Japan: Bank of Tokyo-Mitsubishi UFJ gets Dubai Islamic finance licence

Japan's Bank of Tokyo-Mitsubishi UFJ (BTMU) said it had obtained permission from the Dubai Financial Services Authority to operate a so-called Islamic window, underlining growing Japanese interest in sharia-compliant banking.

Islamic windows allow conventional banks to conduct Islamic finance by segregating assets from conventional interest-bearing funds. Industry sources said it was the first time that a bank from Japan was operating an Islamic window in the Middle East.

BTMU decided to take the step after Japan's Financial Services Agency changed its supervisory guidelines, the bank said in a statement seen on Sunday.

Japanese institutions have become increasingly interested in Islamic finance as a way to tap large pools of liquidity in southeast Asia and the Gulf.

Last September, BTMU became the first Japanese commercial bank to issue Islamic bonds; last month, a Malaysian affiliate of Toyota Motor said it planned to set up a funding scheme that would include Islamic debt. The Japan International Cooperation Agency has signed an agreement with the private sector arm of the Jeddah-based Islamic Development Bank to develop sharia-compliant transactions. 

(Reuters / 12 July 2015)

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Malaysia, Japan to enhance cooperation in Islamic finance

TOKYO: Malaysia and Japan will enhance their cooperation in areas such as Islamicfinance. Malaysian Prime Minister Najib Razak, who wrapped up his three-day visit to Japan on Tuesday (May 26), is supporting Japan’s foray into the Islamic market.

Many Japanese businesses are eager to learn and see how they can gain a piece of the pie in the growing market.

Mr Najib on Tuesday gave a keynote speech at the round table meeting of the World Islamic Economic Forum (WIEF) Foundation and Alliance Forum Foundation (AFF) in Tokyo - a forum to help link Japan and the Muslim world.

During his visit to Japan, he reached an agreement with his counterpart Shinzo Abe to enhance cooperation in areas such as the halal food industry and Islamic finance.

“We discussed the support from the Japanese government, and its authorities to encourage Japanese enterprises, financial institutions, and investors to engage in Islamic finance-related activities with Malaysia. We in turn will offer technical assistance to Japan in this field,” Mr Najib said.

Japan is still new to businesses catering to Muslims. Restaurants could well be the most advanced in this area, as more outlets in Japan try to offer halal cuisine to the growing number of Muslim tourists, particularly from Malaysia and Indonesia.

Several Japanese banks have also introduced Islamic finance, but the understanding of business opportunities catering to Muslims is still limited.

Katsuya Hisamichi, corporate officer at Rohto Pharmaceutical's R&D Department, said: “Actually, the Muslim world is quite a new field for us. We haven't had any experience with Muslim countries."

Some companies in the financial sector have had more experience.

Nobuaki Kurumatani, deputy president and board member at Sumitomo Mitsui Banking Corporation, said: “Our Islamic finance activities started in 2008 from SMBC Europe that covered Middle-East countries. We are now focusing on Asia. I think the two big markets still are growing, and the most promising next step is focusing on the African market.”

The Islamic economy is expected to grow at double digits for the next few years. Global Islamic finance is estimated at US$2 trillion, while the halal market is worth around US$2.3 trillion.

The medical industry is hoping to tap on the Muslim market too. “Shortage of donor in any country has caused problems in heart transplantation. Also it's very expensive. Almost all countries desire to start stem cell therapy,” said Yoshiki Sawa, Dean at the Osaka University Graduate School of Medicine.

With better cooperation, Malaysia hopes to help Japanese companies, academics, and physicians gain the skills for them to participate actively in the Islamic market. 

(Channel News Asia / 26 May 2015)

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Japan looks for growth and influence from Islamic finance boom

Japan is the latest global financial hub to start making inroads into Islamic finance, a move that could help strengthen regional economic ties and give its lenders an edge in winning business in markets whose growth prospects far outpace their home turf.

Tokyo has long been a major provider of financial assistance for developing countries and its banks are active across Asia and the Middle East, but until now Islamic finance has played a minor role.

That could soon change amid a regulatory effort to facilitate development of the sector, and could even help Japan counter any loss of regional influence ahead of the launch of the China-led Asian Infrastructure Investment Bank.

Islamic finance, which follow religious principles such as bans on interest and monetary speculation, has boomed in the last few years on the back of strong economic growth in its core markets, the Gulf and southeast Asia.

The sector has grabbed the attention of global financial centres - Britain, Hong Kong and Luxembourg have all issued debut sovereign Islamic bonds over the past year - and the industry's worldwide assets are now estimated at more than $2 trillion.

In February, Japan's financial regulator said it would study relaxing rules for domestic banks to use Islamic financial products, potentially opening the world's second largest bond market to sukuk, or Islamic bonds.

Over the past year, Bank of Tokyo-Mitsubishi UFJ (BTMU), Japan's largest lender, and Sumitomo Mitsui Banking Corp have expanded their Islamic finance activities overseas.

"To fully respond to this opportunity BTMU is considering handling Islamic finance at its Dubai branch, its hub for the Middle East, subject to regulatory approval," a spokesperson for the bank said.

In September, BTMU became the first Japanese commercial bank to issue sukuk via its Malaysian unit.

Even the Japan International Cooperation Agency is jumping on the action, assisting Jordan in its plans to issue debut sukuk, as demand for such funding tools grows among majority-Muslim countries.

The moves are similar to those taken by Britain, as mature economies seek deeper links with high-growth markets, several of which are majority-Muslim countries, said Khalid Howladar, Moody's global head of Islamic finance.

"This is one way for both government and industry to forge closer economic and capital market ties," Howladar said.

GROWTH MARKET

In 2008, Japan's Financial Services Agency (FSA) amended rules to allow subsidiaries of Japanese banks to conduct Islamic finance transactions, with foreign subsidiaries later allowed to take Islamic deposits, but the rules are seen as restrictive.

The regulator is considering allowing banks to provide Islamic products in the domestic market for the first time, and will present the results of a consultation on rule changes later this month.

Islamic products require multiple transfers of title of the underlying asset, and so can present regulatory challenges for new jurisdictions in areas such as tax.

Japanese banks, as well as other corporates, want greater flexibility on the rules to help them grow their business overseas, said So Saito, counsel at law firm Nishimura & Asahi.

"As the weak point will be settled, Japanese banks can enter foreign markets more easily," Saito said.

Any FSA relaxation could help banks diversify away from a domestic market which saw 2.5 percent year-on-year loan growth in February, the bulk of that coming from Japanese regional lenders.

That trails the 8.3 percent growth in financing posted by Indonesian Islamic banks in 2014, a modest figure compared with the 25.2 percent growth posted a year earlier.

Japanese banks are keen to grab a greater share of that business: Sumitomo Mitsui started offering Islamic finance via its Malaysian subsidiary last year.

It has also partnered with the export credit insurance arm of the Islamic Development Bank to explore financing of infrastructure deals.

State-owned Japan Bank for International Cooperation has also considered sukuk, although a spokeswoman said the lender had no specific plans to tap the market.

Even the Asian Development Bank, where Japan is a key player, is ramping up efforts to encourage use of Islamic finance by its member countries. 

(Reuters / 31 March 2015)

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Japan banks venture deeper into Islamic finance business

Japan, which has become a lot more Muslim-attentive in the recent past, mulls issuing regulations that would allow Japanese banks to provide Islamic financial products on the domestic market for the first time.

The move comes after Japan’s Financial Service Agency, the country’s financial market regulator, allowed major banks as early as in 2007 to offer Islamic finance services at their branches abroad, an opportunity that has been seized by some of the largest financial service companies and lenders. 

The first sukuk was issued by Aeon Credit Services in Malaysia in 2007, followed by a US dollar sukuk issued by Nomura Investment Company in 2010. Toyota Capital Malaysia sold two US dollar sukuks in 2012, and Bank of Tokyo-Mitsubishi UFJ in September last year issued its first sukuks under a multi-currency programme in Malaysia, including the world’s first-ever yen-denominated sukuk. The bank, Japan’s largest, as well as Sumitomo Mitsui Banking Corp, will also start offering Shariah-compliant deposit and loan services at its Dubai branches this year. Another lender, Mizuho Financial Group, plans to make its London branch its operational centre for Islamic finance in the Middle East. 

As for domestic Islamic banking services, the Financial Service Agency posted a statement on its website where it is asking for public comments until March 27 and said it would release the results of an internal consultation by the end of April. Bank of Tokyo-Mitsubishi UFJ is reportedly expecting a “positive” outcome that will lead to a further relaxation of the rules.

While Japan with its 127mn people does not have a large Muslim population that would make Islamic retail banking worthwhile – estimates suggest a Muslim population between 70,000 and 100,000, of which probably 90% are resident foreigners and the rest native Japanese –, the country is the largest bond market in Asia which would likely give the sukuk business in East Asia an enormous boost and would also threaten Malaysia’s current role as Asia’s largest market for Islamic bonds. 

According to Camille Paldi, CEO of the Dubai-based Franco-American Alliance for Islamic Finance, a consultancy firm servicing clients in Islamic banking, finance and takaful, “Japan is an emerging Islamic finance powerhouse and East Asian hub for the trillion-dollar Islamic finance industry.”

She added that she is “confident that Japan can become a major player in the Islamic finance industry” because “in addition to the Japanese government, the Japanese business conglomerates, or keiretsu, are interested in issuing sukuk to raise capital for Japanese businesses and to increase their competitiveness in domestic and global financial markets.”

Paldi’s opinion on the so-called “J-sukuks” is echoed by RAM Ratings, Malaysia’s largest homegrown credit rating agency. 

“There is a growing role for Japan in the development of the Islamic finance market, the agency said at a recent Islamic finance conference in Kuala Lumpur. Tax reforms introduced in 2011 have also helped facilitating the issuance of “J-sukuks,” RAM Ratings said.

With Islamic bonds, Japanese banks want to tap funds and investors mainly in Malaysia, Indonesia and the Middle East. Bond issues in yen are also seen to attract more interest from investors seeking securities with high liquidity and good ratings.

(Gulf Times / 10 Marh 2015)

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The Time is Now for Japan and Islamic Finance

Dubai, UAE, January 23, 2015 -- Camille Paldi, CEO of the Franco-American Alliance for Islamic Finance, while on a trip to Tokyo, Japan commented that Japan is an emerging Islamic finance powerhouse and East Asian hub for the billion dollar Islamic finance industry. Japan has traditionally been known as an economic powerhouse and East Asian Tiger and therefore this Islamic finance role is fitting with the image of Japan as an economic and financial giant. 

In addition, the sword exterior and chrysanthemum interior of Japan (The Sword and the Chrysanthemum) is quite conducive to the soft interior of Islamic finance, which is being played out in an extremely competitive global marketplace. The competition for investments from cash-rich Gulf and Asian investors is fierce. 

However, with Japan’s discipline and hard work ethic, Paldi is confident that Japan can become a major player in the Islamic finance industry. In addition to the Japanese government, the Japanese keiretsu, similar to the South Korean Chaebol, are interested in issuing sukuk to raise capital for Japanese businesses and to increase their competitiveness in domestic and global financial markets. 

Islamic finance is definitely on the horizon of the Land of the Rising Sun.

According to Tariqullah Khan, Japan’s interest in Islamic finance began in 2005. Khan explains that Japanese financial institutions cooperated with Islamic financial institutions in Malaysia and the UAE as a means of indirect expansion and that Islamic finance has been used as a method to attract investment from Islamic investors into Japan. 

The first sukuk was issued by Aeon Credit Services in Malaysia in 2007. Next, in 2010, Nomura Investment Company issued sukuk in US$. 

In 2012, Toyota Motor Corp. sold USD$88 Million of sukuk in two offers via its unit Toyota Capital Malaysia Sdn. due for maturity in May 2015. In 2014, Bank of Tokyo-Mitsubishi UFJ (Malaysia) Bhd, a member of the financial group that is part of Japan’s biggest lender by market value, set up a $500 million multi-currency sukuk program and is also considering the world’s first yen denominated sukuk.

In 2007, Japan amended FIEL, which is the Financial Instrument and Exchange Law and in 2008, the Banking and Insurance Business Law was amended enabling subsidiaries of Islamic IFI’s and banks to engage in Islamic financial transactions in Japan including ijarah and murabahah sukuk. In 2009, the rules were changed so that interest income would be tax free when an overseas sovereign fund invested in Japanese bonds or deposits. 

In addition, in 2011, the Asset Securitization Act was amended so that the ijarah sukuk would be considered as a special bond type beneficial interest issued by SPT or the Specified Purpose Trust. Before this reform, when a Japanese company issued sukuk to foreign investors, the distribution of profits of sukuk were subject to a 15% withholding tax while conventional bonds remained at 0% tax. 

Now, tax exemption is given to foreign investors who purchase bond type beneficial interests, which are quasi-bond beneficial interests of a specified purpose trust (SPT). The SPT was established under the Asset Securitization Law, which is the basis for the issuance of sukuk in Japan. 

Next in 2011, Japan tailored the tax system to the issuance of special bond type beneficial interest. In 2013, the Sunset Provision was enacted, creating a tax exemption for the distribution amounts of sukuk received by foreign investors and exempting registration tax on the repurchase of the real estate for the same sukuk, thereafter expired on that same day. 

In sum, Japan allowed the income of foreign investors to be tax exempt and initiated tax reform for the special bond type beneficiary interest; issuance, including exemption of income; withholding tax on profit distributions and gains on redemption, property registration, and acquisition tax. Japan has taken the necessary legislative and regulatory steps to make the East Asian Tiger Islamic finance and sukuk ready.

Japan is a member of the IFSB Islamic finance regulatory body and has agreements with the MIFC or Malaysia International Islamic Financial Centre in Malaysia and through JICA or the Japan International Cooperation Agency with the ICD or Islamic Corporation for the Development of the Private Sector to receive technical assistance in the issuance of sukuk. 

(WhaTech / 23 January 2014)

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Malaysia: Growing role for Japan in Islamic finance

KUALA LUMPUR: There is a growing role for Japan in the development of the Islamic finance market, says RAM Ratings at an Islamic Finance conference on Wednesday.

RAM said tax reforms were introduced in 2011 to level the playing field for the issuance of J-Sukuk and conventional bonds for tax purposes, and amendments had also been made to Japanese Securitisation Law to facilitate the issuance of J-Sukuk.

It said while there had yet to be any issuance of J-Sukuk in the Japanese market, BTMU Malaysia Bhd – a wholly-owned subsidiary of Bank of Tokyo-Mitsubishi UFJ, Japan's largest lender – had taken the first important step.

In September this year, it became the first Japanese bank to enter the Sukuk market in when it debuted a US$500mil Sukuk programme in Malaysia.

The conference was jointly organised by RAM and the Rating and Investment Information Inc (R&I), Japan's largest credit rating agency with nearly 40 years of bond market and credit rating experience.

More than 150 members from financial institutions, insurance companies, pension funds and corporates from Tokyo.

(The Star Online / 12 November 2014)

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Japan bank unit in Malaysia keen to expand Islamic banking ops

PETALING JAYA: Bank of Tokyo-Mitsubishi UFJ (M) Bhd (BTMU Malaysia), which has issued the world’s first yen-denominated “Emas” sukuk, is expanding its Islamic banking operations in the country by eyeing more non-Japanese Malaysian firms, including government-linked companies (GLCs).

Its president and chief executive officer Naoki Nishida told StarBiz the bulk of its Islamic banking portfolio in Malaysia, including Malaysian corporates and GLCs, would continue to be one of the bank’s main focus as part of its move to strengthen its Islamic banking business.

Without disclosing the names of its GLC clients and the amount of BTMU Malaysia’s financing to this client segment, he said they were, among others, corporate entities with businesses in major economic sectors, including manufacturing, oil and gas, palm oil and infrastructure development.

According to Nishida, the bank’s Islamic banking portfolio is still in early development stages.

BTMU Malaysia is keen to grow its size due to the potential growth of the business in the country and neighbouring nations such as Indonesia.

He said the bank could use Malaysia as a springboard to expand its operations in Islamic banking in the region, and continue its collaboration with its counterparts in Indonesia, as Islamic banking there had huge potential.

The other region that BTMU Malaysia will continue to focus on would be the Gulf Cooperation Council, as this was also a natural area of focus.

BTMU Malaysia started its Islamic banking business in 2008 with the setting up of an international currency business unit, focusing on Islamic banking in international currencies.

The bank launched its inaugural sukuk under a multi-currency programme of US$500mil (RM1.62bil).

Its maiden issue comprised two tranches: a US dollar-denominated sukuk with an aggregate nominal amount of US$25mil (RM81.1mil), and a yen sukuk with an aggregate nominal amount of 2.5 billion yen (RM74.4mil).

Proceeds from the first issuances would be utilised for BTMU Malaysia’s Islamic banking business, general corporate purposes, refinancing and working capital requirements.

On future issuance of sukuk or bonds for financing, he said it would depend on market conditions and funding needs, adding that it may issue ringgit sukuk if the need arose.

BTMU Malaysia, together with CIMB Investment Bank Bhd and Mitsubishi UFJ Securities International plc, are the joint-lead arrangers and joint-lead managers for the multi-currency sukuk programme. CIMB Islamic Bank Bhd, meanwhile, is the syariah adviser for the programme.

(The Star Online / 26 September 2014)

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Malaysia: After landmark sukuk, Japan's BTMU seeks to offer Islamic ringgit loans

KUALA LUMPUR, Sept 25 (Reuters) - Bank of Tokyo-Mitsubishi UFJ (BTMU), Japan's largest lender, hopes to secure a licence for its Malaysian unit to expand operations by providing Islamic loans in the local currency.

This would allow BTMU Malaysia, a wholly owned unit, to meet the needs of existing clients for Islamic loans in ringgit, the unit's chief executive Naoki Nishida told Reuters on Thursday.

He said the bank might obtain the licence next year and hoped to start such lending in the near future, though other issues such as accounting systems also needed to be resolved.

Nishida was speaking after BTMU earlier in the day became the first Japanese commercial bank to issue Islamic bonds, selling $25 million of sukuk in a U.S. dollar tranche and 2.5 billion yen ($22.9 million) in a yen tranche.

Its issue underlined growing interest in Islamic finance among big, international conventional banks. Goldman Sachs raised $500 million with its debut sale of sukuk earlier this month, while France's Societe Generale set up a sukuk programme in Malaysia this year.

Currently, BTMU's Islamic operations are only allowed to provide loans in currencies other than ringgit and they conduct nearly all transactions in U.S. dollars.

That is the reason why BTMU's first sukuk issue, part of a $500 million multi-currency sukuk programme established in Malaysia in June, was not denominated in ringgit.

"We did not choose ringgit because of the lack of ringgit assets on our books," said Nishida, noting that issuing ringgit sukuk at this stage would have entailed negative carry on the cost of funding.

BTMU Malaysia serves large Malaysian firms and government-linked companies, particularly those with operations abroad in the oil and gas, palm oil and real estate sectors.

DEBUT SUKUK

BTMU was conservative with the size of its first sukuk issue, which was at the bottom of its target range of $50 million to $100 million.

The one-year sukuk were privately placed with a mix of local and foreign institutional investors, which the bank declined to name. Pricing details were not disclosed.

Nishida said it took time to explain to investors the structure of the sukuk wakala and the decision to issue in yen.

"With yen, there were additional explanations, additional questions," he said. "Although yen-denominated sukuk were new and not familiar to investors, we were able to find a certain amount of appetite."

Funds raised from the sukuk will go mainly towards growing BTMU's Islamic business in Malaysia and Saudi Arabia. It has also attracted business from Singapore, Brunei and Indonesia.

BTMU's $500 million Malaysian sukuk programme, which allows for issues with maturities of up to 10 years, is sufficient for the bank's current Islamic operations, which are still in an early stage of development, Nishida said.

The bank, a unit of the Mitsubishi UFJ Financial Group , will decide on the size and tenor of its next sukuk issue based on the level of anticipated loan growth, though it remains open to other methods of raising funds.

Nishida said BTMU had found it more expensive to issue sukuk than raising funds through options such as loans and conventional bonds, as it had to meet investors' targets for returns and the sukuk's prices were benchmarked to global bonds previously sold by the parent company. But this premium may shrink as the bank proceeds with more sukuk issues, he added.

He said BTMU would approach Japanese investors for its future issues, as part of its efforts to promote sukuk to companies from Japan. "We hope with our experience, more Japanese companies in Malaysia and Japan will consider issuing sukuk."

BTMU's programme is a boost to Malaysia's efforts to diversify its Islamic capital markets, which so far have been dominated by local-currency deals.

The wakala programme uses tangible assets and commodity-linked receivables from BTMU's Malaysian subsidiary to underpin transactions. Kuala Lumpur-based RAM Ratings assigned an AAA rating to the programme, which has the parent company as guarantor; CIMB Investment Bank and Mitsubishi UFJ Securities International advised on the deal.

(Yahoo News / 25 September 2014)

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Japan Lacking Sukuk Rules Spurs Malaysia Debuts

Bank of Tokyo-Mitsubishi UFJ is planning a debut sukuk in Malaysia as Japan’s lack of Islamic finance rules forces companies overseas to tap Muslim investors.

Bank of Tokyo-Mitsubishi UFJ (Malaysia) Bhd., a member of the financial group that’s part of Japan’s biggest lender by market value, has set up a $500 million multi-currency program to sell debt complying with Koranic principles and is also considering offering the world’s first yen-denominated sukuk, according to a June 5 statement. The issuance will help manage the bank’s increasing Islamic financing needs, it said.

The lender joins Japan Bank for International Cooperation and the North Asian nation’s Aeon Credit Service (M) Bhd. in choosing Malaysia to sell Islamic bonds, taking advantage of Shariah-compliant banking assets that are set to double to $3.4 trillion worldwide by 2018. The 2.83 percent average yield on dollar sukuk globally is near a one-year low, while conventional emerging-market U.S. currency notes are paying 5.26 percent, according to Deutsche Bank AG and JPMorgan Chase & Co. indexes.

“The experience of Bank of Tokyo-Mitsubishi will be useful for other Japanese institutions to copy,” Raj Mohamad, managing director at Five Pillars Pte, a consulting firm in Singapore, said in an e-mail interview yesterday. “The awareness of Shariah products will improve and slowly it will give investors the opportunity to tap Japanese corporates.”

JBIC Offer

While Japan has no Islamic banking rules of its own, the government amended legislation in 2008 to allow subsidiaries of the country’s lenders and insurers overseas to provide financial services in accordance with religious tenets. Bank of Tokyo-Mitsubishi UFJ Malaysia offers Shariah-compliant loans and guarantees among its products in the Southeast Asian nation.

Japan Bank for International Cooperation, a state-owned lender, announced in April that it was considering selling its first Islamic bonds this year to fund a project in Malaysia. Aeon Credit Service (ACSM), the local unit of a Japanese consumer finance provider, said in December it was planning to sell sukuk with no set maturity, adding to previous offerings.

Average yields on global dollar sukuk have dropped 59 basis points, or 0.59 percentage point, in 2014 and reached a one-year low of 2.78 percent on May 29, the Deutsche Bank index shows. That compares with an 84 basis point decline in the JPMorgan gauge of developing-market debt.

Khazanah Cancels

Japanese banks are selling Islamic bonds to tap Shariah-compliant funds in Malaysia, Indonesia and the Middle East, said Mohamad at Five Pillars. A yen issue would attract interest from investors seeking securities with good ratings and an offering such as this would help boost secondary-market trading in the current buy-and-hold environment, he added.

While global yields have dropped this year, the FTSE Bursa Malaysia KLCI index of shares fell 0.2 percent. Malaysia’s sovereign wealth fund Khazanah Nasional Bhd. abandoned a plan last week to sell exchangeable dollar sukuk because pricing didn’t meet expectations, said a person with knowledge of the deal who asked not to be identified as the details are private.

Khazanah sold Singapore dollar-denominated convertible Islamic bonds in October via the special purpose company Indah Capital. It issued S$600 million ($480 million) of five-year debt at a minus 0.25 percent yield and carrying a 17 percent exchange premium, according to a company statement. The notes yielded minus 0.96 percent yesterday, according to data compiled by Bloomberg.

‘Hard Time’

Bank of Tokyo-Mitsubishi’s sukuk plan comes amid speculation borrowing costs will soon increase with the Federal Reserve (FDTR) on track to end its bond-buying program by year-end and start raising interest rates in 2015. The debt has been rated AAA by Malaysia’s RAM Rating Services Bhd., the highest investment grade.

“While demand for sukuk is still good, issuers who expect to get last year’s pricing for their bonds will be in for a hard time,” Azdini Nor Azman, the Kuala Lumpur-based head of treasury at Bank Muamalat Malaysia Bhd., said in a June 5 phone interview. “Issuers will have to stomach higher borrowing costs as yields are unlikely to fall from current levels.”

Nomura Holdings Inc. tapped the Malaysian Islamic bond market in 2010 and the notes have since matured. Toyota Motor Corp. sold 280 million ringgit ($88 million) of sukuk in 2012 in two offers via its unit Toyota Capital Malaysia Sdn. The 4 percent securities due in May 2015 aren’t actively traded and last yielded 3.58 percent on April 15, stock exchange data show.

‘Widely Accepted’

Global issuance of bonds that pay returns on assets to comply with Islam’s ban on interest rose 6.5 percent to $20 billion in 2014 from a year earlier, after reaching $43.1 billion last year and a record $46.5 billion in 2012, according to data compiled by Bloomberg.

The Bloomberg-Malaysia Sukuk Ex-MYR Index, which tracks global corporate and sovereign notes from Asia and the Middle East, gained 3.4 percent this year to 116.44, after rising 0.8 percent in 2013. It climbed to a record 116.47 on June 2.

“Islamic investment instruments are currently widely accepted even by conventional investors,” Abas A. Jalil, chief executive officer at Amanah Capital Group Ltd., a consultancy in Kuala Lumpur, said in an e-mail interview yesterday. “More Islamic institutions will start to understand the Japanese market better, and definitely it will start drawing more interest from both issuers and investors.”

(Bloomberg / 10 June 2014)

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Japan bank’s debut sustains ringgit sukuk push

Japan Bank for International Cooperation’s proposal to sell ringgit sukuk is keeping alive Malaysia’s ambition for foreign bond sales in its currency, after a 47% slump in such offerings last year.

The Japanese government-owned lender is considering selling its first Islamic bonds this year to fund a project in the Southeast Asian nation, Tatsuhiko Takesada, executive officer for Asia Pacific, said in an April 2 interview in Jakarta. Local-currency issuance by foreign companies totaled 2.42bn ringgit ($741mn) in 2013, down from a record 4.6bn ringgit the year before.

“An issuance by JBIC can be a catalyst,” Mohd. Effendi Abdullah, head of Islamic markets at Kuala Lumpur-based AmInvestment Bank Bhd., Malaysia’s third-biggest sukuk arranger last year, said in an April 4 interview. “It will set a trend for issuers from Japan and countries that don’t have the Islamic infrastructure and regulatory framework to consider tapping the ringgit market.”

Bumitama Agri, a Singapore-listed palm oil producer, sold 500mn ringgit of sukuk in the only offer by a foreign company this year, as the Malaysian currency climbed 0.2% against the dollar following a 6.7% drop in 2013. JBIC may seek to tap an international pool of Shariah-compliant financial assets that has grown by 18% annually over the last four years, attracting governments in the UK and Hong Kong to consider Islamic bond

debuts.

While Japan has no Shariah banking rules of its own, the government amended legislation in 2008 to allow overseas subsidiaries of its lenders and insurers to provide financial services in accordance with Islam’s ban on interest.

Bank of Tokyo-Mitsubishi UFJ Malaysia Bhd. offers Shariah- compliant loans in Malaysia, Mizuho Financial Group Inc is active in Islamic trade financing and Sumitomo Mitsui Banking Corp is planning to enter the market after getting a permit earlier this year.

Toyota Motor Corp sold 280mn ringgit of sukuk in 2012 in two offers via its Toyota Capital Malaysia Sdn. unit. Nomura Holdings, Japan’s largest brokerage, is the only other Japanese company that has sold Islamic bonds. In 2010, it issued dollar notes in Malaysia that have since matured.

It makes sense for JBIC to tap the Malaysian market because of the large pool of Shariah-compliant investors, AmBank’s Mohd Effendi said. Islamic banking assets in the country climbed 13% last year to a record 556.5bn ringgit, or 25% of the total, according to central bank figures. There was $80.2bn of sukuk sold in Malaysia in 2013, making up 69% of all international sales.

“Since JBIC is owned by the Japanese government, its plan to issue a ringgit sukuk will add confidence to the Malaysian Islamic finance market,” Nik Norzrul Thani, the chairman of Kuala Lumpur-based law firm Zaid Ibrahim & Co, said in an interview on Sunday. “It will certainly help spur more potential issuers to tap the ringgit market.”

Singapore-listed plantation group Golden Agri-Resources, sovereign wealth fund Bahrain Mumtalakat Holdings, and multilateral lender Islamic Development Bank have all sold Malaysian-currency Islamic bonds in the last two years.

The Bloomberg-AIBIM Bursa Malaysia Corporate Sukuk Index, which tracks the most-traded ringgit notes, fell 0.3% this year after gaining 2.8% in 2013.

The increase in international Shariah-compliant banking assets over the last four years probably resulted in holdings topping $1.7tn in 2013, according to Ernst & Young LLP’s World Islamic Banking Competitiveness Report 2013-2014.

Global sales of sukuk increased 3% to $13.8bn in 2014 from the year-earlier period. In Malaysia, issuance is up 83% to 19bn ringgit led by state-owned power producer Tenaga Nasional Bhd. and Perbadanan Tabung Pendidikan Tinggi Nasional Bhd., a government education fund.

JBIC first recognised the importance of Shariah-compliant financing after providing non-Islamic loans for projects in Bahrain and Saudi Arabia in 2006, Fumitaka Machida, the lender’s chief representative in Singapore, said in October.

In 2007, the Japanese bank signed a memorandum of understanding with Malaysia’s monetary authority to look into sukuk issuance, joined the Kuala Lumpur-based Islamic Financial Services Board and set up a Shariah advisory board internally.

“JBIC’s offering would be the first government sukuk from a developed nation if it materializes,” Badlisyah Abdul Ghani, chief executive officer at Kuala Lumpur-based CIMB Islamic Bank Bhd., said in an interview yesterday. “JBIC’s offering showcases another foreign entity tapping into the ringgit market, which reinforces confidence in Malaysian Islamic finance to give issuers what they need.

(Gulf Times / 07 April 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com