Malaysia should look beyond ringgit to draw Chinese to sukuk market

[KUALA LUMPUR] Malaysia's Islamic bond market could attract Chinese companies if there were more foreign currency-denominated issues, a chief investment officer at fund manager Franklin Templeton Investments said on Wednesday.

Malaysia is one of the largest markets for Islamic finance, which follows religious principles such as bans on interest and monetary speculation.

Chief investment officer for global sukuk and MENA fixed income, Mohieddine Kronfol, said some Chinese companies are coming into the sukuk market and Malaysia was well positioned to benefit, but it would need to go beyond ringgit-denominated issuances.

"The policy makers have expressed interest to make Malaysia a hub for Islamic finance and to a certain extent it's very difficult to do that if everything is denominated in the local currency," he said.

"That segment is something that I feel like Malaysia could play a role in, in trying to attract Chinese companies. But to really be able to (do that), it has to be not just (fundraising) in Malaysia but internationally," he said in a group interview on Wednesday.

He said Malaysia has attracted foreign companies to issue sukuk, but they were predominantly in ringgit and largely domestically bought.

Mr Mohieddine said there should be more transactions in international currencies like the US dollar, and a currency regime or some central bank support that facilitates that.

"If you want to have a more global role, you need to be able to cater to demand that's outside of Malaysia," he said.

"That happens when the currency is a little more freely convertible and when you have issues in different currencies." Mr Mohieddine said the Chinese interest in sukuk is nascent but the appetite for sukuk would likely start with big issuers like Chinese real estate and financial services companies.

"If the sukuk market remains healthy and policy makers take steps to make the Malaysian market more international, and the Chinese look to diversify their source of funding ... (it's) feasible, arguably, to happen in the next few years," he said.

Franklin Templeton Investments projects global sukuk growth at 15-20 per cent this year on the back of stable oil prices, better growth outlook in markets that issue sukuks and sustained demand for Islamic finance.

REUTERS