and 16.4% respectively in the first half of 2019 (1H19), compared to 12.2% in conventional life and -1.3% in general insurance. However, surverys show that almost half of the Malaysian population does not have protection due to a lack of awareness. According to Fitch Ratings, takaful operators should rethink the way these products are positioned to entice a larger crowd looking for general protection through the use of digital applications.

Islamic banks ready to support SMEs

According to the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM), local SMEs are not fully utilising various solutions provided by Islamic banks despite credit availability. AIBIM has 26 members comprising of 11 domestic banks, 5 development financial institutions and 10 locally incorporated foreign banks. A recent survey of its members shows that about 10,000 SMEs received more than RM10 billion in funding. AIBIM stated several Islamic financial institutions provide supply chain financing, also known as supplier finance. Supply chain financing is a set of solutions that improves cashflow by allowing businesses to lengthen their payment terms to their suppliers while providing the option for their large and SME suppliers to get paid early.

Is return to gold standard imminent?

The Kuala Lumpur Summit 2019 called for a common cryptocurrency to be implemented among Muslim nations to avoid dependence on the US dollar. Prime Minister Tun Dr Mahathir Mohamad also called for the use of gold among Muslim nations particularly for trade settlement. The return to some form of gold standard globally is going to be among the greatest events that will take place in this century. The Movement for Monetary Justice Malaysia (MMJ) believes the best form of money for the modern world is gold-based cryptocurrency with a netting arrangement. Gold would bring about a fixed exchange-rate regime and eliminate speculation, manipulation and arbitrage in the foreign-exchange market and thereby would bring back stability and sustainability.

Islamic finance sector to benefit from rapid family takaful growth

According to Malaysian Reinsurance CEO Zainudin Ishak, the Islamic finance industry as a whole is poised to benefit from the rapid growth of family takaful into a dominant position. The company aims to attain a sustainable long-term growth through the capability to write both family and general retakaful businesses. Malaysian Re has just signed a memorandum of understanding (MoU) with Pacific Life Re in Kuala Lumpur. The collaboration is expected to expand Malaysian Re’s access to international research and data through the usage of the underwriting technology powered by Pacific Life Re’s fully owned subsidiary, UnderwriteMe. Meanwhile, Pacific Life Re will provide support for MRRD’s family takaful business through its technical pricing, underwriting, product development, experienced analysis and global insights.

SC launches new roadmap to drive sustainable investments

The domestic capital market is expected to play a critical role in helping Malaysia meet the estimated RM45 billion required to finance its long-term sustainable development goals. Securities Commission Malaysia (SC) chairman Datuk Syed Zaid Syed Jaffar Albar said climate change poses physical and financial risks to companies. The change to more sustainable practices requires investments in new technologies and funding which carries risks with indeterminate outcomes. Malaysia alone is projected to require RM45 billion in the next five years. Therefore, the SC released the sustainable and responsible investment (SRI) roadmap to establish the country as a regional SRI centre. The roadmap identified 20 strategic recommendations based on the SC’s five i-Strategy: the widening of the range of SRI instruments, increasing the SRI investor base, building a strong SRI issuer base, instilling a strong internal government culture and designing information architecture.

Huge Shariah-compliant fintech potential in #Indonesia

For the first time in many years, Indonesia overtook Malaysia in an Islamic finance ranking. According to the Global Islamic Finance Report (GIFR) 2019, Indonesia ranked No 1 in IFCI 2019, overtaking Malaysia that has dominated the index since 2011. Malaysia may have had early mover advantages with a top-down approach in its positioning as a global hub for Islamic finance. Indonesia has shown a great penchant for creativity. Known for being creative and amplified by the market size, Indonesia has the potential to vault ahead in the near future. Indonesia has already unveiled its Islamic Economic Master Plan 2019-2024. Two out of four main strategies are directly benefitting Islamic finance and Islamic fintech. These strategies strengthen the Islamic financial sector and the digital economy.

#Malaysia remains key source of Islamic debt papers

According to Fitch Ratings, Malaysia remains the main sukuk issuer this year besides countries from the Gulf Cooperation Council (GCC) region. The increase in Malaysia’s sukuk market is largely driven by Bank Negara Malaysia (BNM) and contributed by local currency corporate issuance. Notable corporate deals included energy service firm Serba Dinamik’s US$300 million (RM1.25 bilion) sukuk, the first dollar high-yield sukuk offering in the Asia-Pacific region. The Malaysian market shows how as the Shariah-compliant investor base grows, the cost of sukuk issuance becomes more competitive relative to conventional bonds. Fitch believes that global volumes normalised rather than declined last year after hitting record levels in 2017. Moving forward, Fitch believes macro-economic and geopolitical conditions will affect sukuk issuance. GCC debt markets are relatively developing but individual sovereign funding decisions can profoundly affect total supply.

Bank Islam top domestic #sukuk #broker in 1H19

Bank Islam Malaysia is the top domestic sukuk broker for the first half of the year (1H), after helping issue US$5.15 billion (RM21.21 billion) worth of sukuk in the market. Bank Islam’s market share of the sukuk issued accounted for 29.03% of the total ringgit-denominated sukuk issued in the 1H. The bank advised on 10 issues for the period. The second-largest issuer in the 1H is Maybank Investment Bank, which was ranked first last year for the same period after having helped issue US$4.1 billion of sukuk. Analysts expect the local sukuk market to remain active driven by capital raising by government and corporates for major construction works such as the East Coast Rail Link, Light Rail Transit Line 3 and Mass Rapid Transit Line 3 projects.

IIFM to wrap up #Sukuk Al Ijarah #standard suite this year

The International Islamic Financial Market (IIFM) expects to finalise capital market related “Sukuk Al Ijarah” standard suite of documentation later this year. The Perpetual Tier 1 and Senior Unsecured Sukuk Al Mudarabah standard suite of documentation is currently ongoing and is expected to be completed by the end of the third quarter of 2019. The standard-setting body also started translation work on its standards and is expected to come out with French versions by early 2020 to cater for French language jurisdictions. It is also looking to develop training material for its standards in collaboration with consultants and training institutes to offer technically oriented workshops to the users.

#Malaysia’s position in the #fintech race

According to the Fintech Malaysia Report 2018, Malaysia had 166 fintech companies operating in the country as at July last year. Payments and e-wallets made up the majority at 19% and 17% of the fintech players respectively, followed by cryptocurrency players (12%) and crowdfunding companies (6%). While Malaysia appears to be well ahead of Vietnam and the Philippines in the fintech race, it’s still nowhere near Indonesia. Mohammad Ridzuan Abdul Aziz, president of the Fintech Association of Malaysia (FAOM), believes that instead of viewing fintech as a race against other countries, the focus should be on collaboration between the key stakeholders. He added that the government also provides a variety of monetary incentives and support programmes for start-ups, and is now recalibrating various agencies to improve awareness and efficiency.

MIDF keeps mum on Al Rajhi #merger talks

Malaysian Industrial Development Finance (MIDF) remains tight-lipped about its negotiations with Al Rajhi Banking and Investment Corp (Al Rajhi Malaysia). Both banking groups announced on Jan 10 this year that Bank Negara Malaysia’s approval had been secured to commence talks on a potential merger. However, both parties failed to reach an agreement past the March deadline. The companies then requested for an extension and were given another three months, up to June 27 this year. A merger of the two banks would result in a combined banking group with RM13.17 billion in assets. The merger with Al Rajhi Malaysia will allow MIDF to become an Islamic financial institution as it currently does not have an Islamic banking licence. MIDF brought in RM76.86 million in revenue and RM12.11 million in net profit for 1Q19.

SC sees good year ahead for #sukuk

Malaysia could see more Islamic capital market funds raised this year as sukuk activity has picked up in the first quarter of 2019. According to Securities Commission Malaysia (SC) deputy CEO Datuk Zainal Izlan Zainal Abidin, sukuk issuances are picking up over last year’s level. The government recently announced the revival of the East Coast Rail Link and the Bandar Malaysia projects, brightening investor sentiment which has been dampened lately. According to SC data, Malaysia’s Islamic capital market was valued at RM1.88 trillion or 61% of the nation’s overall capital market as at end-2018, down from RM1.9 trillion the year prior. Malaysia is the world’s largest sukuk issuer, having accounted for 51.6% of global outstanding sukuk as at endJune 2018.

Bank Islam continues to focus on affordable housing segment

Bank Islam Malaysia expects its home financing business model will continue to help the bank to grow and boost its assets. Malaysia’s oldest Islamic lender has been growing organically over the years, despite the crowded market. Bank Islam CEO Mohd Muazzam Mohamed said the bank is already adopting the right model to support this affordable segment. He added that the Islamic bank will continue with its current business model which is in line with the governments’ directive. Bank Islam has already allocated RM300 million to be utilised until 2021 as part of its digitalisation directive. Mohd Muazzam said the bank aims to increase its financing for small and medium enterprises (SMEs) by RM200 million in 2019. The bank also plans to increase its investment fund to RM800 million under its Al-Awfar product, which has been refreshed since its establishment in 2009.

BNM introduces Rahn policy document

Bank Negara Malaysia (BNM) has issued the Rahn policy document which is aimed at strengthening the practice among Islamic financial institutions to offer services that are end-to-end Shariah-compliant. BNM stated that the subject matter of the Rahn contract shall be collateral that is recognised by Shariah and Shariah-compliant liability or obligation owing to the pledgee. It added that the collateral must be owned either by the obligor, a third party, or the obligor and a third party. BNM said the collateral shall be immediately possessed by the pledgee upon entering into the Rahn contract unless a pledgee approves a delay in possession. A Rahn contract is applicable with contracts including qard, murabahah, tawarruq, baiinah, istisna, ijarah, kafalah, mudarabah, musyarakah, wakalah bi al-istithmar, and wad as well as takaful coverage.

BIMB Invest eyes RM100m for Shariah-ESG #fund within 1 year

BIMB Invest is expected to achieve a subscription of RM100 million of its BIMB-Arabesque ValueCAP Malaysia Shariah-ESG Equity Fund within a year. The fund was launched together with Arabesque Asset Management and ValueCAP and approved by the Securities Commission Malaysia. As the fund is mainly targeted at corporate and institutional investors, BIMB Invest is hoping to get the likes of pension funds, insurance and takaful firms on board. The fund will invest in about 100 local listed companies that are Shariah-compliant as well as in line with ESG practices. It will analyse the ESG factors of each company using Arabesque’s proprietary methodology, the Arabesque S-Ray, which daily assesses the performance of companies.

Green #sukuk creates ripples on prominent environmental concerns

According to Securities Commission Malaysia (SC) deputy CEO Datuk Zainal Izlan Zainal Abidin, the world will need up to US$90 trillion (RM360 trillion) worth of investments for infrastructure by 2030. This presents a significant opportunity for green finance and green sukuk to be part of the mainstream investment for the financing solutions. In July 2017, SC, Bank Negara Malaysia and the World Bank Group established the country’s first green sukuk. Green sukuk has become the trend that has received support from investors and regulators on a global scale. NewParadigm Capital Markets Managing Director Charanjeev Singh says more green sukuk issuances are expected to take up the Islamic finance space as Malaysia continues to be the catalyst for Islamic bonds. So far, the focus has been big government-owned companies. The next level of development would be to facilitate the middle- market or the mid-sized companies, and not necessarily the government- owned or government-linked, but the A or AA ratings.

Syndicate content