the development of islamic debt capital markets in malaysia

8/3/2019 The Development of Islamic Debt Capital Markets in Malaysia

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SEMINAR ON ISLAMIC FINANCE

&

THE DEVELOPMENT OF ISLAMIC DEBT CAPITAL MARKETS IN

MALAYSIA

STRICTLY PRIVATE & CONFIDENTIAL

STRICTLY PRIVATE & CONFIDENTIAL

17 March 2010 / 1 Rabiulakhir 1431H

EN SUFFIAN ARIFFIN

SENIOR MANAGER, DEBT CAPITAL MARKETS

CORPORATE INVESTMENT BANKING

BANK ISLAM MALAYSIA BERHAD


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1. Overview of Malaysian Islamic Debt Capital Markets.

2. Malaysian Islamic Securities Experience: Evolution & Development.

3. Malaysia as Hub for Islamic Securities Issuance.

ContentsContents

Page 2

. .


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OVERVIEW OF MALAYSIAN

ISLAMIC DEBT CAPITAL MARKETS

Page 3


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Overview of Malaysian Islamic Debt Capital MarketsOverview of Malaysian Islamic Debt Capital Markets

Malaysian Islamic Financial MarketMalaysian Islamic Financial Market

Islamic Financial Market

Islamic Banking &Takaful

Islamic Capital Markets

Islamic Banking:

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Equity DebtDerivatives

Money Market Islamic Financing

Islamic Deposits

Islamic Investment

Takaful:

Takaful products

Takaful linked

investments

Islamic Profit

Rate Swap

Islamic Foreign

Exchange Swap

Islamic Cross

Currency Swap

Islamic Unit

Trust

Islamic REITs

Islamic

Stockbroking

Islamic Indexes

Shariah

Compliant

Securities

Islamic

Securities

Islamic Medium

Term Notes

Islamic

Commercial

Papers

Exchangeable

Sukuk


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The Market ParticipantsThe Market Participants

INVESTORS

Islamic/

ISSUERS

BusinessesIslamic

REGULATORY AUTHORITIES

BNM/ SC/ Bursa Malaysia/ Labuan FSA

Islamic Securities

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INTERMEDIARIES

Financial Institutions/ Rating Agencies/ Reporting Accountants/ Legal

Counsels/ Trustees/ Shariah Advisers

Conventional Domestic/

International

Institutional

Government/Government

Agencies

Surplus Funds

Capital

Markets


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Regulatory FrameworkRegulatory Framework

SC

Established under the Securities

Commission Act 1993.

To supervise & monitor activities of

capital markets activities under the

CMSA. To protect the investors rights.

To promote and develop securities &

futures markets.

To spearhead development of the

Labuan FSA

Formed in 1996 as regulator in Labuan

IBFC.

To market & promote Labuan as the

premier international businesses and

financial centre in Asia Pacific.

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BNM

Established in 1959 under the Central

Bank of Malaysia Act 1958 (Revised

1994).

To regulate and monitor monetary,

financial & payment systems. To promote and develop Islamic

finance via MIFC, INCEIF & ISRA.

To act as Depository & Paying Agency

for bonds issued in Malaysia.

.

Bursa Malaysia

An exchange holding company that

regulates and operates the trading

activities on Bursa Malaysia.

To promote Islamic capital markets

products via Bursa Malaysia for on-

shore market & LFX for offshore market.


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Governing LawsGoverning Laws

Key Acts/ Guidelines

Islamic Banking Act 1983 (IBA).

Capital Markets and Services Act 2007

(CMSA).

Labuan Islamic Financial Services and

Securities Act 2010.

Guidelines on the Offering of Islamic

Supplemental Laws

Applicable tax and stamp duty legislation.

Land laws.

Lease laws for Ijarah transaction.

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.

Guidelines on the Offering of Asset-

Backed Securities.

Shariah compliances according to IBA &

IS Guidelines.

Rules on The Scripless Securities underRENTAS System.

Rules on Fully Automated System for

Issuing/ Tendering (FAST).


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MALAYSIAN ISLAMIC SECURITIES

EXPERIENCE: EVOLUTION & DEVELOPMENT

Page 8


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Malaysian Islamic Securities Experience: Evolution & DevelopmentMalaysian Islamic Securities Experience: Evolution & Development

Evolution of Islamic SecuritiesEvolution of Islamic Securities

SKS Power Sdn

Bhd (Sukuk

PLUS SPV Sdn

Bhd (Sukuk

Musharakah)

The Islamic Securities structures

have evolved from simple BBAs to

more complex structures as more

legislations are introduced & also an

increased in the understanding of

Islamic finance among the industry

players.

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Shell MDS

Sdn Bhd

(BaIDS)

K.L.

International

Airport

Berhad (BBANotes)

Guthrie Berhad

(Ijarah

Syndicated/

Sukuk)

s sna

1990 1996 2001 2003 2008


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New Capitals for 2009New Capitals for 2009

12,104.0million

109,233.0*million

Equity Debt

RM11,969.7

Capital Markets

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million

RM43,624.0*million

Islamic Equity

Islamic DebtIslamic

Capital Markets

Source: Securities Commission

* Total issue amount approved by the SC.



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Growth of Malaysian Debt Capital MarketsGrowth of Malaysian Debt Capital Markets

MYR 0.04

MYR 0.05

MYR 0.06

Millions

20-Year Growth - Islamic Debt Securities vs Conventional Debt Securities

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MYR -

MYR 0.01

MYR 0.02

.Islamic Debt Securities

Conventional Debt Securities

Source: Bank Negara Malaysia


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Approved Islamic Securities in 2009 (by Quarters)Approved Islamic Securities in 2009 (by Quarters)

Period Issue Size

(RM Million)

Q1 10,855

Q2 3,600 15,000.00

20,000.00

25,000.00

on

Approved Islamic Securities in 2009(by Quarters)

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Q3 4,500

Q4 20,000

Total 38,955 -

5,000.00

10,000.00

Quarter 1 Quarter 2 Quarter 3 Quarter 4

RM'M

illi


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ShariahShariah Contracts Applied in Islamic SecuritiesContracts Applied in Islamic Securities

Islamic Securities Approved by SC

in 2008Musharakah Ijarah

Istisna' Murabahah

Mudharabah Bai Bithaman Ajil

9%

Islamic Securities Approved by SC in 2009Musharakah Ijarah

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40%

26%

7%

9%

11%


91%


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MALAYSIA AS A HUB FOR

ISLAMIC SECURITIES ISSUANCE

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Malaysia as a Hub for Islamic Securities IssuanceMalaysia as a Hub for Islamic Securities Issuance

Malaysias Competitive AdvantagesMalaysias Competitive Advantages

ComprehensiveRegulatory &SupervisoryFrameworks

Wider InvestorsBase

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Exchange Rules

Talents

Tax Incentives

Continuous

ProductsDevelopment

ADVANTAGES


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Key Benefits of Islamic Securities: Issuers PerspectiveKey Benefits of Islamic Securities: Issuers Perspective

TAX INCENTIVESVALUE PROPOSITION REGULATORY PROCESS

Stamp duty exemption onSCs approved Sukuk.

Tax deductible of issuance

cost.

Wide investors base.

Attractive pricing due to

strong demand.

Facilitative issuance

process.

Automatic approval for

AAA-rated for RM Sukuk

-

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ax neu ra y.

Tax exemption on SPV

incorporation.

expertise.

Enhance Issuers profiles.

rated Sukuk for foreigncurrency Sukuk.

Any amendment to terms

of approved Sukuk need

only to inform SC.

Exchangeable Sukuk

exempted from rating.


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Promotion of Islamic Securities via MIFCPromotion of Islamic Securities via MIFC

To create a vibrant, innovative and competitive international

Islamic financial services industry in Malaysia focusing on the

following niche activities:-

(1) origination, distribution & trading of Islamic capital markets

and treasury instruments;

(2) Islamic fund & wealth management services;

(3) International currency Islamic financial services; and

(4) Takaful & retakaful.

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Incentives for

Islamic Securities

Tax exemption on income received by SPV.

Companies that establish SPV are allowed a tax deduction on the issuing costs incurred by

the SPV.

Tax deduction on expenses incurred for Islamic Securities approved by the Securities

Commission until year of assessment 2015.

Stamp duty exemption on instruments used to issue Sukuk in any currency.

Tax exemption and withholding tax exemption on profits received by non-resident.

Tax exemption on profits received by resident and non-resident investors in respect of

foreign currency Islamic securities approved by the Securities Commission and originating

from Malaysia.

Stamp duty exemption on investing and trading of sukuk.Investors


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The ResultsThe Results

Issuer Date of Issue Issue Size

(USD million)

Rating

Rafflesia Capital October 2006 750.0 N/A

Malayan Banking April 2007 300.0 A3 (Moody)

Cherating Capital July 2007 850.0 N/A

Paka Capital Ltd March 2008 550.0 N/A

Petronas Sukuk August 2009 1,500.0 A1 (Moody)

List of Foreign CurrencyList of Foreign Currency--

Denominated issuances inDenominated issuances in

MalaysiaMalaysia

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Issuer Date of Issue Issue Size *(RM million)

Rating

Tadamun Services

Berhad

August 2008 1,000.0 AAA (S&P)

Woori Bank June 2008 1,000.0 N/A

Industrial Bank of Korea April 2008 3,000.0 N/A

State Bank of India March 2008 1,350.0 N/A

The Export-Import Bank

of Korea

March 2008 3,000.0 N/A

List of Islamic SecuritiesList of Islamic SecuritiesIssued in Malaysia byIssued in Malaysia by

Multinational DevelopmentMultinational Development

Banks/FinancialBanks/Financial

Institutions/ForeignInstitutions/ForeignGovernments/Foreign MNCsGovernments/Foreign MNCs



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MOVING FORWARD

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Moving ForwardMoving Forward

Issues to be AddressedIssues to be Addressed

The following considerations need to be addressed for Islamic Debt Capital

Markets to continue being one of the major components of funding:

Greater clarity in transaction structures, improved documentations,

increased standardizations and lower overall complexities.

Consensus among Islamic scholars around the world.

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Shariah compliance.

A liquid secondary market.

The structures for the Sukuk need to be more competitive in order to

motivate future Sukuk issuances. Continuous support from the Government and regulators to further

promote and develop the Islamic debt capital markets.


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Moving ForwardMoving Forward

Future OutlooksFuture Outlooks

Increased demand from the Middle Eastern and Asian Muslims to invest in

products that are in compliance with their religious beliefs.

The recent global economic recovery is expected to stimulate

infrastructure projects which require huge amounts of financings and theIslamic Securities can be the preferred financing instrument to raise these

funding requirements.

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More efforts have been implemented towards having a global Shariahcompliance for local Islamic products.

More interests are shown by other countries such as United Kingdom,

Hong Kong, France and other European countries in Islamic finance is

expected to further boost the industrys growth.


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Thank You & Wassalam

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The information contained in this presentation may be meaningful only with the oral presentation and are of the

personal view of the presenter and does not necessarily represent an official opinion of Bank Islam Malaysia Berhad.

For further information, please contact:

Suffian Ariffin

Senior Manager, Debt Capital Markets

Corporate Investment Banking

Bank Islam Malaysia Berhad

Email: [email protected]

the development of islamic debt capital markets in malaysia

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