Governments and corporates in Malaysia and Indonesia — countries with Muslim-majority populations — have opted for Islamic finance instruments, such as sukuks, to raise funds for further investments and to boost their economies following the COVID-19 pandemic’s economic fallout last year.
In Malaysia, corporates raised a total of 72.54 billion ringgit ($18.13 billion) via sukuk offerings as of November 2020. For the full year of 2019, the corporate sukuk offerings stood at 102.4 billion ringgit ($25.59 billion), according to data from Malaysia’s central bank, Bank Negara Malaysia.
“Malaysia’s corporate sukuk market remained resilient in 2020 despite a pandemic-hit year. Issuances slowed considerably in Q2 2020 because of the movement control order (MCO) to curb the spread of coronavirus, but the bond market began to regain its robustness from Q3 2020, and ended the year with total issuances of 75.2 billion ringgit, up marginally from 74.8 billion ringgit in 2019 which is commendable in a challenging market environment,” according to Maybank head of fixed income research Winson Phoon.
[Note: Maybank excluded the RM 27.55 billion Urusharta Jamaah deal from its overall 2019 sukuk calculations as it was related to the restructuring of Tabung Haji, the pilgrims’ fund board set up by the Malaysian government].
In some recent offerings by Malaysian corporates, Air Selangor completed its inaugural Islamic Medium Term Notes and Islamic Commercial Papers issuances in December with a combined limit of up to 10 billion ringgit ($2.4 billion) in nominal value.
Mah Sing Group completed the issuance of its proposed convertible sukuk with a 100 million ringgit ($24.86 million) nominal value while Cagamas, the national mortgage corporation, announced a 450 million ringgit ($111.3 million) bond issue of which 350 million ringgit is proposed to be raised via Islamic medium-term notes.
In August 2020, Malaysian telco giant Axiata Group made a $1.5 billion, dual-tranche offering of which the sukuk portion was worth $500 million.
“We expect to see healthy pipelines of corporate sukuk issuances on expectations that growth will rebound after the availability of successful COVID-19 vaccines. Malaysia’s Budget 2021 has an emphasis on development expenditure, where a number of new/existing major infrastructure projects will continue, and some of these projects are expected to tap the sukuk market for financing,” said Phoon.
Phoon further noted that investors’ appetite for sukuk remains healthy, and the sukuk issuance pipeline continues to be underpinned by ample domestic liquidity.
Corporate offerings constitute a fragment of Malaysia’s overall sukuk market.
Malaysia was the worldwide leader in terms of the outstanding sukuk value in 2019 at $242 billion, followed by Saudi Arabia ($118 billion) and Indonesia ($57 billion). About 40% of Malaysia’s sukuk is sovereign sukuk, compared to 72% for Saudi Arabia and 94% for Indonesia.
In terms of sovereign sukuks, in 2020 especially, several Muslim-majority governments worldwide issued sukuk to finance their budget deficits caused by stimulus measures in the wake of the pandemic.
Malaysia issued $13 billion worth of sukuk during the second quarter and in August, the Malaysian government issued Sukuk Prihatin, its first digital retail sukuk, with a target issuance of 500 million ringgit ($119.4 million).
The “war bond-like sukuk” – aimed at supporting the country’s post-recovery efforts could be subscribed to by the public and businesses through digital channels such as mobile banking platforms. It was oversubscribed and ended up raising 666 million ringgit.
Proceeds from the digital sukuk are to be channeled into a number of initiatives, including increasing connectivity for rural schools, accommodating research grants for infectious diseases, and financing micro, small and medium enterprises. Malaysia may look at launching the second edition of Sukuk Prihatin in the future, its finance minister said in November.
In a similar vein, the Indonesian government issued a retail sukuk in August amounting to 5 trillion rupiah ($342 million). In November, it raised 5.42 trillion rupiah from nearly 17,000 investors through the issuance of a retail green sukuk to finance green projects and support the cash-strapped economy.
Indonesia’s sukuk transactions lag Malaysia in terms of volume and quantum – largely due to infrastructure and systemic issues. As part of efforts to grow the market, the country launched an electronic trading platform for bonds and sukuks in November 2020. The Indonesia Stock Exchange partnered with fixed-income trading software provider AxeTrading to allow trading on the secondary market of bonds and sukuk.
The global sukuk market is the second-largest segment of the growing global Islamic finance market, which was worth almost $2.9 trillion in 2019, and expected to surge to almost $3.7 trillion by 2024, according to the Islamic Finance Development Report 2020.
The overall Islamic finance market had registered 14% growth for 2019 partly due to elevated levels of sukuk issuance in the traditional markets of the GCC and Southeast Asia.
Source: DSA Analytics, IFDR 2020
For more data on Southeast Asia’s Islamic Finance markets, please refer to our Research & Analytics report.