Friday December 21, 2012

First Aussie sukuk taps Labuan for RM489mil

SGI-Mitabu JV to offer RM489mil of notes to fund construction of solar power plant

JAKARTA: Malaysia's offshore tax haven of Labuan is opening the way for Australia's first Islamic bonds, avoiding rules in the South Pacific nation that penalise sukuk.

The SGI-Mitabu joint venture between The Solar Guys Distribution Pty and Mitabu Australia Pty will offer A$150mil (RM489mil) of notes in June to fund the construction of a solar power plant in Indonesia, M. Rusydi, a director at Mitabu, said in a Dec 13 interview in Brisbane.

The syariah board of scholars in Labuan, established as a global financial hub in 1990 and located off the coast of eastern Sabah state on Borneo island, is advising on the deal.

The securities will be backed by revenue streams from the project to circumvent Australia's double taxation on syariah debt amid a two-year debate in parliament on Islamic financing legislation.

Labuan, which refined its laws in 2011 along global standards after being blacklisted by the Organization for Economic Cooperation and Development in 2009, doesn't charge stamp duties or capital gains taxes on sukuk.

“Although the issuance will be in Labuan, investors would generally view it as a Malaysian-based sukuk, a nation already well known as an Islamic financial center,” Abas A Jalil, chief executive officer of Amanah Capital Group Ltd, said in a Dec 18 interview from Kuala Lumpur.

“With the continuous promotion of Labuan in terms of transparency and tax efficiency, it will complement the current Malaysian market. We no longer foresee any issue of using Labuan as the domicile.”

Mitabu, set up in 2011 to develop Islamic financing options for Australian institutions, is advising another local company on a possible sukuk sale to fund the construction of a resort in Queensland's Gold Coast City, Rusydi said.

The firm may issue as much as A$300mil through Labuan, he said, declining to name the entity because the deal isn't finalised.

The Labuan Financial Exchange had 11 sukuk listings totaling US$8.6bil as of the end of last year, up from US$7.3bil in 2010, according to the annual report of Labuan International Business and Financial Centre Sdn.

It brought in Nomura Holdings Inc's US$100mil offering of debt that pays returns on assets instead of interest in July 2010.

“In view of the tax and legal framework impediments in Australia for Islamic finance transactions, potential issuers can use Labuan IBFC or Malaysia as a short-term solution,” Aderi Adnan, the syariah finance advisor at Labuan IBFC, wrote in a Dec 17 e-mail. “The planned SGI-Mitabu issuance is expected to be well accepted, as most of the Malaysian institutional investors are flush with cash.”

The blacklisting issue remains a barrier for some overseas borrowers seeking to offer syariah-compliant notes in Labuan as many are unaware that it now complies with international tax standards set by the OECD, said Abas at Amanah Capital.

Greater awareness of its new standing will help spur more Islamic bond sales there, he said.

“The SGI-Mitabu issuance will provide a live-case study for other corporates looking to tap the market,” Yanese Chellapen, director at Pennam Partners Pty, an investment house that recently launched its advisory unit SmartSukuk, said in a Dec 13 interview from Melbourne.

“We have been filtering queries in relation to sukuk.”

Australia, which has a Muslim population of 371,000 among its 22 million people, has been pressing for Islamic finance laws since at least November 2010.

The bill was to be discussed in parliament this year but no new developments have emerged. - Bloomberg

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