Wednesday March 13, 2013

Ringgit still preferred currency for sukuk issuance

PETALING JAYA: A combination of factors is making the ringgit the preferred currency for sukuk issuance as the East Asian and Gulf Cooperation Council (GCC) countries become more interdependent due to the pick-up in cross-border transactions.

Standard & Poor's Rating Services analyst Paul-Henri Pruvost noted in a report that both regions had relatively strong economies seeking huge amounts of capital to fund new infrastructure, support economic development and entice more private-sector investment.

“We believe that cross-border issuance will continue to gather steam, with Malaysia as the main benefactor, as in the past few years. By cross-border issuance, we mean that an entity based in one country chooses to issue and market sukuk in another country, and in all likelihood in that country's currency,” he said.

Pruvost said GCC-based entities had been crossing the figurative border with ringgit-denominated issues over the past few years, beginning with pioneering entities such as Abu Dhabi National Energy Co PJSC, Bahrain-based Gulf Investment Corp and the National Bank of Abu Dhabi.

“Even though the amounts remain low, ringgit-denominated sukuk issuance in the GCC has been steadily increasing, to US$571mil in 2012 from US$323mil in 2010.

“More generally, last year's non-Malaysian entities, such as China-based Noble Group Ltd and the Development Bank of Kazakhstan, issued upward of US$1.5bil,” he added.

Pruvost said the ringgit was becoming a growing credible alternative to the US dollar for non-Malaysian issuers. “Interestingly, issuance in the Malaysian currency by all issuers domestic and foreign combined actually exceeded those by Malaysian entities for the first time in 2012,” he said.

Pruvost said ringgit-denominated issuance would continue to perform strongly, benefiting from, among other factors, Malaysia's well-defined regulations and developed capital markets (both conventional and Islamic), large and diversified pool of investors, standardised sukuk structures with available liquidity as well as its status as a potential gateway to other fast-growing Asian economies such as Indonesia and China.

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