Friday, August 14, 2009

Sukuk - Malaysia leads the way...with more than 60% of outstanding global sukuk

This news captured my attention esp that Malaysia is the world’s largest sukuk issuer, with more than 60% of outstanding global sukuk. Read the article after the news on Sukuk in the Middle East

Petroliam Nasional Bhd’s (Petronas) US$1.5bil sukuk and US$3bil conventional bonds made their debut on Bursa Malaysia and Labuan International Financial Exchange (LFX) respectively yesterday.

Both securities have a tenure of five years and 10 years respectively.

Petronas’ sukuk is structured based on the globally accepted syariah principle of Ijarah (leasing).

Cagamas MBS, meanwhile, listed all the outstanding sukuk and bonds issued under its five residential mortgage-backed securitisation transactions, amounting to RM4bil of sukuk and RM6bil of bonds on Bursa yesterday.

Both sukuk and bonds have tenures of between three and 20 years.

Cagamas’ sukuk is based on the accepted syariah principle of Musharakah (profit and loss sharing).

In a statement yesterday, Bursa said the double listings of sukuk and conventional bonds by Petronas and Cagamas were the first to be listed on the exchange under the “exempt regime basis”, which is one of the new listing requirements that took effect on Aug 3.

The “exempt regime basis” allows the listing of sukuk and debt securities on the exchange by both listed and non-listed issuers but these instruments would not be quoted or traded.

Listed sukuk and bonds are meant to offer institutions or high net worth investors an alternative investment product with enhanced transparency.

“The listing of the sukuk on the exchange further strengthens our position as a hub for Islamic finance globally,” said Bursa chief executive officer Datuk Yusli Mohamed Yusoff.

Malaysia is the world’s largest sukuk issuer, with more than 60% of outstanding global sukuk.

Returning to the Issue of Sukuk


I was talking on the phone to a Muslim brother who was telling me about the infrastructure projects that have been launched by Saudi Arabia and that have cost the country around 300 billion Saudi Riyals [SR] or US $80 million so far. Saudi Arabia intends to launch more projects over the coming five years and the budget for this may exceed 4 trillion SR or US $1.33 trillion. My friend also mentioned that such projects could serve as a means for developing the Sukuk market in Saudi Arabia, and he asked me to devote an article to this issue. However whilst checking my catalogue of articles published on this issue, I discovered that I had previously tackled this subject on a number of occasions. This is because I am very interested in developing and promoting this financial tool. In fact I wrote an article about development projects aiding the Sukuk market in 2006 entitled ‘Sukuk and the Railway Line Extension.’

In this article I mentioned that it was possible for the state to use Sukuk in order to finance the important railway extension project. I also wrote another article published in 2008 entitled ‘Sukuk and the Management of Liquidity’ in which I attempted to draw the attention of the [financial] regulatory bodies to the importance of Sukuk in helping to achieve financial liquidity in the Gulf market. I quoted the Saudi market as an example of this as it achieved tremendous financial liquidity due to the state financing large development and infrastructure projects.

In May 2008, I also wrote an article entitled ‘Sukuk, a Tool to Finance the King Abdullah Financial District.’ In this article, I proposed that the [Saudi Arabian] Public Pension Agency issue Sukuk in order to finance the establishment of the King Abdullah Financial District. I also stressed the importance that this could play to all parties, not just to the King Abdullah Financial District, but also to the Sukuk bearers and the financial market itself.

In May 2009, I published an article entitled ‘The Age of Sukuk’ in which I said that the Sukuk market was on the verge of experiencing an unprecedented boom. I revealed the reasons for this which included the fact that Saudi Arabia is becoming a key player in this market due to the country launching a secondary market to specialize in Sukuk bonds. However these proposals and initiatives did not receive any attention from those concerned, even though Saudi Arabia is in dire need to secure independent financing of its future projects. Such financing would not burden the state budget and will guarantee the continuation of such projects regardless of fluctuations in the price of oil. This would allow all sections of society – whether individuals or organizations – to have the chance to contribute to the financing of these projects.

Moreover Sukuk is capable of attracting foreign investors who are looking for safe opportunities. This is due to the solid credit rating enjoyed by Saudi Arabia which enables the country to guarantee any Sukuk issued by the state, especially as state-issued Sukuk is more appealing to investors.

I also tried to evaluate the experiences of the Sukuk market and draw people’s attentions to the risk and shortcomings that the Sukuk industry suffers from. I wrote about the risks involved in issuing Sukuk, and about the different juristic interpretations of this financial tool and the impact this has had on the Sukuk market.

I also wrote about the importance for credit rating institutions to distinguish between Sukuk bonds and [traditional] financial securities. I wrote about the importance of Tawaruq, and the risks involved in this. Moreover, I emphasized the importance of establishing a set of legislations to govern Sukuk and protect all those involved in this industry, whether they are Sukuk issuers or Sukuk holders. Such legislation will undoubtedly contribute to the development and stability of the Sukuk market.

Those in the Gulf States, and particularly Saudi Arabia, should take the initiative and utilize this financial tool, which is something that all Western countries are attempting to do today in order to obtain funding to overcome the effects of the global financial crisis. France is now attempting to adopt a set of legislation for Sukuk in order to compete with Britain which has outstripped the country in this field after France previously closed its doors to Islamic banking. Australia is also trying to catch up with the leading countries in Europe.

Fierce competition is taking place in Asia between Malaysia, Singapore, and Hong Kong with regards to achieving domination in the Sukuk market; however in comparison to this, developments in the Gulf are moving at a snail’s pace. The Gulf states are acting as if competing for domination of the Sukuk market has nothing to do with them. No Sukuk legislation has been enacted, and no state institutes are issuing Sukuk bonds, even though everybody else is vying for the largest possible portion of the Sukuk market in order to help finance industrial and commercial projects, as well as reduce unemployment and implement a welfare state.

If the Gulf states do not act fast to introduce the appropriate legislation and begin issuing state-sponsored Sukuk, they will find that their funds have suddenly been transferred to overseas markets at a time when they are most in need of them in order to promote development, finance infrastructure projects, and contribute to creating jobs for their own citizen

Saudi Arabia’s construction industry valued at $23.39b

Yes, there are a lot of opportunities in Saudi Arabia, either for business or career.

While our leaders are still busy politicking and killing each other for power as well as for robbing more wealth of ours, we may lose more opportunities. Not sure whether the current administration has real plan and strategy to grab these opportunities.

We need both public and government combined efforts to be more competitive with value added solutions to the needs of Saudi. There are a lot of challenges esp in dealing with typical Saudi bureaucracy, attitude and mentality. Countries like China, Korea, Japan and even Singapore are already ahead in the game.

Certain countries come up with their own funding options which are more attractive. We may lose in this approach even though some funds we have can be utilised (minus hanky-panky deals)

However, the cake is big for everyone and it is 1Malaysia approach to make it through, well, it is another dream while our leaders are still thinking about their own survivals than us, the rakyat!

Saudi Arabia’s construction industry will grow by 0.05 percent in real terms to reach a nominal value of SR87.23 billion ($23.29 billion), “Saudi Arabia Infrastructure Report” for the third quarter of this year said.

A growing Saudi population has ensured that there is a continued need for infrastructure development, it noted.

The transport sector is one of the key areas being overhauled in the Kingdom, with plans in place to develop a national and regional rail network. The largest contract thus far was awarded in February 2009 for the construction of the Haramain high-speed railway linking Makkah and Medina via Jeddah to Al-Rajhi Construction Group (RCG), France’s Alstom and China’s Railway Engineering (RE).

It was announced in April that the freight line of the 1,200km North-South Railway, which will link the northern mineral belt with Riyadh and Jubail, will be ready during 2010.

In the utilities sector there has been mixed news. In April it was reported that the Ras Al Zour IWPP (independent water and power provider) project, which was awarded to Japan’s Sumitomo Corporation, would be taken back under government control and re-tendered as an energy performance contract (EPC).

This followed the pulling out of Sumitomo’s partner Malakoff International in February, and the failure to find a replacement. More positive news was reported in March when ACWA Power International secured $2 billion in financing for the Rabigh Power Plant. The EPC contract for the project, worth $1.65 billion, was awarded to Dongfang Electric and Sepco-III.