Cagamas Woos Gulf Cash With New Sukuk

Kuala Lumpur. Malaysia’s national mortgage company, Cagamas, will launch an Islamic bond program worth up to $3.02 billion, using the new structure to court Gulf investors and bridge the divide on Shariah compliance between the two regions.

Sukuk , or Islamic bonds, being developed with the Malaysian unit of Saudi’s Al Rajhi Bank, will be structured to enable Middle Eastern investors to trade the securities in secondary markets.

The scheme would raise 5 billion to 10 billion ringgit ($1.5 million to $3 million), Cagamas chief executive Steven Choy said.

“This particular sukuk is meant to widen the investor base in the sense that more Islamic institutions in the Middle East can subscribe to it,” Choy said.

“Middle Eastern investors are more discerning in terms of the Shariah principles that they adhere to, therefore the current sukuk that we issue may not appeal to them.”

The sukuk would be structured to ensure underlying assets existed to support the paper throughout the duration of the program, which would satisfy Middle Eastern Islamic law requirements on secondary trading.

Secondary sukuk trading is a contentious point within the $1 trillion Islamic finance industry, with religious scholars divided on whether debt can be sold to a party other than the creditor.

The Hanafi school of thought does not allow debt to be sold to third parties, but some schools sanction it under certain conditions, including that the price must be paid on the spot and that the sale must not lead to interest.

Reuters