continued... - Islamic Finance News

Islamic Finance news Guide 2008
Page 30
Malaysian Islamic Finance Landscape (continued...)
Ras Al-Khaimah Investment Authority US$435 million (UAE
investment authority) and Nucleus Avenue RM7.9 billion
(US$2.4 billion, Malaysian power producer).
By country, the UAE topped the issuer chart at 43% of total
global Sukuk issued, followed by Malaysia (30%), Saudi
Arabia (18%) and Bahrain (5%). For 2008, we expect new
Sukuk issuances to trend higher to between US$40 billion
and US$45 billion (US$12.15 billion to US$13.67 billion),
dominated by huge infrastructure/utilities, property/real
estate, and oil, gas and petrochemicals fi nancing in Malaysia
and GCC countries.
Bigger investor base, lower pricing
So, why are Sukuk increasingly popular? The advantages
fundamentally lie in the structure of Islamic fi nance itself.
Sukuk provides an avenue for Islamic investors to invest in
Shariah compliant investments, thus guaranteeing access to
a larger investor base. It also provides potential lower pricing
to issuers via the wider investor pool from the participation of
large Islamic investors.
Structures employed have also evolved from the traditional
Musharakah to include more project-specifi c transactional
structures like Ijarah Sukuk, Istisna or a combination of the
above.
“Sukuk provides an avenue
for Islamic investors to invest
in Shariah compliant investments,
thus guaranteeing access
to a larger investor base”
Nevertheless, like all fi nancial mechanisms that are in the
emerging stages of development, the Islamic industry poses
some overreaching challenges. One of the main challenges
is to ensure the sustainability of the Islamic fi nance industry
and in accessing a large pool of long-term investors.
Both can be overcome by maintaining a competitive domestic
Islamic capital market via continuous product development
and innovation. The ability to structure a marketable deal (in
terms of instrument type and pricing) will ensure access to a
wide distribution pool of funds, both regionally and globally.
Some of the Islamic market innovations in recent years include
the gradual shift from traditional products (Musharakah and
Ijarah) to Istisna- and Salam-based products, short-term oil
www.islamicfi nancenews.com
and commodity linked products, equity/debt hybrids as well
as internationalizing distribution lines. Continuous research
and development in the areas of product development can
also enhance growth in Islamic equity funds, cultivate liquidity
management of assets as well as create Shariah-based equity
benchmarks.
This year will see Malaysia’s GDP grow by 5.7% respectively,
with key sectoral drivers being the infrastructure/construction
industry, services sub-sectors, oil and gas, and plantations.
As such, the fundraising activities will also boast Shariah
compliant structures that support activities in these key
areas.
The Malaysian bond market has shown exemplary growth
with the onset of Islamic debt, thus contributing towards
the resilience of the overall international financial
architecture.
Chart 3: Global Local Currency & Dollar Sukuk Issued by Country
(2007)
Saudi
18%
Kuwait
3%
Pakistan
0%
Bahrain
5%
Qatar
1%
Malaysia
30%
UAE
43%
Source: Bloomberg, Zawya, Failaka International, BNM/FAST, RAM,
MARC, KFH
Baljeet Kaur Grewal is
group chief economist and
head, global research at
Kuwait Finance House (KFH) Research Limited.
The information herein has been obtained from sources
believed to be reliable but cannot be guaranteed. The views
or opinions expressed are subject to change at any time.
Neither the information nor any opinion expressed is to be
construed as a solicitation for the purchase or sale of any
securities. KFH disclaims liability in this respect.