LONDON: Another sign that Asia is leading the global Sukuk market into a definitive revival is the overwhelming demand for the Malaysian Ministry of Finance’s RM2.5 billion Sukuk Simpanan Rakyat (SSR 1/2009) which was announced on April 14. According to Bank Negara Malaysia, the central bank and issuer on behalf of the government, the initial amount of RM2.5 billion SSR 1/2009 was fully subscribed only two days after the Sukuk was opened for sale on April 14. This is the first in a series of two 3-year RM2.5 billion Sukuk to be issued by the Malaysian government in 2009.
“Due to the overwhelming response from the public, the Ministry of Finance wishes to announce that the issuance of SSR 1/2009 has been upsized by using the allocation of the second series. Malaysian citizens 21 years and above wishing to subscribe may still apply for SSR 1/2009 at all commercial banks and other agents during the sales period ending May 13,” stressed an official statement from the Ministry of Finance.
This is the second series of Sukuk to be issued by the Malaysian government so far in 2009. In March, the state-owned Malaysian National Housing Finance Corporation (Cagamas), sold RM915 million of Islamic bonds ranging in maturities from one year to 20 years at average yields of 2.2 percent to 5.60 percent depending on the maturity. That offering similarly was well oversubscribed — 2.2 times by the market — both local and foreign players. Cagamas plans to sell RM14 billion of bonds in 2009, of which about half could be Islamic bonds.
The objective of the SSR 1/2009, which will be scripless, is to provide an additional investment instrument for all Malaysian citizens aged over 21 and forms part of the government’s financial inclusion policy. Not surprisingly, the investment returns on the Sukuk are exempt from any tax.
According to the prospectus, the 3-year Sukuk “offers a return of 5 percent per annum and provides the flexibility for early redemption before the maturity date.” Sukuk holders may redeem the certificates at face value on and before the maturity date, but not earlier than the first profit payment. The profit payments will be apportioned based on the number of days held.
The minimum investment per investor in SSR 1/2009 is RM1,000 at the point of sale and investors may purchase the Sukuk thereafter in a multiple of RM100. The maximum aggregate holdings per investor for the two SSR 1 and 2/2009 series is RM50,000, and investors can be subscribed to the certificates at all the commercial banks, including Islamic banks, Bank Kerjasama Rakyat Malaysia Berhad, Bank Simpanan Nasional and Agrobank.
The allocation of Sukuk certificates is based on a first-come first-served basis, and profit payments will be made on a quarterly basis through the Sukuk holders’ accounts with their agent banks. The Sukuk is non-negotiable, non-transferable and non-assignable, and in the event of the death of the Sukuk certificate holder, the prevailing inheritance law will take precedence.
The government of Prime Minister Najib Razak, who succeeded Abdullah Badawi on April 1, is keen to consolidate Malaysia as the Islamic finance and capital markets center of choice. The RM60 billion economic and financial stimulus package announced at end March 2009 by the Najib, then the finance minister, indeed includes a RM15 billion fiscal injection in the form of guarantees to the financial sector, which bankers stress is playing a key role in boosting confidence in the Sukuk market.
Under the RM60 billion stimulus package, the government hopes to stimulate the Islamic and conventional capital markets, especially the Sukuk market, through the establishment of a financial guarantee institution to provide credit enhancement to companies that raise funds from the bond market including the Sukuk market. Malaysia is the largest Islamic capital market in the world. Islamic bonds accounted for some 58 percent of total issuances in the market in 2007/2008.
