June 6, 2014 4:12 pm JST

Malaysia's Islamic bond market to grow 10% in 2014-15: Moody's

CK TAN, Nikkei staff writer

KUALA LUMPUR -- The issuance of Islamic bonds, or so-called sukuk, in Malaysia is expected to grow 10% in 2014-15, underpinned by the government's support and a local capital market dominated by state-owned enterprises, according to credit rating agency Moody's.

     "Malaysia will remain the world's largest sukuk market for the foreseeable future," Moody's said Thursday.

     The Southeast Asian country accounts for 61% of the $290 billion in globally outstanding sukuk bonds. Government-owned companies, such as Sime Darby, Malaysia Airports and Telekom Malaysia, are among the main domestic issuers, accounting for more than 90% of all issuance.

     Bank Negara, Malaysia's central bank, is the key promoter of Islamic finance. It accords special status to companies that issue large amounts of sukuk, which boosts the credit ratings of their bond issues.

     State infrastructure projects and the approaching maturity of about $40 billion in such bonds in the next three years are factors driving the increase in issuance in Malaysia, said the Moody's report.

     Regional palm oil producers are also expected to tap into such bonds to acquire funds to increase production. Malaysia's leading planter, Felda Global Ventures, is considering issuing some $1 billion in sukuk to fund acquisitions of land for plantations and expansion moves, according to local news reports. Malaysia and Indonesia account for about 85% of global palm oil production.