In this case, GIC, whose shareholders include the governments of the six Gulf Cooperation Council (GCC) states, namely, Kuwait, Saudi Arabia, the United Arab Emirates, Qatar, Bahrain and Oman, and whose mandate is to promote private enterprise and support economic growth in the GCC region, last week raised the RM750 million in the Malaysian market through a 5-year sukuk issuance which has a profit payment of 4.9 percent to be paid twice a year. "We anticipate more issuers from the GCC region following suit in tapping into non-traditional sources to obtain long term funds," stressed Hisham Al-Razzuqi, GIC chief executive officer in a statement.This must have been music to the ears of the Malaysian government which through its Islamic financial sector liberalization policies over the last few years and the establishment of the Malaysia International Islamic Financial Centre (MIFC) Initiative, inter alia seeks to promote Malaysia as the center for sukuk origination and listing.The fact that GIC is a Kuwait-based financial institution is pertinent given that Kuwait has no sukuk law or trust laws in place and is still mired in a political battle between the government and some factions in the National Assembly over a draft sukuk law. Kuwaiti Islamic banking sources stress that the draft law has been ready for some time, only the politicians seem not to be able to have the political will to pass the legislation. The fact that sovereign Kuwait has no urgency or any desire in going to the market to raise funds through a debut sukuk issuance has also put a dampener of the development of a local sukuk market in Kuwait. As such Kuwaiti companies including The Investment Dar (TID), International Investment Group (IIG), GIC and others have to go offshore to raise funds through any sukuk issuance. GIC's origination strategy comprises both conventional bonds and sukuk in the Malaysian capital market. In 2008, the corporation issued its inaugural dual tranche conventional bonds with tenures of five years (RM600 million or $202 million) and 15 years (RM400 million or $135 million), the first by a GCC issuer in the Malaysian market. In fact, on Feb.16, 2011, GIC successfully raised RM600 million ($197 million), through a 5-year fixed rate conventional bond issue in Malaysia. Its sukuk issuance program started in March this year through a RM600 million ($196 million) local currency five-year Sukuk Wakala bi Istithmar issuance - the first tranche of a RM3.5 billion Sukuk Wakalah bi Istithmar Program, which has a long-term rating of AAA assigned by the local RAM Ratings. It was jointly managed by Royal Bank of Scotland (RBS), who was also the adviser and bookrunner, and Maybank Investment Bank and was priced at a yield of 5.25 percent. The 20-year program, according to GIC, will provide the corporation greater flexibility to issue sukuk of varying tenures of up to 10 years on a "need to" basis from time to time to fund its general working capital requirements that conform to Shariah principles at competitive pricing given its strong credit rating, underscored by its strengthening credit fundamentals and improved asset quality. The investors will provide capital as investment for their subscription of a particular series.This latest RM750 million, which was lead managed solely by AmInvestment Bank, is the second in the program and is the largest issuance to date by GIC in Malaysia. AmIslamic Bank acted as the transaction agent in order to facilitate the commodity trading transactions through the Bursa Malaysia Suq Al-Sila' commodity trading platform, based on the Tawarruq contract. The promoter stressed that despite the recent uncertainties in the global markets, the issuing pricing process was competitive and managed to come in tighter than the issuance in March. It would be interesting to see the pricing comparison with the conventional bonds issued by GIC in the Malaysian market. The RM750 million issuance, which has a similar AAA rating attracted a broad range of local investors including fund managers, insurance companies, financial institutions and government agencies. It was the AAA rating that enabled GIC to tap the Malaysian market for long-term funding. The latest statistics underpin the strong support which the Malaysian government and the SC have afforded the development of the ICM over the last few years. The ICM totaled RM1.07 trillion at the end of 2010, slightly lower than the conventional capital market which reached RM1.19 trillion for the same period. The ICM comprised RM756.1 billion in Islamic equities (mainly mutual funds); RM294 billion in sukuk issuances; and RM24 billion in Islamic unit trusts. Fund-raising through Shariah-compliant instruments, according to the SC, continued to retain its popularity. The commission approved 21 sukuk issues with a value of RM40.3 billion; which accounted for 63.4 percent of total bond approvals in value in 2010. Fund-raising through Shariah-compliant instruments, according to the SC, continued to retain its popularity. The commission approved 21 sukuk issues with a value of RM40.3 billion; which accounted for 63.4 percent of total bond approvals in value in 2010. In its ratings rationale, RAM Ratings stressed that "GIC's ratings remain supported by its unique position within the GCC region, and the strong support from its shareholders. GIC's mandate is to support the development of private enterprises and economic growth within the GIC region. Given its strategic role, the corporation enjoys immunity and exceptions in terms of regional regulatory norms, including exemptions from asset nationalization, currency controls and taxes."The corporation reported a net profit of $151 million for 2010, surpassing the $91 million for 2009. Net operating revenues grew by an annual 46 percent to $223 million, driven by revenues from GIC's core business activities. Total shareholders' equity stood at $2.12 billion at end 2010. GIC chairman, Zakaria Ahmed Hejres, is confident that the Corporation's solid financial strength and established regional franchise provides a platform for a bright future growth. "GIC successfully executed important principal investment projects in the GCC region, and completed several initiatives that contributed to optimizing asset allocation, strengthening risk controls and enhancing overall corporate governance," he explained in a statement. Over the last year or so there have been several sukuk originations which were sold in a market other than the issuer's. Kuveyt Turk Participation Bank issued a 3-year $100 million Wakala Sukuk in the GCC market, albeit it can now issue Sukuk Al-Ijara in its home market given the adoption of tax neutrality legislation for the Sukuk Al-Ijara structure by the Turkish parliament in February 2011. In fact, the participation bank is planning a second issuance of a minimum of $250 million but with a longer tenor, most likely 5 years. Similarly, Emaar Properties of Dubai closed a $500 million sukuk in London. The UK's International Innovative Technologies (IIT) privately placed a $10 million Sukuk Al-Musharaka with Millennium Private Equity Limited in Dubai. Malaysia's Khazanah Nasional Berhad, the sovereign wealth fund, issued a S$1.5 billion Wakala Sukuk in Singapore. Japan's Nomura Holdings issued a $100 million Sukuk Al-Ijara in Malaysia. Other foreign issuers that have originated sukuk in Malaysia include the World Bank and its private sector funding arm, the International Finance Corporation (IFC), The RM100 million Sukuk Al-Ijarah issued by Islamic Development Bank and the RM500 million 10-year sukuk issued by the National Bank of Abu Dhabi. However, the biggest breakthrough potentially came in 2010 when Saudi Arabia's Al-Rajhi Bank, the largest Islamic bank in the world in terms of balance sheet, collaborated with Cagamas Berhad, the National Mortgage Corporation of Malaysia and leading securitization house, to develop and launch the Sukuk Al-Amanah Li Al-Istithmar (Sukuk ALIm), which was the underlying structure for Cagamas's RM5 billion Islamic Commercial Paper (ICP) and Islamic Medium Term Note (IMTN) program. This "first-of-its-kind" and "innovative" structure was sold to investors in Saudi Arabia and is a manifestation of Al-Rajhi's new-found strategy of bridging the gap and facilitating cross-border activity in the Islamic capital market between Malaysia and the Middle East.Malaysia of course originates more than 60 per cent of global sukuk outstanding. This has generated significant cross-border flows as funds are raised from beyond domestic financial markets and as investors diversify their portfolios into assets from other jurisdictions. According to the Securities Commission, between January to September 2010, over 55 percent of all bonds approved by the commission were sukuk.This would not have possible without the strong support and measures introduced by the government, Bank Negara Malaysia and the SC. Perhaps the most wide-ranging of the new measures relating to Islamic finance came in Prime Minister Mohd Najib's 2011 budget speech. The budget, said Najib, emphasizes the transformation of Malaysia into a developed and high-income economy with inclusive and sustainable development, spearheaded by the private sector. A number of strategic high-impact projects are expected to involve both conventional and Islamic financing and investment."Efforts will be taken to strengthen Malaysia's position as a premier Islamic capital market," said Najib. "To further promote innovation in Islamic securities products, the government proposes that expenses for the issuance of Islamic securities which adopt the principles of Murabaha and Bai Bithaman Ajil based on Tawarruq be tax deductible with the objective of maintaining the competitiveness of the sukuk market. This will strengthen Malaysia's position as the leading sukuk market and promote transactions in Bursa Suq Al-Sila, the world's first Shariah-compliant commodity trading platform. The government proposes that Takaful contributions for export credit be given double tax deduction." Malaysia's capital market in fact reached a significant milestone of RM2,260.8 billion at the end of 2010, which is triple the RM717 billion size of the capital market in 2000. Of this, the Islamic capital market (ICM) alone exceeded RM1.07 trillion at the end of 2010, thus breaking the RM1 trillion barrier for the first time, and recording an impressive year-on-year growth of 15.2 percent.The country's Capital Market Master Plan 2 (CMP2), which was launched by Najib in April 2011, is also aimed at internationalizing the Malaysian financial services industry, and therefore the capital market, especially domestic companies venturing cross-border to diversify investments and risks and to achieve greater returns. "Our task now is to shift the focus of Islamic finance from serving domestic needs toward tapping the tremendous growth opportunities from intermediating international investments and corporate transactions," said Premier Najib at the launch. Indeed, the internationalization of the capital market is a necessary pre-requisite to strengthening Malaysia's Islamic Capital Market hub - set to increase almost threefold from RM1.1 trillion in 2010 to RM2.9 trillion in 2020. As such, according to Kuala Lumpur, CMP2 outlines strategies to enhance the distinctive value propositions offered by Malaysia for a broad range of Islamic intermediation activities, including increasing its capacity to structure cross-border transactions to make further inroads into the international sukuk market.According to SC Chairman Zarinah Anwar, there are therefore enormous opportunities to finance the expanding trade between the Middle East and Asia, the value of which is growing steadily, through Islamic trade instruments. "At the same time, capital investments among countries in the two regions can be enhanced by the availability of Shariah-compliant structures (such as sukuk) to deepen and broaden the capital markets in this cluster which can then serve as a model for similar clusters to develop within other regions as well as across regions," she added.