CIMB Says RBS to Help Regain Top Arranger Spot: Islamic Finance

CIMB (CIMB) Group Holdings Bhd. plans to take advantage of its purchase of Royal Bank of Scotland Group Plc’s Asian operations to regain its position as the world’s top sukuk arranger after slipping to second place in 2012.

The Malaysian bank is in talks with companies in India and China to sell ringgit-denominated sukuk as they seek to skirt a lack of Shariah rules in their own nations, Badlisyah Abdul Ghani, chief executive officer of the Kuala Lumpur-based Islamic unit, said in a Dec. 11 interview. The lender managed 13 percent of the record $45 billion in global issuance this year, trailing the 25 percent of nearest rival HSBC Holdings Plc.

CIMB, which bought RBS units including those in Australia, Hong Kong and Taiwan in April, also plans to open an office in Saudi Arabia, Qatar or Abu Dhabi early next year to win more business in the Gulf Cooperation Council, Badlisyah said. HSBC announced in October that it would stop offering Shariah- compliant retail products in countries such as the United Arab Emirates and Bahrain, and instead would focus on the larger sukuk markets of Saudi Arabia, Indonesia and Malaysia.

“Through RBS’s investment-banking operations in the Asia Pacific, CIMB can open more doors,” Elsie Tham, Kuala Lumpur- based senior manager at Manulife Asset Management Sdn., who oversees more than $1 billion, said in a Dec. 11 interview. “Coupled with CIMB’s experience, it will give the company an edge in getting more Islamic bond deals.”

Development Boost

CIMB, Malaysia’s second-largest lender, also agreed to buy the equities and investment units of Edinburgh-based RBS in Singapore, China and India.

HSBC, Europe’s biggest bank, said it would also withdraw from retail Islamic products in Bangladesh, Singapore, the U.K. and Mauritius, markets where it doesn’t have “sufficient scale,” spokesman Patrick Humphris said in October.

Australia, Hong Kong and India have toyed with the idea of introducing legislation that would pave the way for Islamic bond sales, while Taiwan has yet to consider it as an option. Singapore has rules in place, although that didn’t stop Noble Group Ltd., First Resources Ltd. and Golden Agri-Resources Ltd. (GGR), who are all listed in the city-state, from tapping the Malaysian sukuk market this year, the world’s biggest.

Government development programs to build railways, roads and power plants in the Southeast Asian nation and the Persian Gulf have helped spur this year’s record issuance of Shariah- compliant bonds, which pay returns on assets to comply with the Koran’s ban on interest.

‘Further Boom’

Issuance in the six-member GCC, which includes Bahrain, the U.A.E. and Saudi Arabia, almost tripled to an all-time high of $20.8 billion in 2012, according to data compiled by Bloomberg. HSBC dominated that market, managing 43 percent of offerings, while CIMB, which has a limited presence in the region with just one office in Bahrain, handled 0.2 percent.

“Sukuk sales in the GCC will continue to grow because the markets there are likely to see a further boom,” Rafe Haneef, CEO of HSBC Amanah Malaysia Bhd. in Kuala Lumpur, said in Dec. 11 interview. “In Malaysia, sales will continue to be dominated by infrastructure project funding and refinancing.”

Abu Dhabi National Energy Co., Bahrain Mumtalakat Holding Co. and Gulf Investment Corp. GSC are among companies from the Persian Gulf that have tapped the ringgit market this year.

‘Attractive’ Costs

Sales of Islamic bonds in Malaysia rose to an all-time high of 93.4 billion ringgit ($30.6 billion) this year, more than double the amount for the whole of 2011, according to data compiled by Bloomberg. Malayan Banking Bhd., the country’s biggest lender, leads the market in the Southeast Asian nation after managing a 28 percent share followed by CIMB’s 27 percent.

There’s potential for offerings in Malaysia to surpass this year’s record in 2013 given the current “attractive borrowing costs” and the government’s $444 billion development plan, Tengku Zafrul Tengku Abdul Aziz, CEO of Maybank Investment Bank Bhd., a unit of Malayan Banking, said in an interview yesterday.

International sales climbed to a record $45 billion this year, surpassing the 2011 high of $36.7 billion, data compiled by Bloomberg show. The notes have returned 9.3 percent in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets climbed 18.2 percent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.

‘Very Optimistic’

Average yields on global sukuk decreased one basis point, or 0.01 percentage point, to 2.84 percent yesterday after reaching an unprecedented low of 2.76 percent on Nov. 30, according to HSBC. The difference between the average and the London interbank offered rate, or Libor, narrowed three basis points to 190 basis points.

In Malaysia, borrowing costs on the 3.928 percent dollar- denominated Islamic notes due in 2015 dropped one basis point this week to a record 1.29 percent today, according to data compiled by Bloomberg. The difference between Dubai’s 6.396 percent securities maturing in November 2014 and Malaysia’s debt was little changed this week at 88 basis points.

The Bloomberg-AIBIM Bursa Malaysia Corporate Index, which tracks 57 ringgit issues, has retreated 0.4 percent so far this week to 101.599, trimming its gain this year to 3 percent.

Sukuk demand may triple to $900 billion by 2017, according to a Sept. 9 report from Ernst & Young’s Global Islamic Banking Center of Excellence. Shariah banking assets held by commercial lenders worldwide are set to reach $1.8 trillion in 2013 compared with $1.3 trillion in 2011, according to a Dec. 10 statement from the company.

“Now that we have the footprint with the RBS operations, prospects are good and we are very optimistic,” CIMB’s Badlisyah said. “We hope to be able to get some good wins as we want to be a significant player at all times and be involved in all major and landmark deals.”

To contact the reporter responsible for this story: Elffie Chew in Kuala Lumpur at echew16@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.

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