Beyond Sovereign Issuers: Strategies

to Facilitate the Sukuk Market to a

Broader Pool of Issuers

- The Malaysian Experience

Ruslena Ramli

Head, Islamic Finance

RAM Rating Services Berhad

The World Islamic Banking Conference

4 June 2015, Singapore

Slide 2

Table of Contents

The Malaysian Bond Market 3

Facilitative Strategies for Market Development 7

Outlook for the Global Sukuk Market 12

Role of Credit Rating Agency 14

Slide 3

1The Malaysian Bond Market

64.3

152.5 11.0

164.8

-10.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

-

50.0

100.0

150.0

200.0

250.0

300.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Malaysian Total Bond Outstanding vs Sukuk Outstanding(Source: BNM as at Dec 2014 & RAM Ratings)

Sukuk Outstanding Conventional Outstanding Sukuk Outstanding (in % Total)

35.7

185.0

33.0

130.5

0.0

20.0

40.0

60.0

80.0

100.0

120.0

0.0

50.0

100.0

150.0

200.0

250.0

300.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Private Sector Public Sector Total (in % GDP)

Slide 4

Overview of the Malaysian Bond Market

USD billion (%)

Malaysian Total Bond Outstanding by Public and Private Sector(Source: Asian Bonds Online as at Dec 2014 & RAM Ratings)

USD billion (%)

Note: Differences in amounts due to different sources

Sukuk from Malaysia Sukuk from GCC Others Total

2012 103.02 24.89 11.14 139.05

2013 80.94 26.44 10.93 118.31

2014 77.27 23.31 15.65 116.23

As at end-April 2015 13.76 6.45 4.79 25.01

-

50.00

100.00

150.00

US

D b

illi

on

3-year Global Sukuk Issuance Trend by Region(Source: Zawya & RAM Ratings)

Sukuk Issuance by Region and Type of Issuer

SovereignQuasi

SovereignCorporate Total

2012 94.77 19.89 24.39 139.05

2013 77.35 8.53 32.44 118.31

2014 73.22 17.70 25.31 116.23

As at end-April 2015 12.63 7.66 4.72 25.01

-

50.00

100.00

150.00

US

D b

illi

on

3-year Global Sukuk Issuance by Type of Issuer (Source: Zawya & RAM Ratings)

16.46 14.68

1.30

13.01 9.57

2.73

-

5.00

10.00

15.00

20.00

Malaysia GCC Others

USD billion

2012 2013 2014 As at end-April 2015

3-year Corporate Sukuk Issuance by Region(Source: Zawya & RAM Ratings)

-35%-21%

Slide 5

Size relative to GDP (%)

Public Sector Private Sector Total

USD billion USD billion USD billion

Japan 220.1 8,292.2 679.7 8,971.9

Korea 125.1 701.2 1,001.6 1,702.8

Malaysia 103.1 185.0 130.5 315.5

Singapore 81.9 146.5 94.6 241.1

Thailand 70.4 211.2 70.2 281.3

Hong Kong 67.1 109.5 84.7 194.2

China 50.6 3,334.7 1,857.8 5,192.5

Philippines 36.9 87.1 17.0 104.1

Vietnam 22.1 40.1 0.6 40.7

Indonesia 15.2 105.5 18.0 123.5

Comparison to Asian Debt Securities Market

60.5

42.7

0.0

50.0

100.0

150.0

200.0

250.0

Japan Korea Malaysia Singapore Thailand Hong Kong China Philippines Vietnam Indonesia

Private Sector Public Sector

(%)

Size of Asian Debt Securities Market Relative to GDP(Source: Asian Bonds Online as at Dec 2014 & RAM Ratings)

Size of Asian Debt Securities Market in USD billion (Source: Asian Bonds Online as at Dec 2014 & RAM Ratings)

Slide 6

“Relative to GDP, Malaysia’s

outstanding debt securities is

ranked the third largest in Asia

valuing at USD315.5 billion”

2Facilitative Strategies for Market

Development

- Malaysia’s Game Changer

Slide 7

Slide 8

Tax neutrality for Islamic finance transactions that require sale or lease of assets.

Liberal Foreign Exchange Rules in promoting Malaysia as an investment

destination.

Facilitative Strategies for Market Development

Tax Neutrality

And Attractive Fiscal Incentives1

Broad Investor Base - Competitive Pricing2

3.7

3.9

4.1

4.3

4.5

4.7

01

-Jan

-10

01

-Apr-

10

01

-Jul-

10

01

-Oct-

10

01

-Jan

-11

01

-Apr-

11

01

-Jul-

11

01

-Oct-

11

01

-Jan

-12

01

-Apr-

12

01

-Jul-

12

01

-Oct-

12

01

-Jan

-13

01

-Apr-

13

01

-Jul-

13

01

-Oct-

13

01

-Jan

-14

01

-Apr-

14

01

-Jul-

14

01

-Oct-

14

01

-Jan

-15

01

-Apr-

15

Market Indicative Yield - 5YR Corp-AAA(Source: RAM Ratings as at Apr-2015)

5YR Corp-AAA (Conv) 5YR Corp-AAA (Islamic)

3.9

4.4

4.9

5.4

5.9

01

-Jan

-10

01

-Apr-

10

01

-Jul-

10

01

-Oct-

10

01

-Jan

-11

01

-Apr-

11

01

-Jul-

11

01

-Oct-

11

01

-Jan

-12

01

-Apr-

12

01

-Jul-

12

01

-Oct-

12

01

-Jan

-13

01

-Apr-

13

01

-Jul-

13

01

-Oct-

13

01

-Jan

-14

01

-Apr-

14

01

-Jul-

14

01

-Oct-

14

01

-Jan

-15

01

-Apr-

15

Market Indicative Yield - 10YR Corp-AAA(Source: RAM Ratings as at Apr-2015)

10YR Corp-AAA (Conv) 10YR Corp-AAA (Islamic)

Facilitative Strategies for Market Development (cont’)

Shariah Governance Framework - Product Innovation3 The Shariah Advisory Council of the Securities Commission (“SC”) together with the

Shariah Advisory Council of BNM, serve to ensure compliance with Shariah

principles, while supporting product innovation through pronouncements on the

Shariah-compatibility of the Sukuk structures.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 End-April 2015

Sukuk Issuance (Malaysia) (No. of Issue) - Breakdown by Structure

Mudharabah

Istisna'

Al-Istithmar

Bai' Al-Dayn

Bai Bithaman Ajil

Wakalah

Bai' Al-Inah

Hybrid

Ijarah

Musharakah

Murabahah

LCY Sukuk Structures by Shariah Principles (Jan 2000 – Apr 2015)(Source: SC, Zawya & RAM Ratings)

Slide 9

Slide 10

Liberal Foreign Exchange Rules for international players to tap the Malaysian bond

market.

Facilitative Strategies for Market Development (cont’)

Adoption of Legal and Regulatory Best Practices4

Facilitative Rules for Issuance Process5

The Capital Markets Services Act 2007 governs the parameters for permitted

capital market activities, while reinforcing protection framework and promoting

international best practices.

The legal and regulatory framework is constantly reviewed taking into account latest

market, products and Shariah issues to ensure continuous development in the

Sukuk market.

Supranational (ASEAN):

Credit Gurantee & Investment

Facility (CGIF)

United Arab Emirates:

1) National Bank of Abu Dhabi

2) Abu Dhabi Islamic Bank PJSC

Portfolio of Foreign Issuers Rated by RAM Ratings

“RAM Ratings’ outstanding rated portfolio include 24 foreign entities

across 13 countries”

Japan:

1) Bank of Tokyo-Mitsubishi

UFJ Ltd

2) Mizuho Corp Bank Ltd

Bahrain:

1) Gulf International Bank BSC

2) Bahrain Mumtalakat Holding Company BSC

South Korea:

1) Hyundai Capital

2) Industrial Bank of Korea

3) Korea Development Bank

Kazakhstan:

Development Bank of Kazakhstan

Joint-Stock Company

Indonesia:

1) First Resources Limited

2) Golden Agri-Resources Limited

3) Bumitama Agri Limited

Kuwait:

Gulf Investment

Corp GSC

France:

Societe Generale1

Kingdom of Saudi Arabia:

Al Bayan Holding Company

Singapore: DBS Bank

Hong Kong:

Noble Group Limited

Turkey:

1) Turkiye Finans Katilim Bankasi AS

2) Kuveyt Turk Katilim Bankasi AS

Note:

1) Pending issuance

Source: RAM Ratings

Sukuk

Conventional

Note: RAM Ratings carry a Corporate Credit Rating on Dar Al-Arkan

Real Estate Development Company based in Saudi Arabia

Financial Institution/

Enhancement Ratings Slide 11

Slide 12

3Outlook for the Global Sukuk Market

Outlook for the Global Sukuk Market

Slide 13

139.05

118.31 116.23

100

120

-

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

2012 2013 2014 2015e 2015e

RAM Ratings estimate

Year

Total Global Sukuk New Issuance Trends(Source: Zawya/ RAM Ratings)

Total Global Sukuk New Issuance (Actual) 2015 RAM Estimated Total Global Sukuk New Issuance

Slide 14

4Role of Credit Rating Agency

Value

Proposition

of CRA

Independent

credit opinion

Benchmark

for pricing

Paves the

way for new

sectors, new

instruments

or green field

projects

Yardstick for

credit risk

across

industries

Investor

portfolio

inclusion

criteria

Surveillance

for investors

Value of Credit Rating Agency (“CRA”)

Slide 15

RAM Ratings’ Rated Portfolio

“As at end-April 2015, RAM Ratings has evaluated in total approximately

RM996.0 billion of bond/sukuk issuances over 2,256 issues across 221

issuers”Consumer & Industrial

Ratings

Agribusiness, Real Estate & Construction Ratings

Infrastructure & Utilities Ratings

Financial Institutions Ratings

Structured Finance Ratings

Sovereign Ratings

Insurance Ratings

Golden Crop Returns Berhad (2005)

MYR442.0 million Sukuk Ijara

First and largest ABS Sukuk backed

by plantation assets

Golden Crop

Returns

PG Municipal Assets Berhad (2004)

MYR80.0 million Sukuk

Mudharabah

First partnership-based Sukuk

Petronas Dagangan Bhd (1994)

MYR300.0 million Sukuk Murabahah

World’s first rated Sukuk

Cagamas MBS 2007-1-i (2007)

MYR2.11 billion Sukuk Musyarakah

World’s first Islamic RMBS

Telekom Malaysia Berhad (2013)

MYR3.0 billion Sukuk Wakalah

World’s first export –import bank to

issue Sukuk

EXIM Sukuk Malaysia Berhad (2013)

USD1.0 billion Multi-currency

Sukuk

First export–import bank in the

world to issue Sukuk

AmIslamic Bank Berhad (2014)

MYR200.0 million Sukuk Murabahah

World’s first Basel III-compliant Tier-

2 Sukuk Murabahah

Ihsan Sukuk Berhad (2015)

MYR1.0 billion Sukuk

World’s first Socially Responsible

Investment Sukuk

Slide 16

Malaysian Building Society Bhd

(2013) MYR495 mil Tranche 1

Covered Sukuk

Asia’s first Structured Covered

Sukuk

Thank You

Slide 17

Most Outstanding

Rating Agency for

Sukuk 2013

Most Outstanding

Rating Agency for

Sukuk 2011

Best Islamic

Rating Agency

2012

Best Research in

Islamic Finance

2011

Best Islamic

Rating Agency

2011

Second Most

Impressive Rating

Agency for Sukuk

2013

Suite 20.01, Level 20,

The Gardens South Tower

Mid Valley City, Lingkaran Syed Putra

59200 Kuala Lumpur

Malaysia