Initiatives to strengthen capital marts

Business Times, 29 September 2012

Most of the 2013 Budget's initiatives for the capital markets are focused on spurring the sukuk market further.

Most of the 2013 Budget's initiatives for the capital markets are focused on spurring the Islamic bond (sukuk) market further, a positive move as Malaysia looks to solidify its global dominance in this area, industry observers and players said.

The initiatives included tax deductions to incentivise companies in the agricultural sector to issue sukuk, or AgroSukuk.

The government also announced that DanaInfra Nasional Bhd, its special vehicle to source funding for infrastructure projects, would issue retail bonds worth RM300 million by year-end, which is the first time that retail investors across the board - not just high net worth ones - will be able to participate in the bond market.

The funds will be to finance MRT development projects, Prime Minister Datuk Seri Najib Tun Razak said yesterday in his budget speech.

"We are confident that it will propel Malaysia's ambitions to become a major hub for Islamic finance and particularly cross border sukuk issuance," said Abdul Jalil Abdul Rasheed, chief executive officer at Aberdeen Islamic Asset Management, which is part of the Aberdeen group that manages US$4 billion (RM12.2 billion) in Malaysian equities.

Analysts said the incentives may spur some plantation firms and possibly livestock firms to issue sukuk. It would also mean more business for banks who are hired to manage sukuk sales.

"It also comes at a time when a lot of companies out there are trying to refinance their debt to bonds/sukuk, so the new incentives might help," said Low Yee Huap, head of research at Hong Leong Investment Bank.

Plantations analyst Alvin Tai of OSK Research, however, doesn't think a lot of plantations firms will go for AgroSukuk unless they are planning a major expansion.

"A lot of the local firms' expansion has been taking place outside of Malaysia, so they usually take on foreign borrowings," he observed.

Najib said issuers of AgroSukuk would be given a double tax deduction for four years, effective from the year of assessment 2012 to 2015.

"We look forward to engaging with the Securities Commission as it finalises the AgroSukuk framework, which in principal is a good idea," said Datuk Seri Nazir Razak, group chief executive of CIMB Group.

He said he also "welcomed" the measures to catalyse retail participation in the bond markets as that adds to the range of safer saving products for the public.

"Aimed at widening investor base for issuers, and providing public direct access into the capital markets, the tax deduction and exemptions given to both issuers and investors are expected to help drive and accelerate the growth of the retail bonds/sukuk segment," said Tengku Datuk Zafrul Aziz, CEO of Maybank Investment bank Bhd.

Observers noted, however, that public-listed companies will probably only be allowed to issue retail sukuk from next year, after the SC issues the relevant regulations and guidelines for them.

For now, in the introductory phase, retail investors can only invest in bonds/sukuk issued or guaranteed by the government.

Najib also said the SC would set up a Capital Market Promotion Centre in a bid to position Malaysia as a centre of investment and fund raising.

"It is definitely a positive boost to the industry which will further help in enhancing the state of the industry and assist in efforts to develop the country into a global financial hub," said Gerald Ambrose, the managing director of Aberdeen Asset Management Malaysia.

(Web Source: http://www.btimes.com.my/Current_News/BTIMES/articles/20120929002332/Article/index_html)