ISLAMIC BANKING | Roxanne Uy, Indonesia

2015 sukuk issuances feared to soften compared to last year

Indonesia and Malaysia continue to lead the sukuk market.

Indonesia sold its largest dollar Islamic bond worth $2b in May 2015, while Hong Kong launched its second sukuk in June as it tries to catch up with bigger sukuk markets such as Malaysia and Singapore.

We asked the bankers about what they deem to be some of the landmark developments in the Asian sukuk market, and here’s what they have to say:

Mohamad Safri Shahul Hamid, Senior Managing Director and Deputy CEO, CIMB Islamic
Malaysia will continue to lead where corporate issuances are concerned although the projections for 2015 will be lower than the previous year. We have just announced the world's largest sukuk issuance for 2015 for an independent power company and we should be seeing a few more of these sort of semi-jumbo deals in the Malaysian Ringgit market before the year comes to a close.

Indonesia is and has been the most prolific issuer of global sovereign sukuk and we do expect this trend to continue. On a corporate side, we expect to see a lot more interest coming from local Indonesian names taping the Rupiah sukuk market in the near-to-medium term.

The Indonesian authorities are drawing up an Islamic finance road map and the market is hopeful that this blue print will address areas such as the country's strategic directions, legal and regulatory framework, tax legislation and neutrality.

There has been some noise from China on the sukuk front. We are monitoring the developments closely and would be interested to get ourselves involved as and when the opportunities arise.

Puan Fozia Amanullah, Chief Executive Officer of Alliance Islamic Bank Berhad
Prior to the Indonesian issuance, Malaysia issued a $1.5b 30-year sovereign sukuk in April 2015, which helped Malaysia maintain its position as the largest issuer of sukuks, followed by UAE, Bahrain and Indonesia. The Malaysian issuance was notable for setting a landmark pricing level for other sovereigns.

The fact that the sukuk was priced inside the outstanding conventional bonds of quasi-sovereign Petronas was seen as an remarkable feat as Islamic bonds often price wider than conventional paper and Petronas is rated a notch higher than the sovereign.

Bahrain secured its position with several large value long-term sukuks issued by its Central Bank in 1Q2015, while Bangladesh followed up from several inaugural sovereign sukuk issuances last year (by the UK, Hong Kong Senegal, South Africa and Luxembourg) with the issuance of their own newbie sovereign sukuk this year.

The consensus view however is that there will be a softening of global sukuk issuances this year with Bank Negara Malaysia staying away, and with the ongoing economic uncertainties and market volatilities (lower oil prices and declining currency values) pushing would-be Asian issuers to the sidelines with a wait-and-see stance.

This situation would change however if there is a recovery in oil prices; or if governments in core sukuk markets decide to reprioritize their spending and avoid continuing using their reserves and tap the capital markets more aggressively to finance their spending.

Koko T. Rachmadi, Sharia Business Unit Head, Bank OCBC NISP
In Indonesia, Islamic Industries still focus on Banking Sector. Sukuk Industry in Indonesia still growing and authority give some incentives to industry for sukuk issuance. Still need more time in Indonesia for Sukuk Industry.  

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