The issuing authorities in Malaysia have clearly considered market conditions very carefully and have fine tuned the size and maturity of the Sukuk tranches to attract investors while not paying too much for the financing. The issuance will not have much overall significance for the international market in Sukuk, which Malaysia has dominated for over a decade, but the terms send important signals.
Firstly, the size of the issuance indicates that the Malaysian government is confident that it can attract widespread investor interest. The country has a remarkable record in Sukuk issuance and investors in sovereign Sukuk have always been repaid on time. Secondly the 10-year tranche is significant, as most Sukuk are for periods of three to five years. The 10-year tranche shows that the government is planning its finances for the longer term, and corporate Sukuk issuers may well follow. At present Sukuk investors expect only modest returns. As these are likely to rise as market conditions tighten it makes sense for issuers to try to lock in low payments.
PROFESSOR RODNEY WILSON Director of postgraduate studies, Durham University
The long tenor Sukuk has been an investment tool sought after by the Takaful operators. While this 10-year Malaysian sovereign Sukuk does not yet match their Family Takaful contribution pool investment requirement of 20 to 30 years tenor, it is at least a step in the right direction for the industry. Currently, compared to Malaysia which has sporadic Sukuk tenors of 30 years to 50 years, most Sukuk from the GCC have only a five-year maximum tenor.
As a long-term solution to this mismatch of demand by Takaful and the short supply of long-term Sukuk, I would suggest that long-dated Sukuk be explored for concession-based fund-raising; namely for electricity independent producers, tolls, coal/tin or mining operations, water, telecommunication, hospital services, waste management, parking by municipalities etc. Basically the tenor of the Sukuk can match the long tenor of the concession period of the business, including those services where the government can privatize. There are ample opportunities in the GCC for long-term tenor Sukuk, considering that those jurisdictions are at a primary level of infrastructure development.
NORIPAH KAMSO
CEO, CIMB-Principal Islamic Asset Management
The majority of Sukuk outstanding are issued with a relatively short maturity with an average tenor of around five years. In order to enhance liquidity in the market, a range of longer dated, benchmark-size Sukuk are required to meet demand from financial institutions that need to meet longer dated liquidity requirements. The potential demand is clearly shown by the fact that the issue itself was 4.5 times oversubscribed and distributed throughout Europe, the US, the Middle East and Asia.
DR NATALIE SCHOON
Head of product research, Bank of London and The Middle East
I think it is important to note that each new development in Malaysia is a model for other countries. In the case of stretching maturities in an ‘AA’ government Sukuk issued in US dollar, this will help to create a long term global Islamic benchmark. But, as I am always complaining, if the other Islamic countries do not have the right rules, even medium term Sukuk are a challenge. With its clear regulatory and legal regime, Malaysia is able to sell its Sukuk to global institutional investors. This is a factor that needs to be developed throughout the Islamic markets: growing domestic institutional investors and attracting global institutional investors, both of which may take a long view.
ABDULKADER THOMAS
CEO and President, SHAPE Financial Corp