Kuala Lumpur: European companies are attracting towards the biggest Sukuk market in the world, Malaysia, after the Malaysian government has announced extension in tax exemptions for foreign issuers of Islamic bond till 2014.
Malaysian tax breaks on sukuk are luring companies from Germany, France and Turkey to tap the world’s biggest Islamic bond market as Europe’s debt crisis curbs lending.
CIMB Group Holdings and AmInvestment Bank, among the top three sukuk arrangers in Malaysia this year, said that they are seeing increased interest after the government extended tax exemptions for foreign issuers to 2014 in the September budget.
Ireland’s state-owned power producer is the only European entity that has so far revealed plans to sell ringgit-denominated securities complying with religious tenets.
Global sales of Islamic notes climbed 84 percent in 2012 to an all-time high of $39.1 billion, while syndicated loans in Europe, the Middle East and Africa fell 40 percent to $545.5 billion, according to data compiled by Bloomberg.
Shariah banking assets in Malaysia rose 20.6 percent to a record 469.5 billion ringgit ($154bn) as of July from a year earlier, the Finance Ministry said on September 28.
“We are getting enquiries from these countries because the European crisis is making it difficult to source financing in their home nations,” Mohd Effendi Abdullah, the Kuala Lumpur-based head of Islamic markets at AmInvestment Bank, the nation’s third-biggest Shariah-compliant debt underwriter, said.
“Many issuers are beginning to see Malaysia as a good source to tap Islamic funds.”
European roadshows held by the Malaysian International Islamic Financial Center, a government body set up in 2006 to promote the country as a Shariah-compliant hub, are starting to bear fruit, Badlisyah Abdul Ghani, Chief Executive Officer of CIMB Islamic Bank in Kuala Lumpur, said.
Badlisyah and Effendi declined to name the companies considering selling notes in the Southeast Asian nation.
The Electricity Supply Board of Ireland is seeking approval from regulators for a sukuk, Dublin-based Dermot O’Reilly, Business Development Executive at IDA Ireland, the international development agency, said in an e-mail on September 19.
Sales of Shariah-compliant debt by overseas companies increased 93 percent to 2.7 billion ringgit this year, led by issuers from the Arabian Gulf, Singapore, and Kazakhstan.
Abu Dhabi National Energy Co. and Singapore-listed First Resources sold 650 million ringgit and 600 million ringgit, respectively, this year. Gulf International Bank BSC and Saudi-Arabia-based Al Bayan Holding Co. announced Islamic bond programs totaling 4.5 billion ringgit.
“The trend of foreign investors selling ringgit sukuk is more visible as there’s greater awareness of what is available in Malaysia,” said Badlisyah, whose firm is a unit of CIMB Group, the second-biggest underwriter.
“The debt crisis in Europe is also a factor that’s making companies look for alternative financing,” he added.
Average yields on global Islamic bonds dropped four basis points, or 0.04 percentage point, to an all-time low of 2.87 percent in the first four days of the week, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.
The difference between the average and the London interbank offered rate, or Libor, narrowed 14 basis points to 181 basis points, the least since January 2008.