Sukuk or Islamic bonds will remain the debt security of choice this year among companies involved in infrastructure and property projects, amid robust demand for the instrument.
Companies prefer sukuk as it could attract both conventional and Islamic investors, said a fund manager. He sees fewer corporate bond issuances going forward.
Rating Agency Malaysia (RAM) chief economist Dr Yeah Kim Leng said he expects a higher take-up of sukuk issues, particularly among Islamic investors from the Middle East.
Local companies would therefore be encouraged to raise funds via Islamic-based debt instruments as opposed to conventional bonds, to attract these investors, he said.
The prevaling trend was to go for asset-based Islamic instruments, he added.
Last year RM54 billion worth of corporate bonds were issued, in what was deemed a record year by local ratings agencies. Some 70% of these issuances were structured based on Islamic principles, and the trend is expected to continue this year, according to Malaysian Rating Corporation Bhd (MARC).
Malaysia is the world’s largest sukuk issuer, with over US$56 billion (RM184.8 billion) or 62% of the global sukuk base, according to the central bank.
Yeah also said the market would see a more diversified base of debt instruments this year, with private debt securities (PDS) issuances shifting towards convertibles.
“We’re likely to see a broadening of the instrument types involved. We’re also seeing more convertible loan stocks and asset-backed securities,” Yeah said.
Last week IOI Resources (L) Bhd’s US$600 million exchangeable bonds were snapped up in 90 minutes.
The bonds, convertible into IOI shares, were launched at an initial size of US$500 million and exercised in full for US$600 million on Jan 10.