"We’re aiming for 50 meetings in five days," says Dato’ Mohd Razif Abd Kadir, deputy governor of Bank Negara Malaysia, and although he claims to be exhausted he shows no signs of it.
He’s in Tokyo as part of a Malaysian delegation promoting with evangelical zeal the developing Islamic finance market, and his country’s own role in fostering it. Demand from investors is high, say Kadir and his colleagues from Negara, the Malaysian central bank, but the volume and the diversity of instruments issued need to grow and it is to that end that they have set off on a tour of Asia.
"Islamic finance is the biggest thing in global finance today," says Datuk Kris Azman Abdullah, director in the issues and investment division of Malaysia’s securities commission. "It’s a new market that is primed to grow. We need to meet investors and issuers and increase the depth and breadth of the market. We’ve had some encouragement in China, and in Japan JBIC [the Japan Bank for International Cooperation] has signed a memorandum of understanding with Bank Negara regarding cooperation on the issue."
Kadir cites an impressive list of issuers taking advantage of the thirst for Islamic bonds: Nestlé, Tesco, Shell, and Japanese retailer Aeon. Islamic markets have so far been relatively well insulated from global credit problems, with issuance in the third quarter of 2007 double that of the corresponding period in 2006 at $37 billion.
Attractions
Japan is being targeted as a source of investors and issuers, and its securities firms are keen to participate in the development of this potentially lucrative new market. Retailer Aeon pioneered Japanese corporate Islamic finance issuance when it issued M$400 million-worth ($119 million) of debt on January 31 that included Islamic MTNs. One of the attractions of the structure, says Shunichi Nagashima, the senior manager at Bank of Tokyo-Mitsubishi UFJ, who helped put the deal together, is that issuers can tap either the Islamic or the conventional tranches should arbitrage opportunities occur. The Japanese bank and its securities division are keen to establish themselves as a gateway to Malaysia for Japanese corporates, says Nagashima, and the firm’s investment in Malaysia’s CIMB bank will help but he’s well aware that rival houses are looking to set up their own deals.
"The Aeon deal generated a lot of interest from Japanese companies," says Abdullah, "and I think a lot of subsidiaries of Japanese corporates are keen to issue sukuks once they educate their parent firms about the benefits."
The worry is that excessive liquidity in the Islamic finance markets will mean investors are not sufficiently discerning, as new issuances automatically get oversubscribed; Kadir and his colleagues of course say that due diligence is as important in this market as any other. Whether their tireless promotion of the market will translate into a new round of issuance from Japan remains to be seen but if the delegation fails it won’t be for want of trying.