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On the 26th of October Capital MarketsMalaysia (CMM) co-hosted a
webinar onSustainability Sukuk for Sovereign,Supranational and
Agency (SSA) Issuersalongside the Islamic Development Bank(IsDB)
and the Islamic Corporation for theDevelopment of the Private
Sector (ICD).In a two-part series we bring you thehighlights and
insights from speakers atthe webinar.
With Islamic finance now globallyrecognized as being part of
thesustainable investment universe, theprospect of raising capital
via green,social and sustainability (GSS) Sukuk hasnaturally become
a more mainstreamoption that may appeal to non-traditionalSukuk
issuers. With its experience, andas a globally recognized leader in
thisspace, Malaysia has much to share in theutilization of green
and sustainableSukuk as an infrastructure financingoption in
meeting the SustainableDevelopment Goals.
The webinar served to raise awareness ofGSS Sukuk issuance as a
funding optionfor potential SSA issuers within the IsDB’smember
countries. SSA is an acronymthat refers to Sovereigns,
Supranational
and Agencies. This sector includesgovernment owned or
guaranteedcorporates, central banks, developmentbanks, regions,
provinces and localauthorities.
Zamir Iqbal, Chief Financial Officer andVice President of
Finance deliveredwelcome remarks, reinforcing a keymessage from the
IsDB on theimportance of sustainability especiallyduring these
times.
With financing being a key component inmanaging climate change,
Dr Zamirreminded us that at the recent WorldBank/IMF Meetings it
was made clearthat recovery post COVID 19 must havetwo very strong
elements: the financialsystem must be much more resilient tofuture
shocks and recovery has to besustainable and green. With this in
mind,Dr Zamir believes that social andsustainable financing will
bemainstreamed as part of the solution tothe pandemic. The IsDB has
focused itsefforts in finding innovative ways to assistits member
countries, resulting in theIsDB’s debut sustainability Sukuk.
Datuk Zainal Izlan Zainal Abidin in hiskeynote presentation on
the Architectureof Malaysia’s SRI Sukuk Frameworkexplained that the
SC’s journey insustainability began with the launch ofthe second
Capital Markets Masterplanwhich reiterated the vision that
growthand prosperity can only be sustained overthe long-run through
achieving a betterbalance between the interest of businessand
society and that social andenvironmental issues need to gaingreater
prominence in the corporate-decision making process.
This was followed by the introduction ofthe Malaysian Code on
CorporateGovernance, most recently updated in2017, which stated
that “In today’sglobalised and interconnected world,investors,
creditors and otherstakeholders are increasingly recognisingthat
economic, environmental and socialresponsibilities are integral to
thecompany’s performance and long-termsustainability.”
This then led to the development of theSRI Sukuk Framework in
2014 tofacilitate fundraising for SRI projects in
aShariah-compliant manner.
Sustainability Sukukfor Sovereign,Supranational andAgency
IssuersWebinar Highlights
NOVEMBER 2020 CAPITAL MARKETS MALAYSIA NEWSLETTER
The Bulletin
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Datuk Izlan concluded his presentationby explaining that because
a significantportion of projects that fall under thegreen label are
also Shariah compliant,this is an opportunity for Sukuk to play
arole in the funding of green, social andsustainable projects.
There has been asustained issuance of green bondsglobally, with USD
258 billion issued in2019, and year to date USD 189 billionissued
in 2020. 2019 was another recordyear for Sukuk issuances globally
whichtotaled USD 158 billion, which suggests acontinued adoption of
Shariah-compliantfinancing. With the need for substantialfunding to
address the impact of thepandemic, green Sukuk does indeedhave a
significant role to play: the key is toexpand the thinking of
issuers to considergreen Sukuk instead of just green bonds.Tarik
Malaika, Program Lead, Sukuk andDebt Capital Markets Advisory for
the ICDand Dr Yasser Gado, Director of Treasuryfor the IsDB in
their respectivepresentations outlined the overview ofthe green
Sukuk issuance process anddelivered a case study on the
IsDB’sSustainability Sukuk.
Tarik began by outlining the differencebetween green, social and
sustainabilitySukuk. Green Sukuk is used forenvironmental benefits
aligned with theGreen Bond Principles (GBP), socialSukuk is used
for social benefits and isaligned with the Social Bond
Principles(SBP), and Sustainability Sukuk coversboth benefits and
is aligned with both theGBP and the SBP.
In terms of the nature of green SukukTarik says they have the
same regulatorystatus as equivalent non-green Sukukand can
typically be issued throughstandard prospectuses or
baseprospectuses. As there is no statutorydefinition of what
qualifies as a greenSukuk, the market effectively
self-regulates.
Tarik makes the distinction that in a greenSukuk issuance, the
assets do not haveto be necessarily green, its use ofproceeds must
be.
Dr Yasser Gado in his case studypresentation explained that
theSustainable Development Goals (SDGs)are an integral part of the
President’sFive-Year Plan (P5P) and the Bank’s 10-Year Strategic
Framework. The IsDBsupports the implementation of
thistransformative agenda according to theneeds and priorities of
their 57 membercountries, through a collaborativeapproach, and in
partnership withbilateral and multilateral developmentfinancing
institutions, the private sectorand civil society.
In November 2019, the IsDB followedthrough on thier commitment
towardssustainability through the issuance ofthematic Sukuk to
finance sustainableprojects and investments in MemberCountries.
They also launched a SustainableFinance Framework created in
line withthe globally accepted Green, Social andSustainability Bond
Principles as set bythe International Capital MarketAssociation.
The bank also underwent arigorous assessment by an external
riskrating provider on its Environment, Socialand Governance (ESG)
credentials andwas assigned a very strong low-riskrating, scoring
11.5 out of 100.
As COVID-19 impacted IsDB MemberCountries on all fronts, the
Bank re-oriented immediately and developed aStrategic Preparedness
and ResponseFacility worth US$ 2.3 billion to assistthem in
tackling the aftermath of thevirus. This included mobilizing
resourcesfrom the global capital markets tosupport the
interventions.
With their Sustainable FinanceFramework already in place, the
Banklaunched its debut Sustainability Sukukon 18th June, AAA-rated
raising US1.5billion for the following eligible categories:Access
to essential services, employmentgeneration/SME
financing/Socioeconomic advancement, affordablehousing and
affordable basicinfrastructure.
In next month’s issue, we bring you thesecond part of the
Webinar: a case studypresentation on the ground-breakingRepublic of
Indonesia Green SovereignSukuk by lead arranger CIMB Investmentand
the lively panel discussion by keyfinancial sector intermediaries,
andClosing Address by the CEO of the ICD.
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#news #capitalmarket #Malaysia
Capital Markets Malaysia has joined the FC4S, a collective
ofinternational financial centres working together to achievethe
Sustainable Development Goals and the ParisAgreement. FC4S’s core
mission is to empower financialcentres to accelerate the shift to
sustainable finance byproviding the tools and insights to engage
local institutions,inform and influence policy, and ultimately
catalyse markettransformation.
CMM becomes Member of theInternational Network of
FinancialCentres for Sustainability (FC4S)
Following the Conditional Movement Control Order (CMCO)being
enforced in Sabah, Selangor, Kuala Lumpur andPutrajaya, general
meetings conducted in states or districtsunder CMCO shall be
conducted in a fully virtual manner onlybased on an update of the
Guidance Note on the Conduct ofGeneral Meetings for Listed Issuers
by the SC.
Only Fully Virtual AGMs to beconducted in States Subject to
CMCO
Bursa Malaysia welcomed it’s newest listing on the ACEMarket via
a virtual listing ceremony. This is Bursa Malaysia’sfirst-ever
virtual listing ceremony, a new offering by theExchange arising
from the reinstatement of the ConditionalMovement Control Order
(“CMCO”) in Selangor, KualaLumpur and Putrajaya. In line with the
CMCO requirements,Bursa Malaysia introduced this virtual listing
service,enabling flexibility for new issuers during CMCO.
Bursa Malaysia SuccessfullyConducts First Virtual
ListingCeremony To Offer More FlexibilitiesFor Issuers
Malaysia’s national mortgage corporation Cagamas hasannounced
the combined issuance of its inaugural Aseansustainability SRI
(sustainable and responsibleinvesting) sukuk and Islamic
medium-term notes (IMTNs)totalling 450 million ringgit (US$108.40
million) for thedevelopment of affordable housing projects.
SRI Sukuk for AffordableHousing: A First for Malaysia
The SC’s revised Guidelines on Digital Assets to regulateInitial
Exchange Offerings (IEO) and Digital Asset Custodians(DAC) have
come into force. Under the guidelines, IEOplatform operators will
be required to assess and conductthe necessary due diligence on the
issuer, review the issuer’sproposal and the disclosures in the
whitepaper, and assessthe issuer’s ability to comply with the
requirements of theguidelines and the SC’s Guidelines on Prevention
of MoneyLaundering and Terrorism Financing.
Revised Guidelines on Digital Assets
CapBay, a Malaysian multi-bank supply chain finance
andpeer-to-peer financing platform, has partnered with
KenangaInvestment Bank Bhd (KIBB) to create Malaysia's first
Islamicsupply chain finance fintech. The partnership is expected
tosupport the underserved small and medium enterprise(SME) market
that is estimated to grow five times from itscurrent RM20
billion.
CapBay partners Kenanga to developIslamic supply chain finance
fintech
Petroliam Nasional Bhd (Petronas) aims to achieve Net ZeroCarbon
Emissions (NZCE) by 2050 as part of its holisticapproach to
sustainability; balancing environment, socialand governance
considerations. The NZCE aspiration by2050 is guided by the
Petronas Sustainability Agenda, whichdemonstrates the group’s
long-term commitment toContinued Value Creation; Safeguarding the
Environment;Positive Social Impact and Responsible
Governancethroughout its integrated value chain.
Petronas sets net zerocarbon emissions target by 2050
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The Finance Minister made his Budget 2021 Speech on the6th of
November. Here’s how the 2021 Budget will impactcapital market
offerings.
Equity Crowdfunding andPeer-to-Peer Lending
To encourage more investors to invest in equitycrowdfunding it
is proposed that individual investors begiven income tax exemption
on aggregate incomeequivalent to 50% on amount of investment made
inECF, limited to
RM 50,000 per year of assessment
10% of the aggregate income for that year ofassessment
To support P2P Platforms, especially those based oninvoice
financing, RM 50 million will be allocated basedon a matching
investments basis
Sustainable and Responsible Financeand Investing
Towards creating a Sustainable Financial Hub, thegovernment will
issue its first Sustainability Bond in Malaysiafor environmental
and social initiatives in 2021.
To further encourage the issuance of Sustainable andResponsible
Investment (SRI) products and bonds thatachieve green, social and
sustainable standards in Malaysia,the existing income tax exemption
for the SRI Green SukukGrant is extended to all types of SRI sukuk
and bonds and thisexemption is extended until 2025.
The Government will also continue the Green TechnologyFinancing
Scheme 3.0 or GTFS3.0 with a fund size of RM 2billion for two years
up to 2022 which will be guaranteed byDanajamin to encourage the
issuance of SRI sukuk.
Budget 2021: Prospects for the Capital Market
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Since the introduction of the Equity Crowdfunding
(ECF)regulatory framework by the Securities Commission Malaysia(SC)
in 2016, Malaysia has welcomed 10 licensed platformoperators. By
and large, ECF, alongside Peer-to-Peer Lendingplatforms have been
exceedingly well received by issuers andinvestors alike. As of end
September 2020, according to SCdata nearly RM 130 million has been
raised via 119 successfulcampaigns and 113 issuers on ECF
platforms.
Of the 10 ECF platform operators, only one currently offers
aShariah-compliant solution. A Shariah-compliant ECF
operatordiffers from its conventional counterparts as they appoint
aShariah adviser to advise on compliance with Shariah
principlesrelating the offering, and to provide Shariah expertise
andguidance on all matters, particularly in
documentation,structuring and investment instruments, and
ensurecompliance with relevant securities laws and guidelines
issuedby the SC.
The first Shariah-compliant ECF Platform operator is
EthisVentures. Ethis was established in 2014, with a stated vision
touplift humanity through financial technology. With operations
inDubai, Indonesia and Malaysia it is one of few platformoperators
with a global reach. They are best known for theircrowdfunding
impact investment for Indonesian social housingdevelopment projects
which has been operational since 2014.
In 2019 Ethis received the go-ahead from the SC to carry out
Equity Crowdfunding business activities in Malaysia, andlaunched
its first campaign this year. While awareness ofIslamic finance is
widespread in Malaysia, this has nottranslated into the number of
RMOs offering a Shariah-compliant service. There is therefore a gap
in funding neededfor Halal businesses, and Ethis is very well
placed to meet thisgap, having already shored up RM 36 million in
transactionswith 1648 investments made to date.
The entrance of ECF players in the Shariah-compliant spaceaugurs
well for the development of Islamic fintech in Malaysia.By
providing Halal businesses with this option, companies suchas Ethis
are making a meaningful contribution to thedevelopment of homegrown
businesses in Malaysia.
Mohamed Shehzad CEO-designate of Ethis Malaysia tells us,"We
understand that access to funding may be challenging forcompanies,
especially for new business in aneconomic environment that has been
severely impacted byCovid-19. Ethis Malaysia aims to bridge the gap
in conventionalsources of funding by enabling local companies to
raise capitalthrough Shariah compliant equity crowdfunding. Our
ambition isto be recognised as a leading Islamic Fintech platform,
utilisingtechnology to reach investors globally and drive effective
andimpactful circulation of capital in the real economy"
For more information on Ethis Malaysia, visit their website
atwww.ethis.co/my
ETHIS MALAYSIAECF SPOTLIGHT:
