Malaysia’s sukuk mart to grow 10% in 2014-15

PETALING JAYA: Sukuk issuance in the Malaysian market is expected to see steady growth of around 10% during the 2014-15 period, said Moody's Investors Service.
"The 10% growth in Malaysia's sukuk market over 2014-15 is in line with our positive view on the long-term growth trends in the global sukuk market," Moody's managing director for the Corporate Finance Group in Asean, Philipp Lotter said in a statement yesterday.
Its Global head for Islamic Finance Khalid Howladar said: "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."
"Some two-thirds of the approximately US$290 billion (RM938 billion) outstanding sukuk were issued in Malaysia. We expect 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 are tapping into this fast-growing asset class although Saudi Arabia is showing strong domestic potential," he added.
In its report titled "Malaysian Sukuk Market: Issuance to show steady growth to 2015", Moody's said growth in Malaysia's sukuk market will be driven by four key factors.
It noted that sovereign and related issuers as well as private sector corporates are looking at sukuk to raise the necessary funding to execute the government's investment blueprint under the country's economic transformation programme.
Also, Islamic banks' efforts to refinance and boost their capital bases due to Basel III implementation coupled with expected financing growth, as well as extending their funding profiles to moderate asset/liability maturity mismatches would also drive sukuk growth.
It also pointed out that more Asean palm oil producers are tapping the Malaysian sukuk market for funds while Malaysian issuers are also looking to refinance US$40 billion of sukuk maturing over the next three years.
Moody's report stated that international issuances in Malaysia account for less than 10% of the US$178 billion in total outstanding sukuk.
"We expect issuance volumes to remain dominated by local-currency transactions in the near future with the increase in international, foreign-currency sukuk issuances driven more by issuers in the Gulf region, although the larger more creditworthy issuers in Malaysia will look to diversify their funding and tap the global markets in 2014-15," said associate analyst in the Corporate Finance Group covering the Asean region, Rachel Chua.
According to Moody's report, annual sukuk issuance by palm oil companies in Asean grew at a compounded annual growth rate of 70% over the last decade, from US$8.7 million in 2004.
"Growth in sukuk issuances by Asean palm oil producers will remain strong over the next two years, following a record US$1.8 billion issuance in 2013. We expect large Asean plantation companies, both debut and repeat issuers, to tap the sukuk market in 2014-15 as part of their funding strategy," adds Chua.
Moody's report further points out that over the last decade, the increasing acceptance and popularity of sukuk amongst domestic investors in Malaysia has resulted in a substantial growth in issuance volume.
Annual issuance of Malaysian sukuk grew at a compounded annual growth rate of 22% to US$33 billion in 2013, from US$3 billion in 2001.