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Strong Demand for Malaysia’s International Sukuk Shows Investor Interest in Sustainability Finance, Says Moody’s
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“The increased issuance, which was originally slated for just US$1 billion (about RM4.1 billion) combined, in part reflects investor interest in sustainability linked, syariah-compliant products.
“This issuance will pave the way for other Malaysian issuers to tap into this funding base to address environmental, social and governance (ESG) concerns,” the rating agency said in a note today.
The government on April 22 issued two tranches of its first sovereign international sustainability sukuk, comprising US$800 million with 10-year trust certificates and US$500 million with 30-year trust certificates.
Moody’s said the issuance was credit positive to the government as the addition of a new avenue of financing further anchored its already low liquidity risk through diversifying the country’s creditor base and keeping funding costs low.
“The issuance also reinforces Malaysia’s leading position in Islamic finance,” it said.
Since issuing the world’s first sukuk in 1990, the country has become the largest sukuk market in the world, accounting for 32% of total global sukuk issuances in 2020.
Malaysia is also one of the few sovereigns globally for which sukuk is an important instrument through which deficit financing needs are met, it said. Moody’s assessed Malaysia’s exposure to environmental risk to be moderate, reflecting the government’s exposure to petroleum-related income, which accounts for around a fifth of its total revenue. It said the focus on social projects supports its view that the country’s exposure to social risk is neutral to low, reflecting favourable demographics, access to quality education, housing, healthcare and basic services, as well as policies that address needs of the bottom 40% income group (B40) category, which mitigate income inequality.
“These strengths help offset social issues that could arise from systematic policies that are designed to promote economic interests of the ethnic Malay (bumiputera) majority, including the use of quotas in university admissions, public service recruitment, housing and other areas,” it added.
Moody’s opined that strong interest in international sustainability sukuk, which resulted in relatively low yields of 2.07% for the 10-year trust certificates and 3.075% for the 30-year trust certificates at issuance, also demonstrated Malaysia’s ability to access market financing in reserve currencies.
This complements its access to deep domestic capital markets, supporting the rating agency’s assessment of the government’s low liquidity risk even as financing needs rise because of wider fiscal deficits.
“We forecast the government’s fiscal deficit to be around 6% of gross domestic product (GDP) in 2021, narrowing to about 5% in 2022-23, but still wider than deficits of around 3% to 4% before the pandemic,” it added.
Moody’s added that besides expanding its financing options, the government’s issuance also set a benchmark for other Malaysian issuers seeking to tap international investors for ESG products.
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile.
The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
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