Cimb australia hopes for sukuk market deals

← Homepage

Nov 4 CIMB Group Bhd, Malaysia's second largest lender, hopes to use its expertise in Islamic finance to distinguish itself from the competition when it formally opens its Australian operations this week, company executives said. That may include bringing Australian companies to the Malaysian sukuk market as issuers for the first time."We are very keen to do an Islamic finance transaction as soon as possible, but we also have to be realistic, working on a 12-month time frame," Michael Forde, head of capital markets at CIMB Australia, said in an interview late last week. Malaysia's liquid sukuk market has already attracted interest from international issuers including those from Saudi Arabia, Bahrain, Kazakhstan and Hong Kong. This spurred sukuk issuance to 153.9 billion ringgit ($50.4 billion) in the first half of this year, according to Securities Commission data."It is an excellent source of new liquidity for issuers from this part of the world, and we want to utilise the competitive advantage we have to bring these Australian issuers to this market," Forde said. By 2020, the Malaysian government aims for the amount of outstanding sukuk to hit 1.3 trillion ringgit.

"Much of this growth is projected to be driven broadly by further internationalisation of the Islamic capital market," Nik Ramlah Mahmood, deputy chief executive of Malaysia's Securities Commission, said in a speech in April. CIMB Group, with assets of 316 billion ringgit as of June, includes CIMB Islamic, which is one of the world's largest arrangers of sukuk. EXPERTISE

CIMB expects to officially launch its Australian investment banking franchise on Nov. 5, upon completing all regulatory procedures, with over 100 staff in its Sydney and Melbourne offices combined, a company spokeswoman said. In April, CIMB acquired most Asian operations of Royal Bank of Scotland (RBS) for 432 million ringgit, including its Australian cash equities, equity capital markets and mergers & acquisition businesses. The bank says it was able to retain most RBS senior staff. This could help CIMB when it contacts Australian companies to try to interest them in sukuk structures, which unlike many conventional bonds are directly based on income from real assets.

"Australian firms will be very new entrants to this market - it will require educating institutions who invest in this market. It is not as straightforward from an Australian point of view, because you are buying and selling assets, instead of direct borrowing," Forde said. Sukuk involve legal and tax issues that can differ from conventional bonds. Taxation has been a major obstacle in Australia because of the possibility that asset transfers in sukuk deals will be taxed twice, and the government has not reassured the industry on this issue. The Australian Board of Taxation released a discussion paper in October 2010 which prompted consultation meetings and submissions, and the final review was delivered to the government's assistant treasurer in 2011. No further action has been taken, and public release of the report "is a matter for the Government to decide", a Board of Taxation statement said. In April IFR, a Thomson Reuters publication, reported that National Australia Bank was in talks with Australian regulators on the possibility of issuing a debut sukuk, the country's first, but a deal has not yet materialised. Oscar Ludwigson, CIMB Australia's head of investment banking, said: "If you look at it, sukuk is effectively a sale and lease back agreement. It sounds more exciting if you say sukuk but it's a transaction we have all seen."We need to have a penny-drop moment with a lot of Australian corporates that have never considered the market because it was something that seemed so foreign."