Tuesday January 5, 2010

EPF may have to buy more Islamic bonds

SINGAPORE: The Employees Provident Fund (EPF) will be forced to buy more Islamic bonds this year as the Government cuts conventional note sales to the state-run pension manager, according to Royal Bank of Scotland Group Plc (RBS).

Malaysia planned to lower total sovereign sales to RM40.5bil in 2010 from RM52bil while maintaining the same number of Islamic bonds sales as in 2009, it said Dec 21.

It will also reduce conventional bond auctions and cut private placements to the EPF to two from eight in a bid to shrink state debt.

“The sharp reduction in private placements to the EPF in 2010 will clearly put the competition pressure back on the demand side,” Chia Woon Khien, emerging markets analyst at Edinburgh-based RBS, said in a note to clients e-mailed yesterday.

Malaysia is the world’s biggest market for Islamic bonds, known as sukuk, and may enable individuals to trade syariah-compliant debt on its bourse as part of a plan to attract new investors. — Bloomberg

Global sukuk sales rallied to US$20.2bil last year from US$14.1bil in 2008 after jumping to a record US$31bil in 2007 amid a surge in Arab oil wealth, according to data compiled by Bloomberg.

Sukuk are asset-based securities that pay a profit rate instead of interest, which is prohibited by syariah.

Malaysia is planning six sukuk sales this year, the same as last year, starting this month with 3½-year bonds and ending in November with a 10-year issue, according to a calendar published on Bank Negara website.

The calendar doesn’t provide details on the amount to be raised at each sale. — Bloomberg

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