MARC: Sukuk will remain dominant in Malaysian debt market

PETALING JAYA: Sukuk (Islamic bonds) are expected to continue to play a dominant role in Malaysia’s debt market due to strong appetite for higher-yielding instruments as global interest rates are expected to remain low in 2021, said Malaysian Rating Corp Bhd (MARC) group CEO Datuk Jamaludin Nasir.

The value of corporate bond and sukuk issuances this year is estimated to remain between RM100 billion and RM110 billion, similar to that in the previous year, based on the narrative of rebuilding the nation in these challenging times, he said, adding that this is backed by firmer crude oil prices, accommodative policies for Islamic finance, and expectations for economic recovery.

“For 2021, we believe that sukuk will continue to play a dominant role in Malaysia’s debt market,” Jamaludin said in his speech at the MARC Malaysia Bond and Sukuk Conference 2021 today.

He noted that global sukuk issuance is slated to grow this year amid the deployment of Covid-19 vaccination programmes and the resumption of economic activities.

Jamaludin said the total outstanding sukuk issued by Malaysian entities amounted to US$286.8 billion (RM118.57 billion) year to date, or an equivalent of 39.6% of total global outstanding, well ahead of Saudi Arabia’s US$163.7 billion and Indonesia’s US$100.5 billion sukuk market.

“Sukuk issued by Malaysia have also gained traction among foreign investors, evidenced by the recent issuance of the US$1.3 billion US dollar-denominated sustainability sukuk which recorded a bid-to-cover ratio of 6.4 times,” he said.

On the debt market, Securities Commission Malaysia chairman Datuk Syed Zaid Albar pointed out the need to broaden the credit spectrum to include smaller bond issuers, given the significant contribution of micro, small and medium enterprises to gross domestic product and employment.

Although the domestic bond market grew to RM1.6 trillion in 2020 from RM1.49 trillion in 2019 despite the challenging environment, Syed Zaid said, there is a need for growth to be sustainable.

“The challenge is adapting the bond and sukuk markets to provide cost-effective means for small and lower-rated issuers to raise funds to meet their growth and expansion plans. This is particularly important because the greater or more inventive use of traditional assets alone will not be enough to foster better growth,” he said in his keynote speech for the conference.

Looking ahead, the SC chairman stated that the overall landscape will likely continue to be uncertain with the after-effects felt long after the Covid pandemic has ended.

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