Chinese groups tap into Malaysia’s sukuks

Islamic-compliant funding attracting growing attention of mainland investors

KUALA LUMPUR — Raising funds through Islamic bonds, or sukuks, in Malaysia has gained traction among Chinese corporations. They have been raising funds over the past few weeks through Islamic bonds in the Southeast Asian nation, which has positioned itself as an Islamic funds hub.

Last week, China-owned Edra Power Holdings’ solar energy unit Tadau Energy announced it had issued a Sustainable Responsible Investment Sukuk of up to 250million-ringgit ($58.36 million), the first green sukuk issued in Malaysia.

Two weeks ago, Chinese Beijing Enterprises Water Group’s subsidiary BEWG Malaysia made its debut in the Malaysian sukuk market by issuing 400-million-ringgit in Islamic medium term notes, the first-ever ringgit denominated sukuk on water infrastructure by a Chinese Stateowned enterprise.

“We are heartened by the government-driven initiatives in this space and we do expect more Chinese companies to participate in the domestic infrastructure space,” John Chong, the chief executive officer of Maybank Kim Eng Group and Maybank Investment Bank, told Xinhua.

Malaysian investors can expect more sukuk fund raising to take place moving forward, supported and supplemented by other banking solutions, he said.

Citing BEWG Malaysia as an example, Chong said as some Chinese companies grow bigger in Malaysia, there should be an increased appetite for them to diversify funding avenues into the domestic sukuk or bond market.

Analysts said the participation of Chinese companies in Malaysia’s Islamic finance market is in line with Malaysian government policy to promote the country as an Islamic funds hub.

Hong Leong Investment Bank analyst, Khairul Azizi Kairudin, said the main reason for more Chinese companies raising sukuk lately is global investors tend to see Malaysia as an Islamic hub, a suitable destination for sukuk.

He saw the possibilities that more Chinese companies would raise funds in the sukuk market going forward, as there are more Chinese companies partnering with local entities to undertake projects in Malaysia, especially in the construction industry.

BEWG Malaysia’s Chief Executive Officer, Ong Kian Min, explained that the group chose to raise funds via sukuk in Malaysia as the country has the largest Islamic capital market.

The proceeds from the sukuk will be used to finance the refurbishment and upgrading of a water treatment plant project that has been awarded by a Malaysian state government, according to Ong.

Meanwhile, Tadau Energy is a project company undertaking a large-scale solar project in Malaysia’s Sabah state on North Borneo under two 21-year power purchase agreements entered into with Sabah Electricity in December 2016.

Proceeds from the bonds will be channeled to finance the project, Tadau Energy said in a statement.

Chinese property giant Country Garden’s Malaysian unit, Country Garden Real Estate, was the first Chinese company to issue Islamic bonds in Malaysia. In 2015, the group made a debut sales of sukuk from a 1.5 billion ringgit program.

Lee Heng Guie, the executive director of the Socio-Economic Research Center, said that more Chinese companies are looking into sukuk as the Malaysian government has been promoting it.

Moreover, it has also been proven that sukuk is more stable when the market is weak.

He added that the participation of Chinese companies in the sukuk market will spur market activities in Malaysia’s capital market, and Malaysian banks will therefore benefit along the funding chain.

Malaysia’s sukuk market accounted for 41.1 percent of total global sukuk market of $72.9 billion in 2016, according to RAM Rating Services.

Last year, Malaysia’s domestic sukuk market stood at 661.9 billion ringgit, 9 percent higher than 608.5 billion ringgit in 2015. It was also 29 percent higher when compared with the total outstanding domestic conventional bond market of 513 billion ringgit in the same year.

Despite weak market conditions, analysts shrugged off concerns over subscription.

“From institutional investors’ point of views, there is always a demand for sukuk, because most insurance companies, pension funds, or even government agencies, prefer to invest in sukuk for their Syariah (Islamic religious law) compliance mandate,” Phillip Mutual Bhd Chief Strategist Officer Phua Lee Kerk said.