The structure, Sukuk Al-Amanah Li Al-Istithmar (Sukuk ALIM), which took over a year to structure and which was issued last week under Cagamas's RM5 billion Islamic Commercial Paper (ICP) and Islamic Medium Term Note (IMTN) Programs, has been hailed as "first-of-its-kind", "innovative" and one which would supposedly satisfy investors from a Shariah compliance point of view bridging Asia and the Middle East.

But to what extent Middle East investors become aware of Malaysian domestic risk, even that of an AAA-rated quasi-sovereign solid mortgage corporation remains to be seen.

The cross-border information flow between Malaysia and the GCC (Gulf Cooperation Council) countries in particular, though improved over the last few years remains stolid and piecemeal. The perception too of Malaysian risk by most GCC financial institutions, investment funds and sovereign wealth funds (SWFs) remain non-existent, because it hardly features on the investment radar of these funds and institutions.

The outward investment flow of the GCC is largely still US and Eurocentric, albeit some of this flow has gone to Japan, China, India and Brazil and some is returning home to the region in the wake of the global financial crisis. The underwhelming exception is the minimal subscription by the likes of Saudi Arabian Monetary Agency (SAMA), the Abu Dhabi Investment Company (ADIC) and Kuwait Investment Authority (KIA) in the Malaysian global sovereign sukuk issuances.

Nevertheless, this Cagamas sukuk may have two important implications. Some GCC Islamic financial institutions and ulema have historically been chauvinistic about Malaysian Shariah scholars especially relating to the Shafie School of Law's interpretations of certain issues such as the trading of debt and the use of controversial contracts such as Bay Al-Inah, justified under the principle of Maslaha (necessity and social context). Malaysian ulema have been labeled as too 'liberal', although such perceptions can sometimes be based on sheer ignorance and a lack of engagement.

Bank Negara Malaysia, the central bank, has been pushing greater Shariah convergence between the various regions, rightly stressing that the convergence far outweighs the few differences of opinion. Although, the issues relating to differences in Shariah interpretations especially between Asia and the GCC countries and Pakistan continue to recede, the psychological baggage remains. This is partly because when the various regulatory authorities or their agencies engage, they fail to do so in a spirit of frankness and open consultation and discourse. This lack of transparency inevitably gives rise to "things hanging in the air", which in turn takes years to talk through let alone resolve.

As such if Al-Rajhi Bank's involvement in structuring this sukuk can help in bridging the gap and facilitating cross-border activity in the Islamic capital market between Malaysia and the Middle East, then this could be a major opening for such collaboration. This has to mean good news for the sukuk market especially.

However, Al-Rajhi Bank's own absence from the sukuk market hitherto smacks of chauvinism. "The bank has not found a structure which is acceptable from a Shariah-compliant perspective. Also the bank is predominantly a retail bank and has only started investment and capital market activities over the last few years," explained Ahmed Rehman, CEO of Al-Rajhi Bank (Malaysia), which helped structure the Cagamas Sukuk, in a past interview.

The implication here is that all the other sukuk that have been issued to date including the ones in Saudi Arabia by SABIC (Saudi Basic Industries Corp.), SEC (Saudi Electricity Co.), Dar Al-Arkan Real Estate Development Company and Saudi Hollandi Bank are unacceptable to Al-Rajhi Bank from a Shariah point of view. Al-Rajhi Bank, despite being arguably the largest Islamic bank in the world in terms of assets and capital, has had a reputation over the years for being conservative and complacent, which may reflect its roots as a moneychanger.

However, Al-Rajhi Bank could not have tied up with a more appropriate partner. Cagamas was established in 1986 to finance affordable mortgages for Malaysians, especially civil servants. Since then the corporation has diversified into becoming the leading securitisation house in Malaysia, and to promote the secondary mortgage market there.

It issues debt securities and Sukuk to finance the purchase of housing loans and other consumer receivables from financial institutions and non-financial institutions. The provision of liquidity at a reasonable cost to the primary lenders of housing loans encourages further financing of houses at an affordable cost, stresses Cagamas. So successful has the Cagamas model been that the World Bank regards it as the most successful secondary mortgage liquidity facility.

Cagamas is also the second biggest issuer of debt instruments in the country after the government of Malaysia which carry the highest credit rating of "AAA" from local rating agencies, RAM and MARC. It is one of the top Sukuk issuers in the world. Since its incorporation in 1986, Cagamas has cumulatively issued RM242.76 billion of conventional and Islamic debt securities.

The launch of Sukuk ALIM in the presence of Malaysian deputy finance minister II, Sen. Awang Adek Hussin is the latest offering under Cagamas's AAA rated ICP and IMTN Programs of tenures of seven and thirty years respectively and which have a combined aggregate limit of RM5 billion. Cagamas President and CEO, Steven Choy emphasized at the launch that, "Sukuk ALIM marks an important milestone for Cagamas as it is not only widely accepted and tradable in the secondary market but also meets the most discerning investors' Shariah requirements."

Al-Rajhi Bank Malaysia and RHB Investment Bank have been appointed as joint principal advisers and joint lead arrangers for the sukuk programs. Al-Rajhi and Amanie Business Solutions Sdn Bhd are also the Shariah advisers to the issuance. The joint lead managers are Al-Rajhi, RHB and the UK's Royal Bank of Scotland (RBS).

The Sukuk ALIM structure, according to the promoter, complies with the provisions for the Sukuk standard of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). "Whilst there had been an emergence of more diversified sukuk such as mixed asset sukuk or Sukuk Istithmar," explained Cagamas, "this new Sukuk ALIM structure is a type of Sukuk Istithmar but precludes the principles of Inah (sale and buyback), Bai' Dayn (trading of debt) and Wa'ad (undertaking)." As such, the promoters stress that that Sukuk ALIM could set the benchmark for future Sukuk issuances, particularly those targeting the Middle East markets.

Cagamas has been very active thus far in the Sukuk market this year. In late May 2010 it issued its second sukuk - a RM300 million 5-year sukuk, which will be redeemed at full nominal value on maturity, and which will be listed and tradable under the scripless securities trading system. According to Cagamas, the sukuk are unsecured obligations of the company, ranking pari passu among themselves and with all other existing unsecured obligations of the company.

In early May 2010 Cagamas issued a RM1.06 billion Cagamas debts securities comprising RM1 billion 1, 2 & 3-year sukuk and RM60 million 3-month Conventional Commercial Paper (CCP). The issuances follow other issuances by Cagamas in 2010 which include a RM500 million 5-year sukuk in April 2010; RM500 million Cagamas Debt Securities comprising RM120 million Islamic Commercial Papers (ICP) and RM380 million Islamic Medium Term Notes (IMTN) - all on the same basis as above.