Launching Ceremony for the Global Sukuk Issue
Assalamualaikum Warahmatullahi Wabarakatuh and Good Afternoon.
Y.Bhg. Tan Sri Dr. Wan Abdul Aziz Wan Abdullah;
Secretary General to the Treasury,
Y.Bhg. Tan Sri Dr. Zeti Akhtar Aziz;
Governor Bank Negara Malaysia,
Y.Bhg. Dato’ Sri Nazir Razak;
Group Chief Executive Officer, CIMB Group,
Mr. Steve R. Clayton;
Director & Country Head, Barclays Capital,
Mr. Mukhtar Hussain;
Chief Executive Officer HSBC Amanah,
Ladies and Gentlemen.
1. I am pleased to be here today to launch the Government of Malaysia’s Global Sukuk. On behalf of the Ministry of Finance and the Government, allow me to thank the Joint Lead Managers, Barclays Capital, CIMB and HSBC for their effort in arranging and managing this much anticipated event.
2. We live in extremely challenging times. In 2008, the world economy experienced the worst financial crisis in the post-war period arising from the collapse of the subprime mortgage market in the United States. The global crisis not only led to the failures of several major financial institutions but also monetary losses suffered by investors and house owners.
3. While financial market conditions have normalised, following aggressive policy measures by national authorities worldwide, the global financial stability is tested again by the emergence of sovereign debt problems in Europe. This highlights the persistent vulnerabilities in the international financial system. The series of financial crises will continue to challenge the ability of policy makers to shore up confidence in the market and ensure sustainable growth.
4. While Malaysia has not been fully insulated from the global crisis, we recovered rapidly to register positive growth in the fourth quarter of 2009 and moderate contraction of 1.7% for the whole of 2009. This would not have been achieved, if not for the swift response of proactive monetary policies and the introduction of two economic stimulus packages totalling RM67 billion, which succeeded in reviving business confidence and encouraging consumer spending.
5. As we approach the half mark of 2010, global recovery and the strengthening of the domestic economy is clearly evident. The Malaysian economy expanded 10.1% in the first quarter of 2010, the highest quarterly growth since the first quarter of 2000. The robust recovery we are witnessing is well entrenched and broad-based, driven by the improving external sector and strong domestic demand. Based on the encouraging Q1 growth performance, coupled with Government and economic initiatives, I am confident the growth target of 6.0% for 2010 is achievable.
Ladies and Gentlemen,
6. The Government is indeed committed to providing a more conducive business and investment environment. In this regard, the Malaysian Industrial Development Authority (MIDA) will be transformed into a more effective investment promotion agency. We will also aggressively pursue measures to enhance the contribution of the services sector to GDP. Among measures taken include the liberalisation of 27 services sub-sectors and the financial sector. In the equity market, foreign companies can seek listing on Bursa Malaysia without the requirement of local equity participation.
7. Moving forward, we are committed to undertake comprehensive long-term reforms to transform Malaysia into a developed and competitive economy by 2020. This transformation as encapsulated under the New Economic Model would be achieved through holistic frameworks under the Government Transformation Programme and the Economic Transformation Programme.
8. Integral to sustainable economic growth is the strength of the domestic banking sector. Malaysia’s banking institutions not only remained healthy throughout the global crisis, but have actually improved during the course of 2009, with the overall industry risk-weighted capital ratio at 14.7% and Tier-1 capital ratio at 13.1% as at end 2009. The non-performing loan ratios have been on an improving trend since 2002 and remained at comfortable levels despite the economic downturn in 2009. By the end of March 2010, the net NPL ratio has declined to a healthy 1.8%. Despite the slowdown in world trade, Malaysia’s balance of payments current account remained in surplus of RM13.8 billion for 2009. Coupled with our strong net international reserves of RM331.3 billion, we are well able to accommodate international fund flows without serious disruptions to the domestic economy.
Ladies and Gentlemen,
9. Malaysia has learned from the challenges faced during the Asian financial crisis. These included measures to develop the bond market to reduce over-reliance on the banking system and ensuring the economy’s external debt remains at manageable levels. Malaysia’s external debt has improved to 34.4% of GDP. Notably, as a result of prudent debt management strategies, the Government’s external debt is presently at only 2% of GDP,. As the Government is on track to narrow its fiscal deficit from 7% of GDP in 2009 to 5.6% of GDP in 2010, and in view of Malaysia’s strong export-oriented economy, the Government is well-positioned to prudently extend its international debt exposure. In the medium term, the Government is committed to ensuring fiscal sustainability.
10. With regard to the bond market, Malaysia is the bond market leader in ASEAN and one of the largest in Asia with outstanding bonds of RM643.8 billion as at end-December 2009. While Malaysia’s bond market has developed significantly in terms of its range of instruments and market efficiency, I am pleased to note that one of our most impressive achievements is the development of our Sukuk market, which has spurred the depth and sophistication of the financial sector. In 2009, Sukuk issuance in Malaysia totalled RM31.7 billion. We remain one of the largest issuers of Sukuk, accounting for 47% (including both domestic and international bonds) of the world’s sukuk issuance originating from Malaysia.
11. Several measures have been put in place to further develop the Sukuk market in Malaysia. An important step was the launch of the MIFC initiative in 2006, with the aim of propelling Malaysia as the International Islamic financial hub and the centre for Sukuk origination globally. Another significant initiative was the liberalisation of regulations to allow foreign issuers to raise Islamic bonds in the Malaysian capital market. This has led to several issuances of Islamic bonds by supranationals, such as the International Finance Corporation, International Bank for Reconstruction and Development and the Islamic Development Bank. Petronas had also recently issued a USD1.5 billion Sukuk, which was well oversubscribed. In this respect, the Government of Malaysia is poised to contribute to the development of the Sukuk market by issuing its very own USD-denominated Sukuk under the MIFC initiative.
12. At the international level, I am proud to say we were the first country to successfully issue sovereign global Islamic bonds amounting to USD600 million back in 2002. Eight years have since passed, and as I announced in April this year, I believe the Government of Malaysia is well positioned to issue our second dollar-denominated Islamic bonds. Today, I am pleased to kick-off the road show for the Government’s Global Sukuk and look forward to a successful rollout of this dollar-denominated issuance. This Global Sukuk will set a new pricing benchmark and facilitate our price discovery for dollar bond issues.
13. In closing, I wish to thank all of you for your interest and support in this Sukuk issue. Once again, I would like to thank the Joint Lead Managers and Joint Lead Arrangers, namely Barclays Capital, HSBC and CIMB for their effort in arranging and managing this issue.
Wabillahitaufik Walhidayah Wassalamualaikum Warahmatullahi Wabarakatuh.