Japan bank’s debut sustains ringgit sukuk push

Hiroshi Watanabe, governor of the Japan Bank for International Cooperation, speaks during an interview in Tokyo. The Japanese government-owned lender is considering selling its first Islamic bonds this year to fund a project in the Southeast Asian nation.

Bloomberg/Tokyo

Japan Bank for International Cooperation’s proposal to sell ringgit sukuk is keeping alive Malaysia’s ambition for foreign bond sales in its currency, after a 47% slump in such offerings last year.

The Japanese government-owned lender is considering selling its first Islamic bonds this year to fund a project in the Southeast Asian nation, Tatsuhiko Takesada, executive officer for Asia Pacific, said in an April 2 interview in Jakarta. Local-currency issuance by foreign companies totaled 2.42bn ringgit ($741mn) in 2013, down from a record 4.6bn ringgit the year before.

“An issuance by JBIC can be a catalyst,” Mohd. Effendi Abdullah, head of Islamic markets at Kuala Lumpur-based AmInvestment Bank Bhd., Malaysia’s third-biggest sukuk arranger last year, said in an April 4 interview. “It will set a trend for issuers from Japan and countries that don’t have the Islamic infrastructure and regulatory framework to consider tapping the ringgit market.”

Bumitama Agri, a Singapore-listed palm oil producer, sold 500mn ringgit of sukuk in the only offer by a foreign company this year, as the Malaysian currency climbed 0.2% against the dollar following a 6.7% drop in 2013. JBIC may seek to tap an international pool of Shariah-compliant financial assets that has grown by 18% annually over the last four years, attracting governments in the UK and Hong Kong to consider Islamic bond debuts.

While Japan has no Shariah banking rules of its own, the government amended legislation in 2008 to allow overseas subsidiaries of its lenders and insurers to provide financial services in accordance with Islam’s ban on interest.

Bank of Tokyo-Mitsubishi UFJ Malaysia Bhd. offers Shariah- compliant loans in Malaysia, Mizuho Financial Group Inc is active in Islamic trade financing and Sumitomo Mitsui Banking Corp is planning to enter the market after getting a permit earlier this year.

Toyota Motor Corp sold 280mn ringgit of sukuk in 2012 in two offers via its Toyota Capital Malaysia Sdn. unit. Nomura Holdings, Japan’s largest brokerage, is the only other Japanese company that has sold Islamic bonds. In 2010, it issued dollar notes in Malaysia that have since matured.

It makes sense for JBIC to tap the Malaysian market because of the large pool of Shariah-compliant investors, AmBank’s Mohd Effendi said. Islamic banking assets in the country climbed 13% last year to a record 556.5bn ringgit, or 25% of the total, according to central bank figures. There was $80.2bn of sukuk sold in Malaysia in 2013, making up 69% of all international sales.

“Since JBIC is owned by the Japanese government, its plan to issue a ringgit sukuk will add confidence to the Malaysian Islamic finance market,” Nik Norzrul Thani, the chairman of Kuala Lumpur-based law firm Zaid Ibrahim & Co, said in an interview on Sunday. “It will certainly help spur more potential issuers to tap the ringgit market.”

Singapore-listed plantation group Golden Agri-Resources, sovereign wealth fund Bahrain Mumtalakat Holdings, and multilateral lender Islamic Development Bank have all sold Malaysian-currency Islamic bonds in the last two years.

The Bloomberg-AIBIM Bursa Malaysia Corporate Sukuk Index, which tracks the most-traded ringgit notes, fell 0.3% this year after gaining 2.8% in 2013.

The increase in international Shariah-compliant banking assets over the last four years probably resulted in holdings topping $1.7tn in 2013, according to Ernst & Young LLP’s World Islamic Banking Competitiveness Report 2013-2014.

Global sales of sukuk increased 3% to $13.8bn in 2014 from the year-earlier period. In Malaysia, issuance is up 83% to 19bn ringgit led by state-owned power producer Tenaga Nasional Bhd. and Perbadanan Tabung Pendidikan Tinggi Nasional Bhd., a government education fund.

JBIC first recognised the importance of Shariah-compliant financing after providing non-Islamic loans for projects in Bahrain and Saudi Arabia in 2006, Fumitaka Machida, the lender’s chief representative in Singapore, said in October.

In 2007, the Japanese bank signed a memorandum of understanding with Malaysia’s monetary authority to look into sukuk issuance, joined the Kuala Lumpur-based Islamic Financial Services Board and set up a Shariah advisory board internally.

“JBIC’s offering would be the first government sukuk from a developed nation if it materializes,” Badlisyah Abdul Ghani, chief executive officer at Kuala Lumpur-based CIMB Islamic Bank Bhd., said in an interview yesterday. “JBIC’s offering showcases another foreign entity tapping into the ringgit market, which reinforces confidence in Malaysian Islamic finance to give issuers what they need.”