Japan’s lack of 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 US$500 million multi-currency programme 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 syariah-compliant banking assets that are set to double to US$3.4 trillion worldwide by 2018.
The 2.83 per cent average yield on dollar sukuk globally is near a one-year low, while conventional emerging-market US currency notes are paying 5.26 per cent, 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 Ltd, a consulting firm in Singapore, said in an e-mail interview.
“The awareness of syariah products will improve and slowly it will give investors the opportunity to tap Japanese corporates.”
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 syariah-compliant loans and guarantees among its products in the Southeast Asian nation. Japan Bank for International Cooperation, a stateowned 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 per cent on May 29, the Deutsche Bank index shows.
That compares with an 84 basis point decline in the JPMorgan gauge of developing- market debt.
Japanese banks are selling Islamic bonds to tap syariahcompliant 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-andhold environment, he added.
While global yields have dropped this year, the FTSE Bursa Malaysia KLCI index of shares fell 0.2 per cent.
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.
Global issuance of bonds that pay returns on assets to comply with Islam’s ban on interest rose 6.5 per cent to US$20 billion in 2014 from a year earlier, after reaching US$43.1 billion last year and a record US$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 per cent this year to 116.44, after rising 0.8 per cent 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