Whilst government use of Islamic instruments is always good for the growth of Islamic finance we need to keep a close watch on total foreign borrowings so that it won't go out of hand. That's the danger about debt, its unforgiving. Pakistan played with fire a long time ago and now borrows foreign funds to pay their civil servants salaries. In 1968 Ecuador took a billion dollar loan they dont need and today 50% of annual budget revenue is to pay World bank interest. Its always best not to borrow unless you really have to. If you have to, let it be for clear cut foreign revenue earnings project which is self redeeming in terms of repayment. To borrow for grandiose domestic project is always a gamble.
Its tenuous to believe a rail project will generate so much economic activity and foreign revenue to enable us to service the foreign creditors; it's possible but its not obvious. Its not as obvious as a mega petrochemical export project in Kemaman for example. The belief is that future economic growth will pay off these debts. Lets hope so. Lets hope its not because of the current good ratings and the current strength of the ringgit that's pushing us to borrow. These can change anytime. I'm not even going to dwell on other possible non reasons to borrow. We owe it to our children not to mortgage their future, and to hand over to them a strong and debt free country.
Zahid
Ringgit sukuk sales head for record as Gulf taps market
Malaysia’s government announced a spending program in 2010 to build roads, electricity plants and a rail-transit system aimed at easing traffic congestion in Kuala Lumpur, over the next decade. Prime Minister Najib Razak said in March that Islamic bonds would be sold to fund the 48 billion-ringgit rail project, without saying when the debt would be sold or how big it would be. The Treasury has sold 26 billion ringgit of sukuk in 2011, up from 18.5 billion a year earlier, according to Bank Negara data.
(Bloomberg) - Sales of ringgit-denominated Islamic bonds are headed for a record this year as Malaysia’s $444 billion development plan boosts borrowing and Persian Gulf issuers tap the world’s biggest sukuk market.
Malaysian companies have announced plans to sell at least 6 billion ringgit ($2 billion) of sukuk by the end of 2011, on top of the 30.6 billion ringgit already raised in 2011. That will bring the total close to the record 38.7 billion ringgit raised in 2007, according to data compiled by Bloomberg. Offerings totaled 10.9 billion ringgit in the year-earlier period.
Maybank Investment Bank Bhd., the top sukuk underwriter this year, Bank Muamalat Malaysia Bhd. and Asian Finance Bank Bhd. all say they expect a record year for issuance. Investors have bought Malaysia’s investment-grade Islamic debt amid political turmoil in the Middle East, and signs that Europe’s debt crisis is spreading and that the world is headed for recession.
“With Europe and the Middle East in crisis, money is looking at emerging markets, including Asia, and the appreciating ringgit offers good returns,” Ahmad Najib Nazlan, deputy treasurer in the treasury and capital markets division at Kuala Lumpur-based Bank Muamalat, said in an Aug. 17 interview. Lower borrowing costs and the economic transformation program were also driving issuance, he said.
The ringgit has strengthened 2.6 percent against the dollar this year to 2.9870 Friday. Malaysia is rated A3 by Moody’s Investors Service and A- by Standard & Poor’s and Fitch Ratings, the fourth-highest investment grades. The three companies rate Indonesia one level below investment grade.
Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, has doubled to $16.8 billion this year, according to data compiled by Bloomberg. Offerings from the six-member Gulf Cooperation Council, including Saudi Arabia, Qatar, Oman, Bahrain, Kuwait and the United Arab Emirates, rose 51 percent to $3.7 billion.
Yields on Malaysia’s benchmark five-year local-currency Islamic bonds have dropped 17 basis points, or 0.17 percentage point, this quarter to 3.466 percent Thursday, matching the lowest level this year, a Bank Negara Malaysia index and Bloomberg data show.
The Bloomberg-AIBIM-Bursa Malaysia Sovereign Sharia Index, which tracks the most-traded government debt in Malaysia, climbed to 104.158, the highest level since it was created in September, and has advanced 3 percent this year.
Malaysia’s government announced a spending program in 2010 to build roads, electricity plants and a rail-transit system aimed at easing traffic congestion in Kuala Lumpur, over the next decade. Prime Minister Najib Razak said in March that Islamic bonds would be sold to fund the 48 billion-ringgit rail project, without saying when the debt would be sold or how big it would be. The Treasury has sold 26 billion ringgit of sukuk in 2011, up from 18.5 billion a year earlier, according to Bank Negara data.
The economy will expand as much as 6 percent this year, Razak said on Aug. 18, after growing 7.2 percent in 2010, the fastest pace in 10 years.
For sukuk sales to beat the 2007 record, the “assumption is that we will continue on the path of economic stability,” Bank Muamalat’s Ahmad Najib said. “The impact is greater when the economy is doing well.”
Persian Gulf issuers have tapped the Southeast Asian nation’s market this year, with Gulf Investment Corp., the investment company owned by the six GCC states, selling 1.35 billion ringgit of Islamic debt in Malaysia in two tranches in February and August. State-owned Abu Dhabi National Energy Co. is considering the ringgit market in Malaysia for a potential bond sale, chief financial officer Stephen Kersley said on Aug. 10, without specifying whether it will be a sukuk issue.
Among planned offers, Tenaga Nasional Bhd., Malaysia’s biggest power producer, said in July it will raise up to 5 billion ringgit this year. Emery Oleochemicals Group, the world’s largest producer of plastic additives, will sell 480 million ringgit of sukuk in the fourth quarter, the Shah Alam, Malaysia-based company said Friday, citing group chief executive officer Kongkrapan Intarajang.
Malaysia Debt Ventures Bhd., a venture capital company owned by the Finance Ministry, will offer as much as 500 million ringgit of Sharia-compliant debt in September or October, it said last year.
“Sales can surpass 40 billion ringgit this year given the ample liquidity in the market,” Michael Lau, head of debt markets at Kuala Lumpur-based Maybank Investment Bank, said in an Aug. 17 interview. “There’s easily 7 to 8 billion ringgit worth of sukuk in the pipeline that will be in the market before the end of the year.”
Sharia-compliant bonds gained 7 percent this year, according to the HSBC/NASDAQ Dubai U.S. Dollar Sukuk Index, while debt in developing markets returned 7.2 percent, JPMorgan Chase & Co.’s EMBI Global Index shows.
The difference between the average yield for sukuk and the London interbank offered rate widened three basis points to 243 Thursday, according to the HSBC/NASDAQ Dubai U.S. Dollar Sukuk Index.
The spread between Malaysia’s 3.928 percent dollar-denominated sukuk due June 2015 and the Dubai Department of Finance’s 6.396 percent note due November 2014 was unchanged Friday at 235 basis points, Bloomberg data show.
Islamic banking assets in Malaysia rose 16 percent in 2010 to 350.8 billion ringgit and accounted for 21 percent of the total banking system, according to Bank Negara’s annual report released on March 23. The country had $94 billion of sukuk outstanding last year, accounting for 66 percent of the global total, the report said.
“If I was a borrower, I’d love to come to the market at this time,” said Zulkiflee Nidzam, the head of foreign-exchange and bond trading at Kuala Lumpur-based Asian Finance Bank.
Maybank Investment Bank Bhd., the top sukuk underwriter this year, Bank Muamalat Malaysia Bhd. and Asian Finance Bank Bhd. all say they expect a record year for issuance. Investors have bought Malaysia’s investment-grade Islamic debt amid political turmoil in the Middle East, and signs that Europe’s debt crisis is spreading and that the world is headed for recession.
“With Europe and the Middle East in crisis, money is looking at emerging markets, including Asia, and the appreciating ringgit offers good returns,” Ahmad Najib Nazlan, deputy treasurer in the treasury and capital markets division at Kuala Lumpur-based Bank Muamalat, said in an Aug. 17 interview. Lower borrowing costs and the economic transformation program were also driving issuance, he said.
The ringgit has strengthened 2.6 percent against the dollar this year to 2.9870 Friday. Malaysia is rated A3 by Moody’s Investors Service and A- by Standard & Poor’s and Fitch Ratings, the fourth-highest investment grades. The three companies rate Indonesia one level below investment grade.
Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, has doubled to $16.8 billion this year, according to data compiled by Bloomberg. Offerings from the six-member Gulf Cooperation Council, including Saudi Arabia, Qatar, Oman, Bahrain, Kuwait and the United Arab Emirates, rose 51 percent to $3.7 billion.
Yields on Malaysia’s benchmark five-year local-currency Islamic bonds have dropped 17 basis points, or 0.17 percentage point, this quarter to 3.466 percent Thursday, matching the lowest level this year, a Bank Negara Malaysia index and Bloomberg data show.
The Bloomberg-AIBIM-Bursa Malaysia Sovereign Sharia Index, which tracks the most-traded government debt in Malaysia, climbed to 104.158, the highest level since it was created in September, and has advanced 3 percent this year.
Malaysia’s government announced a spending program in 2010 to build roads, electricity plants and a rail-transit system aimed at easing traffic congestion in Kuala Lumpur, over the next decade. Prime Minister Najib Razak said in March that Islamic bonds would be sold to fund the 48 billion-ringgit rail project, without saying when the debt would be sold or how big it would be. The Treasury has sold 26 billion ringgit of sukuk in 2011, up from 18.5 billion a year earlier, according to Bank Negara data.
The economy will expand as much as 6 percent this year, Razak said on Aug. 18, after growing 7.2 percent in 2010, the fastest pace in 10 years.
For sukuk sales to beat the 2007 record, the “assumption is that we will continue on the path of economic stability,” Bank Muamalat’s Ahmad Najib said. “The impact is greater when the economy is doing well.”
Persian Gulf issuers have tapped the Southeast Asian nation’s market this year, with Gulf Investment Corp., the investment company owned by the six GCC states, selling 1.35 billion ringgit of Islamic debt in Malaysia in two tranches in February and August. State-owned Abu Dhabi National Energy Co. is considering the ringgit market in Malaysia for a potential bond sale, chief financial officer Stephen Kersley said on Aug. 10, without specifying whether it will be a sukuk issue.
Among planned offers, Tenaga Nasional Bhd., Malaysia’s biggest power producer, said in July it will raise up to 5 billion ringgit this year. Emery Oleochemicals Group, the world’s largest producer of plastic additives, will sell 480 million ringgit of sukuk in the fourth quarter, the Shah Alam, Malaysia-based company said Friday, citing group chief executive officer Kongkrapan Intarajang.
Malaysia Debt Ventures Bhd., a venture capital company owned by the Finance Ministry, will offer as much as 500 million ringgit of Sharia-compliant debt in September or October, it said last year.
“Sales can surpass 40 billion ringgit this year given the ample liquidity in the market,” Michael Lau, head of debt markets at Kuala Lumpur-based Maybank Investment Bank, said in an Aug. 17 interview. “There’s easily 7 to 8 billion ringgit worth of sukuk in the pipeline that will be in the market before the end of the year.”
Sharia-compliant bonds gained 7 percent this year, according to the HSBC/NASDAQ Dubai U.S. Dollar Sukuk Index, while debt in developing markets returned 7.2 percent, JPMorgan Chase & Co.’s EMBI Global Index shows.
The difference between the average yield for sukuk and the London interbank offered rate widened three basis points to 243 Thursday, according to the HSBC/NASDAQ Dubai U.S. Dollar Sukuk Index.
The spread between Malaysia’s 3.928 percent dollar-denominated sukuk due June 2015 and the Dubai Department of Finance’s 6.396 percent note due November 2014 was unchanged Friday at 235 basis points, Bloomberg data show.
Islamic banking assets in Malaysia rose 16 percent in 2010 to 350.8 billion ringgit and accounted for 21 percent of the total banking system, according to Bank Negara’s annual report released on March 23. The country had $94 billion of sukuk outstanding last year, accounting for 66 percent of the global total, the report said.
“If I was a borrower, I’d love to come to the market at this time,” said Zulkiflee Nidzam, the head of foreign-exchange and bond trading at Kuala Lumpur-based Asian Finance Bank.
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