Sukuk Failing in Malasia

MALAYSIAN property developer IJM Land may scrap plans to sell Islamic bonds and take out a loan instead to refinance borrowings, a source close to the matter said today.

Syariah bond issuance in Southeast Asia’s most developed Islamic finance market has been virtually frozen by worries about a global recession and sliding asset values, shattering earlier beliefs the industry would escape the downturn largely unscathed.

Islamic bond issuance in Malaysia fell to US$5.86 billion last year, compared with US$26.53 billion in 2007, according to Islamic Finance Information Service. IJM Land, the property arm of infrastructure group IJM Corp, wants to raise about RM300 million-RM400 million, said the source who declined to be identified.

“The market is so volatile it’s kind of difficult to do a bond at this kind of time,” said the source. “Taking a straight loan is much easier than doing a bond. The market risk for bonds, especially for developers, at the current time is kind of challenging.” IJM group managing director Krishnan Tan Boon Seng was not available for comment.

IJM Land had earlier wanted to issue Islamic bonds, or sukuk, to tap growing investor demand in Malaysia for syariah-compliant paper. Top Malaysian lender Maybank has estimated that sukuk accounted for more than half of the RM47 billion of corporate bonds that were issued in the country last year.

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