Malaysia: Ekovest to issue RM3.64b Sukuk for expressway

KUALA LUMPUR: Ekovest Bhd is set to issue the largest ringgit-denominated Sukuk wakalah of RM3.64bil to fund its Setiawangsa-Pantai Expressway (SPE) project.

The toll road project,formerly known as the DUKE phase 3, will cost RM3.9bil with a 53 year concession period with the government.

"The issuance of Sukuk wakalah for the SPE will be among the largest issuance for a new highway construction project as well as among the highest rates AA-sukuk so far in 2016.

"The project will also be the first public private partnership project to use the government's reimbursement interest assistance (RIA) as part of the financing structure," said Minister of Finance II, Datuk Johari Abdul Ghani at the signing ceremony of the Sukuk wakalah for the SPE project.

Part of the funding of the SPE project would come from a RM560mil interest free government RIA and RM850mil equity by Ekovest. 

"Securing the financing for the SPE was the last piece of the puzzle for project. This would be the largest project that Ekovest group will undertake to date," said Ekovest managing director Datuk Seri KC Lim on Tuesday.

AmInvestment Bank Bhd is the principal advisor and lead arranger for the sukuk. The joint lead managers and joint bookrunners are AmInvestment Bank Bhd, CIMB Investment Bank Bhd, Maybank Investment Bank Bhd and RHB Investment Bank Bhd.

(The Star Online / 16 August 2016)

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Malaysia's $25 bln pension offshoot set to boost Islamic finance

KUALA LUMPUR, Aug 12 (Reuters) - Malaysia's Islamic finance market is set for a much-needed boost when the country's largest pension fund launches a 100 billion ringgit ($24.9 billion) Islamic fund in January, offering a potential boon for asset managers.

The Employees Provident Fund's (EPF) sharia-compliant pension plan opened to acclaim this week with Malaysians lining outside its offices to invest.

The allocation represents about 15 percent of the EPF's total investments of 681.7 billion ringgit as of March.

Having a standalone pension fund of that size is a rarity in Islamic finance, even for majority-Muslim Malaysia, and it is expected to draw interest from foreign asset management firms with homegrown players also upbeat about the prospects.

"The benefits are multifold, to us and to the industry," said Mohamad Safri Shahul Hamid, CIMB Islamic senior managing director and deputy chief executive officer.

"As EPF allocates more into the sharia fund, surely they would want to progressively deploy more of their funds into sharia-compliant investments."

This would include the market for Islamic bonds, or sukuk, with demand gradually increasing as the EPF hires external firms to manage its bespoke funds, Safri said.

Ancillary businesses such as Islamic securities services would also benefit, as well as Islamic money markets, he said.

The EPF plans to allocate an additional 20 billion to 30 billion ringgit in 2018 to its Islamic fund, depending on the availability of sharia-compliant investments.

The new fund would attract foreign competitors into Malaysia but also widen the opportunities for incumbents, said Mohammad Hasif Murad, investment manager at Aberdeen Islamic Asset Management Sdn Bhd.

"This announcement might be a good value proposition for foreign players to jump on the bandwagon. We expect EPF to continually assess the response from the market and gradually increase the allocation for Islamic in the medium term."

Islamic fund managers screen their portfolios according to religious guidelines such as bans on alcohol and gambling, similar to socially responsible funds in Western countries.

Close to a fifth of total assets under management in Malaysia are now managed this way.

As of December, fund management companies in Malaysia held 132.4 billion ringgit worth of Islamic assets, up 19.7 percent from a year earlier, according to Securities Commission data.

While the benefits of a standalone Islamic retirement fund trickle down to fund managers, the outlook for Malaysia's sukuk market is also improving.

A healthy supply of sukuk is expected for the rest of 2016, on track to exceed the $34.5 billion of sukuk issued in Malaysia last year, CIMB's Safri said.

"We expect an active second half, in terms of total size of the corporate sukuk market, which will grow to $40 billion at the minimum," he said.

Growth in the fixed income market would outpace equities, as investors seek more stable returns, he added.

(Mail Online Wires / 12 August 2016)

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Malaysia: MARC affirms rating on Kimanis Power RM1.16b Sukuk

KUALA LUMPUR: Malaysian Rating Corporation Bhd (MARC) has affirmed its AA-IS rating on Kimanis Power Sdn Bhd's (KPSB) RM1.16bil Sukuk programme with a stable outlook. 

 

It said on Wednesday the affirmed rating was backed by the favourable terms of KPSB’s 21-year power purchase agreement (PPA) with the offtaker, Sabah Electricity Sdn Bhd (SESB) under which demand risk is transferred to the offtaker. 

SESB is 83% owned by power giant Tenaga Nasional Bhd (TNB), which has a senior unsecured debt rating of AAA/Stable. 

“The affirmed rating incorporates Kimanis power plant’s commendable operating performance in meeting PPA requirements in relation to the heat rate and unscheduled outage limit. 

“The rating also considers Petronas Gas Bhd’s 60% ownership of and substantial involvement in KPSB, the use of standard and well-proven technology and the gas sale agreement (GSA) with Petronas Gas’ parent Petroliam Nasional Bhd (Petronas) until June 2029 which mitigates fuel supply risk. 

 

KPSB owns the 285-megawatt (MW) combined-cycle gas-fired power plant at Kimanis Bay, Sabah. 

Kimanis O&M Sdn Bhd handles the operations and maintenance of the Kimanis power plant. General Electric Company (GE) is responsible for maintaining the gas turbines under a long-term contractual service agreement.

MARC said the Kimanis power plant achieved a lower load factor than the initial projection of 90% since achieving its full commercial operations date (COD) in November 2014 due to the excess capacity on the west coast of Sabah. 

Hence, KPSB had revised its load factor assumptions to 60% for the period between 2015 and 2017 in the revised budget. 

In 2015, the plant’s average load factor was 64.7% (2014: 51.2%). Its energy payment (EP) receipts of RM125.9mil were 16.4% above the budgeted amount in 2015. 

KPSB’s actual capacity payment (CP) of RM201.6mil was in line with the budgeted amount following the resolution of gas supply issues in early 2015. 

The plant’s average availability stood at 95.4% during the period under review. MARC  noted the plant’s average actual heat rates were within the PPA heat rate requirement and KPSB has achieved full pass-through of fuel costs in its first full year of operations.

KPSB recorded higher electricity sales of 1,519.6 gigawatt hours (GWh) in 2015 (2014: 967.0 GWh), reflecting the full commercial operations of its three generating blocks since November 2014. 

Operating profit margin was 26.8% on the back of electricity sales of RM200.1mil and operation cost of RM166.8mil. Fuel cost per unit generated improved to 5.94 sen per kilowatt-hour (kWh) (2014: 9.82 sen/kWh) due to the lower usage of distillates. 

Net cash flow improved to RM40.2mil (2014: deficit of RM299mil) as the plant incurred lower capital expenditure of RM2mil (2014: RM318.7mil). 

Cash balance stood at RM214.3mil in 2015 while KPSB’s leverage ratio improved to 1.27 times following the repayment of its Series 2, Tranche 1 sukuk amounting to RM35mil in December 2015. 

“Going forward, MARC expects KPSB’s leverage ratio to decrease progressively with the accumulation of retained earnings and paring down of the outstanding rated sukuk.

“Under Kimanis’ updated financial projections, KPSB’s debt servicing capacity remains adequate with minimum and average finance service coverage ratios (FSCR) of 2.24 times and 3.35 times respectively during the Sukuk tenure. 

“The projections are premised on the plant load factor of 60% which will progressively step up to 90% beginning in 2020,” it said.

MARC’s sensitivity results show that KPSB’s cash flows are sensitive to reductions in CP and higher-than-projected O&M costs. 

KPSB can withstand an increase in O&M costs by 73% before breaching its FSCR covenant in 2026. 

“MARC wishes to highlight that the cash balance brought forward from 2015 amounting to RM214.3mil is sufficient to meet the financial obligations in 2016 totalling RM154.0mil.

“The stable rating outlook on the sukuk programme reflects MARC’s expectations that the power plant’s cash flow generation will be in line with projections. 

“Conversely, the rating would come under pressure if the plant’s operations underperform significantly, leading to a weakening of KPSB’s liquidity position, and/or if the offtaker’s credit profile deteriorates,” said MARC.

(The Star Online / 10 August 2016)

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Malaysia: Sukuk issuance to remain muted 6 to 18 months, says S&P

KUALA LUMPUR:  S&P Global Ratings expects Sukuk issuance will remain muted over the next six to 18 months, with total issuance of US$50bil to US$55bil in 2016.

It said on Monday that Sukuk issuance in the second half of 2016 will continue to depend on monetary policy developments and volatility in developed markets and also policy actions of sovereigns in core markets – namely Gulf Cooperation Council countries and Malaysia – in response to lower oil prices.

The ratings agency said explained that plummeting oil prices have not boosted sukuk issuance despite some commentators' expectations low oil prices would spur governments in oil-exporting countries to tap the Sukuk market for funding, and maintain current and capital spending.

Instead, total issuance actually dropped in 2015 compared with the previous year, it explained in its report entitled, “Why low oil prices aren't sending Sukuk issuance skyward”.

 

S&P Global Ratings Global head of Islamic finance Mohamed Damak said: “The complexity of Sukuk issuance, uncertainty regarding US Federal Reserves' policy revisions, and the government's efforts to reduce financing needs in response to weak oil prices have and will continue to weigh on Sukuk market activity.”

He said while governments affected by the price drop are looking to spending cuts, taxation, and the privatisation of state companies to adjust to the new reality, their financing needs remain significant.

"Part of these needs will be met by conventional debt markets and, to a much lesser extent, the Sukuk market, with the complexity of Sukuk issuance remaining a key deterrent to tapping the market, in our view," Damak said. 

At the same time, he believes the European Central Bank's quantitative easing programme and the entrance of a few new issuers to the Sukuk market will continue to support issuance volumes.

(The Star Online / 04 July 2016)

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Malaysia: Sukuk market holds potential,but devoid of retail players

KUALA LUMPUR: The sukuk market has a lot of potential as an asset class, but is currently dominated by institutional investors with little opportunities for retail players, a forum was told yesterday.

OCBC’s consumer financial services chief Lim Wyson said sukuk provides predictability of yields, which is especially looked for by investors in a volatile market.

“It is not so volatile compared to equities,” he said at a talk on Islamic wealth management at the Global Islamic Finance Forum 5.0.

Lim stressed, however, that the “depth and width” of the sukuk market need to be developed.

“If you are able to widen and deepen the sukuk issuance, you can tap into the private wealth management part of the business,” he said.

Speaking to reporters later, Lim said most of the time, institutional investors are the first to buy during a sukuk issuance. 

“Then there is left very little for the retail side. So one of the areas [to look into] is bigger development in terms of the number of issuance, liquidity so that retail investors have access to it,” he added.

Lim said the creations of more unit trusts with sukuk-investor type of funds will provide access for investors to participate in sukuk through a unit trust format.

“This is relating to investment mandates. Most of the syariah invested funds here are very concentrated in Malaysia or have a big allocation in Malaysia.

“What we are trying to find is more globally invested type of unit trust that is syariah-tied, that we will be able to give to our clients.

“That is the opportunity that we see, if we have more globally diversified mandates that are not so biased in terms of the heavyweight allocation to Malaysia. That is a demand seen in the market,” he added.

According to RAM Rating Services Bhd, global sukuk issuance totalled US$66.4 billion last year, with Malaysia being the world’s largest sukuk market.

In March 2015, Malaysia’s sukuk issuances accounted for 58% of the global US$308 billion outstanding sukuk.

Another speaker, Employees Provident Fund chief executive officer Datuk Shahril Ridza Ridzuan, said there has been limited growth in the global issuance of sukuk to certain issuing markets and issuers.

“Hopefully, if we can move away from this preoccupation with syariah financing purely on faith-based systems towards sustainability, then I think that’s the right way forward to improve growth of this market.

(The Edge Markets / 13 May 2016)

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Malaysia: MAA sells takaful biz for RM394mil, declares special dividend of 35 sen

KUALA LUMPUR: MAA Group Bhd (MAAG) and Solidarity Group Holding BSC (Closed) are selling their combined 100% interest in MAA Takaful Bhd for RM525mil in cash to Zurich Insurance Co Ltd.

The financial services group told Bursa Malaysia that they had on Wednesday signed a conditional share purchase agreement with the Swiss insurance company.

MAAG, which owns 75% equity interest in MAA Takaful, will receive RM393.75mil for its stake.

MAAG and Solidarity had last week received the approval of the Finance Minister, vide a Bank Negara Malaysia letter dated April 27, for the proposed disposal.

Subsequent to the completion of the proposed disposal, the MAAG board proposes to declare an interim special dividend of 35 sen per MAAG share on an entitlement date to be determined and announced later.

The total amount under the proposed special dividend will be payable out of the disposal consideration.

The proposed special dividend will amount to about RM100.8mil computed based on the current issued and paid-up share capital of MAAG.

MAAG shares closed unchanged on Wednesday at RM1.06, with 1.127 million shares traded.

(The Star Online / 04 May 2016)

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Malaysia: Overwhelming response to sukuk

KUALA LUMPUR: Malaysia has strengthened its position as a top investment destination with the overwhelming response to the government’s newly-priced global sukuk issuance, which reflects global investors’ continued confidence in the country.

Investors from a combined base of more than 195 accounts subscribed for the government’s 10-year and 30-year benchmark global trust certificates (wakala global sukuk), attracting an aggregate interest of more than US$6.3 billion (RM24.5 billion) and representing an oversubscription of 4.2 times.

Finance Ministry secretary-general Tan Sri Dr Mohd Irwan Serigar Abdullah said Malaysia remained among the faster-growing economies in the region and continued to successfully pursue fiscal consolidation while maintaining monetary and financial stability.

“This is a remarkable achievement as demonstrated by the tight pricing and excellent response to this landmark sukuk,” he said in a statement yesterday.

The government, via special purpose entity Malaysia Sukuk Global Bhd, has successfully priced the 10-year and 30-year benchmark sukuk papers at 3.18 and 4.08 per cent, respectively.

The new sukuk format uses non-physical assets to underpin an agency-based transaction known as wakala, instead of the traditional use of physical assets (commodity murabaha). 

The sukuk used vouchers representing entitlement to travel units and syariah-compliant shares, the statement said.

This could serve as a model for other sovereigns which have previously faced some difficulty in identifying and transferring tangible assets, such as buildings, for use in sukuk issuance.

The wakala sukuk are expected to be assigned ratings of “A-” by Fitch Ratings and Standard and Poor’s Ratings Services, and “A3” by Moody’s Investors Services.

The issuance is Malaysia’s fifth global sukuk, after previous issuances in 2002, 2010, 2011 and 2015.

It was priced after a roadshow across global financial centres, including Hong Kong, Singapore, Abu Dhabi, Dubai, London and New York, besides Kuala Lumpur.

CIMB, HSBC, J.P. Morgan and Maybank acted as the bookrunners and lead managers for the offering.

(News Straits Times Online / 22 April 2016)
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Malaysia says US$1.5bil sukuk oversubscribed

KUALA LUMPUR: Malaysia said on Thursday that it had successfully priced US$1.5bil worth of Islamic bonds, or sukuk, which was oversubscribed by 4.2 times with the bulk of the take-up from Asian accounts.

The sukuk was split between a US$1bil 10-year tranche and a US$500mil 30-year tranche at a rate of 3.179 percent and 4.080 percent respectively, the ministry of finance said in a statement.

The deal attracted orders of over US$6.3bil from a combined investor base of over 195 accounts, the statement said. Asian accounts took two-thirds of the 10-year tranche and over half of the 30-year tranche.

This compares with a similar-sized deal in April of last year which attracted a US$9bil order book from 450 accounts.

It is the fifth global sukuk by Malaysia, with previous issuances in 2002, 2010, 2011 and 2015.

STRUCTURE

The sovereign tested a new sukuk format as well, using non-physical assets to underpin an agency-based transaction known as wakala, instead of the traditional use of physical assets.

The sukuk used vouchers representing entitlement to travel units and sharia-compliant shares, the statement said, without providing further details on those assets.

This could serve as a model for other sovereigns which have previously faced some difficulty in identifying and transferring tangible assets, such as buildings, for use in sukuk.

The deal was priced after a roadshow across global financial centres, including Kuala Lumpur, Hong Kong, Singapore, Abu Dhabi, Dubai, London and New York.

CIMB, HSBC, J.P. Morgan and Maybank acted as the joint bookrunners and joint lead managers for the offering.

(The Star Online / 21 April 2016)

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Moody’s assigns (P)A3 rating to Malaysia Sukuk Global’s issuance

KUALA LUMPUR: Moody’s Investors Service has assigned a provisional (P)A3 rating to the US dollar-denominated trust certificates (sukuk) issued by Malaysia Sukuk Global Bhd.

In a statement on Monday, Moody’s said the rating is assigned to the sukuk as the sukuk certificate holders would effectively be exposed to the Government’s senior unsecured credit risk, and not be exposed to the risk of performance of the portfolio assets relating to the certificates.

It said the sukuk also would not have any preferential claim or recourse over the trust assets and the certificate holders could not sell or dispose of any trust assets except as expressly provided for under the transaction documents.

The sukuk certificate holders only have rights against the Government, ranking equally with other senior unsecured obligations as provided in the transaction documents, Moody’s said. 

“Legal opinions have also confirmed legal, binding and enforceable obligations for the Government,” it added.

The (P)A3 rating is at the same level as the Government’s long-term local-currency and foreign-currency issuer ratings.

Moody’s said the provisional status of the rating would be removed upon completion of the sukuk issuance and its satisfactory review of the final terms and conditions and legal opinions.

Moody’s also noted that its sukuk rating did not express an opinion on the structure’s compliance with syariah law. 

(The Star Online / 11 April 2016)

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Malaysia: Government support and neutrality on tax vital for sukuk issuance

KUALA LUMPUR: The main requirement for successful issuance of sukuk is support from the government to ensure that it would be tax neutral, not worse off from issuing a conventional one.

“With the government support, it is then open to the government, government-linked companies or private companies to issue sukuk,” Islamic Finance practitioner Mohamed Ridza Abdullah was reported as saying in Casablanca, Morocco by financial magazine Les Eco, which was made available to Bernama.

Ridza was invited to speak at a sukuk workshop in Casablanca to raise awareness on sukuk issuance as an alternative to capital funding in view of surging interest on Islamic bonds across Africa.

“The reform (amendment) of Act no.33-06 by the Moroccan government for a securitisation framework, which is comparable to best international standards, would allow the country to position itself as a destination of choice for the development of securitisation and Islamic finance in Morocco and Africa,” Ridza, managing partner of a Kuala Lumpur-based law firm, said.

Sukuk are syariah-compliant financial instruments, which are issued to raise funds in a Shariah-compliant manner and like conventional financial instruments, can be listed on a stock exchange.

By subscribing a sukuk, its holder receives a beneficial ownership in the underlying assets, which are acquired with the issue proceeds.

Ridza’s presentation at the workshop on sovereign sukuk and corporate sukuk was attended by participants, comprising bankers, insurance and other capital market investors, as well as executives, members of the media, shariah advisers and decision makers from the Morocco Central Bank, Securities Commission, Ministry of Finance, and insurance regulators.

He also held meetings with the Casablanca Stock Exchange to deliberate on its interest over the issuance of listed sukuk in Morocco.

Responding to a suggestion by the magazine that fewer sukuk issued by Malaysia in 2015 could bend market potential for further growth globally, Ridza said the decline was due to Malaysia’s adherence to its policy of fiscal deficit reduction against the backdrop of weak commodity prices and foreign exchange volatility.

He said, however, it has a silver lining as it also reflects increasing internationalisation and diversity of Islamic capital markets.

(Berneo Post Online / 04 April 2016)

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Malaysia: Insurance, takaful sectors to face slower growth

PETALING JAYA: RAM Ratings said it expects growth in the Malaysian insurance and takaful sectors to moderate in 2016 amid the challenging landscape and uncertainties in the financial markets that are anticipated to continue through the year.

In a statement yesterday, the credit rating agency said against its gross domestic product forecast of 4.4% for 2016, gross premiums are projected to expand about 5% for life insurance, 2-3% for general insurance and 4-5% for takaful contributions.

“Insurers and takaful operators were not spared the fallout from slower economic growth and subdued consumer sentiment in 2015.”

Last year, RAM said gross premiums in the general insurance segment edged up 1.7% year-on-year to RM15 billion, while life insurance premiums fared slightly better, advancing 5.4% to RM37.4 billion.

It said although family takaful continued to expand at 8% last year, growth in the general takaful segment eased 6%, ending the year with RM7 billion and RM2.3 billion of gross contributions, respectively.

Overall, RAM said the sector’s profit declined 13.8% as benefits and claims as well as commissions and management expenses outpaced the increase in premiums/contributions and investment returns fell amid a volatile market.

However, it said despite the likelihood of slower momentum in the near-term, the industry’s mid to long-term outlook remains favourable given the low insurance penetration rate, rising consumer awareness and greater efforts in product innovation and distribution.

“Insurers and takaful operators’ capitalisation levels and reserves remain robust and the industry is supported by a sound and prudent regulatory framework.

“Against this backdrop, we have maintained a stable outlook on the credit profiles of our rated insurers and takaful operators,” it noted.

Over the next few years, RAM said the operating landscape will evolve with regulatory-driven liberalisation.

It added that the de-tariffication of motor and fire insurance, to be implemented in phases beginning this year, bodes well for the sector as premiums will gradually commensurate with underwriting.

In addition, RAM said it expects the life and family takaful sectors to see greater operational flexibility as initiatives set out under the life insurance and family takaful framework are gradually implemented.

(The Sun Daily / 01 April 2016)

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Malaysia: Slower growth for insurance, takaful sectors, says RAM Ratings

KUALA LUMPUR: RAM Rating Services expects growth in the Malaysian insurance and takaful sectors to moderate in 2016 amid the challenging landscape and uncertainties in the financial markets.

The ratings agency said on Thursday against its GDP forecast of 4.4% for 2016, gross premiums were projected to expand about 5% for life insurance, 2%-3% for general insurance and 4%-5% for takaful contributions.

“Despite the likelihood of slower momentum in the near term, the industry’s mid to long-term outlook remains favourable given the low insurance penetration rate, rising consumer awareness and greater efforts in product innovation and distribution,” it said.

RAM Ratings said insurers and takaful operators’ capitalisation levels and reserves remained robust and the industry is supported by a sound and prudent regulatory framework. 

“Against this backdrop, we have maintained a stable outlook on the credit profiles of our rated insurers and takaful operators. 

“Over the next few years, the operating landscape will evolve with regulatory-driven liberalisation. The detariffication of motor and fire insurance – to be implemented in phases beginning this year – bodes well for the sector as premiums will gradually commensurate with underwriting,” it said. 

RAM Ratings said the life and family takaful sectors would see greater operational flexibility as initiatives under the Life Insurance and Family Takaful Framework were gradually implemented. 

It pointed out these reforms might result in some short-term uncertainty for insurers and takaful operators during the initial adjustment period but they would be positive for the long-term growth and efficiency of the industry. 

In 2015, insurers and takaful operators were not spared the fallout from slower economic growth and subdued consumer sentiment. 

To recap, gross premiums in the general insurance segment rose only 1.7% (2014: 6.5%) on-year to RM15bil. Life insurance premiums grew 5.4% (2014: 7.7%) to RM37.4bil. 

Although family takaful continued to expand at 8.0% (2014: 4.4%), growth in the general takaful segment eased to 6.0% (2014: 13.3%), ending the year with RM7.0bil and RM2.3bil of gross contributions, respectively. 

Overall, the sector’s profit ebbed 13.8% as benefits and claims as well as commissions and management expenses outpaced the increase in premiums/contributions and investment returns fell amid a volatile market. 

(The Star Online / 31 March 2016) 

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Malaysia Building Society becoming Islamic after failed mergers

[KUALA LUMPUR] After two failed merger attempts with Islamic banks, Malaysia Building Society Bhd is opting to transform into a Shariah lender by itself.

MBSB has stopped offering conventional loans and sees more room for growth in Islamic services, chief executive officer Ahmad Zaini Othman said in an interview on Monday. The mortgage provider and consumer lender, whose net income plunged 75 per cent last year, ended discussions with Bank Muamalat Bhd in February after a proposal to combine with CIMB Group Holdings Bhd and RHB Capital Bhd was called off in Jan 2015.

"MBSB's plan is not surprising as many see Islamic finance as the way forward," said Badlisyah Abdul Ghani, president of the Chartered Institute of Islamic Finance Professionals in Kuala Lumpur and the former CEO of CIMB Islamic Bank Bhd.

"People are not only wanting banks to provide Islamic products but are demanding them." Malaysia, which pioneered Shariah finance in the 1980s, aims to have 40 per cent of its banking assets complying with the religion's ban on interest by 2020 from 26.8 per cent at the end of last year.

A global Islamic population that's expanding faster than non-Muslims is driving growth in Shariah-compliant finance, with Ernst & Young LLP predicting the industry's worldwide assets will double to US$3.4 trillion by 2018 from 2013.

'Right Move'

Around 85 per cent of MBSB's outstanding loans are already Shariah-compliant and credit growth this year should be around 6 per cent to 8 per cent, in line with the industry, Mr Ahmad Zaini said. The company isn't looking at any other mergers for now and will maintain its focus on government contracts, particularly in the development of affordable housing, he said.

"Sustaining asset growth, while maintaining low operational costs and product innovation shall be our medium-term plan."

MBSB is 65 per cent owned by Employees Provident Fund, Malaysia's largest pension fund. Its share price fell 39 per cent to RM1.34 over the past year and net income dropped to RM256.7 million (S$88 million) in 2015 from RM1.02 billion in 2014. The Kuala Lumpur-based company said in a Feb 24 filling to the stock exchange that the drop was due to higher allowances for impairment losses on loans.

MBSB had RM34.1 billion of loans outstanding at the end of 2015 and RM41.1 billion of assets, according to data compiled by Bloomberg, and is planning to raise as much as RM2 billion from a rights issue. The company is already in compliance with Malaysian financial reporting standards and is stepping up efforts to adhere to banking standards, Mr Ahmad Zaini said.

The yield on the MBSB's sukuk due December 2021 fell 10 basis points this year to 4.83 per cent, according prices compiled by Bloomberg. The company, which last sold Islamic bonds in October, doesn't have any plans to sell more debt at this point, Mr Ahmad Zaini said.

"MBSB is making the right move as it already has the Islamic infrastructure in place," said Mohamed Azahari Kamil, president SEGi University & Colleges in Selangor, who was formerly Asian Finance Bhd's CEO.

"There's still a lot of potential for MBSB to be involved in retail and corporate Shariah financing.

(Banking And Finance / 29 March 2016)

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Malaysia: Sime Darby raises RM2.2b from sukuk issue

KUALA LUMPUR, March 24 — Sime Darby Bhd has raised RM2.2 billion from the issue of a perpetual non-call 10-year subordinated sukuk to largely refinance its debt obligations

President and Group Chief Executive Tan Sri Mohd Bakke Salleh said the perpetual sukuk was part of the company's deleveraging efforts and it is the first globally based on shariah principle of Wakalah.

“We are encouraged by the strong support shown by investors and this also indicates the market’s continued confidence in Sime Darby,” he said in a statement today.

The sukuk offering was over 1.8 times oversubscribed from its initial target, allowing Sime Darby to upsize and price the offering at the final yield of 5.65 per cent per annum.

As at mid-day break, Sime Darby's share price was four sen lower at RM7.95 with 471,500 units transacted.

( Malay Mail Online / 24 March 2016)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Sime issues RM2.2bil sukuk

PETALING JAYA: In a move to manage its debts, Sime Darby Bhd has issued RM2.2bil in Islamic debt papers at a final yield of 5.65%, which is about 179 basis points above similar-tenure Malaysian Government Securities.

The plantation heavyweight has issued a sukuk wakalah offering with a 10-year perpetual non-call tenure, which it said has been oversubscribed by 1.8 times.

This is the first call of an RM3bil programme that has been assigned a rating of AAIS by Malaysian Rating Corp Bhd (MARC).

Sime Darby said that MARC has accorded 50% equity credit on the issuance, which fits well with the group’s deleveraging initiatives.

It told the exchange that the fund-raising exercise was to manage its gearing level.

Sime Darby said the issuance has received strong order book via a limited book-build, allowing the company to upsize and price the offering at the final yield of 5.65% per annum.

Proceeds raised from issuance under the sukuk programme will go towards refinancing the group’s debt obligations and working capital requirements, it said.

The sukuk is the largest perpetual sukuk issuance globally by a non-bank, the largest ringgit perpetual sukuk issuance so far, and the first perpetual sukuk globally based on the syariah principle of wakalah.

Sime Darby president and group chief executive Tan Sri Mohd Bakke Salleh said the perpetual sukuk “is part of our deleveraging efforts”.

“We are encouraged by the strong support shown by investors and this also indicates the market’s continued confidence in Sime Darby,” he said in a statement.

Maybank Investment Bank Bhd (Maybank IB), which is the principal adviser, lead arranger and lead manager for the sukuk programme, said its participation in the transaction was holistic, whereby it delivered complete and end-to-end solutions.

“It is our privilege to work with Sime Darby again and jointly introduce the innovative sukuk wakalah to the market.

“The innovative sukuk structure, the first of its kind for an issuance of this nature, will further enhance Malaysia’s position as a global Islamic financial hub, and is a testament to our leadership in the global sukuk space,” said Maybank Kim Eng Group and Maybank IB CEO John Chong in a separate statement. Sime Darby had been under pressure to reduce its gearing following the acquisition of New Britain Palm Oil Ltd for RM6bil in March 2015.

In August last year, StarBiz reported that Sime Darby was looking at a RM6bil rights issue.

However, the proposal reportedly did not have the blessings of Sime Darby’s controlling shareholder, Permodalan Nasional Bhd.

Earlier this month, Moody’s Investors Service downgraded Sime Darby’s issuer rating and debt rating on sukuk issued by the company’s unit Sime Darby Global Bhd to Baa1from A3 with a “negative” outlook on the ratings.

It had also downgraded the senior unsecured medium-term note programme rating of Sime Darby Global Bhd to (P)Baa1 from (P)A3.

It said the downgrade reflected the extended period of weakness in the company’s financial profile after delayed plans to reduce its debt, and deteriorating cash generation across its key business segments.

Last month, Standard & Poor’s Ratings lowered its long-term corporate credit rating on the conglomerate, downgrading it to BBB+ from A- with a negative outlook.

(The Star Online / 25 March 2016)

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

Malaysia: Takaful industry records growth in general and family sectors

KUALA LUMPUR: The Takaful industry recorded positive growth in both general and family takaful businesses in 2015, said the Malaysian Takaful Association (MTA).

Its chairman Ahmad Rizlan Azman said the general takaful business registered gross written contributions of RM2.3billion, an increase of 6.3 per cent over the same period in 2014.

Meanwhile, he said the family takaful business registered RM3.64 billion new business contributions in 2015, an increase of 3.9 per cent compared to 2014.

"The takaful industry is currently focused on the removal of Motor and Fire tariffs that is set to change the landscape of the general takaful industry seeing that these two classes combined make up the biggest component of the business," he said in his speech at the Takaful StarNite 2016 held at the Royale Chulan Hotel here today.

Currently in its sixth year running, the annual dinner and awards night was jointly-organised by MTA and Takaful practitioners in Malaysia to celebrate the achievements of the industry as well as the achievers who had performed outstandingly well last year.

The event was graced by the Sultan of Perak, Sultan Nazrin Muizzuddin Shah, the royal patron for Malaysia's Islamic Finance Initiative.

Ahmad Rizlan called on members to get acquainted with the new life Insurance and family takaful framework guideline, citing that it would become the new mantra for the industry as it requires improvement on efficiency and effectiveness of distribution channels and promote product innovation.

"Technology and innovation have fundamentally changed the way the businesses operate for many industries nowadays. I believe that the Takaful sector is no exception."

Ahmad Rizlan said the emergence of so-called online intermediaries or cyber agents in Malaysia, such as iMoney, Loanstreet, Ringgitplus and Insurance finder have set the scene in comparing and promoting financial products online.

"They are capable of explaining the complexity of Takaful in layman terms with greater ease using infographics and catchy articles.

"They provide facts and figures on how insurance and Takaful should be looked from customers' perspectives," he added

A total of 20 award categories were presented, including the Best Takaful Operator - Bancatakaful Business (HSBC Amanah Takaful (M) Bhd bagged the award), Best Takaful Operator - Agency Family Takaful Business (won by Prudential BSN Takaful Bhd), Best Bancatakaful Partners - Financial Institution (HSBC Amanah Takaful (M) Bhd), Best Takaful Operator General Takaful Business (Etiqa Takaful Bhd), Best Takaful Agency - Inter MTA member companies, Young Takaful Manager (Prudential BSN Takaful Bhd), and Corporate Social Responsibility (Etiqa Takaful Bhd).

(News Straits Times Online / 24 March 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
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