In a conference room in Seoul, more than 200 members of Korea's financial community came together to hear about the possibilities of sukuk, or Islamic bonds, from Bursa Malaysia and the Korea Exchange (KRX).
The information session was aimed at promoting awareness of Islamic financial markets in Korea where there is reportedly a high level of interest among corporates and in the government for sukuk issuance. Under the current regulatory regime, Islamic products cannot be issued in Korea, but the Korean Financial Supervisory Commission is expected to make the necessary amendments to the country's tax code and capital markets act to allow Islamic issuance by the end of this year.
"We are confident that the Malaysian and Korean authorities, as well as KRX and Bursa Malaysia, would be able to leverage on our respective strengths in the establishment of an Islamic capital market in Korea," said Yusli Mohamed Yusoff, chief executive of Bursa Malaysia.
Sukuk comply with Islamic religious principles, which means they can pay out profits or rents but not coupon interest rates. In the first seven months of the year, there was $9.3 billion worth of issuance globally, of which 81%, or $7.6 billion, was in Malaysia.
"The Korean sovereign wants to issue a sukuk and the country's corporates are already preparing," said Raja Teh Maimunah, global head of Islamic markets at Bursa Malaysia. "They just have to wait for the laws to come through."
She would not identify any of the companies preparing to issue sukuk but said: "Korean corporates have opened their minds; [they] know what [Islamic finance] is all about and have identified it as a market they want to tap."
Maimunah cited Petronas's $1.5 billion sukuk this August as an example of Asian demand for Islamic products. She indicated that 60% of the subscribers for that bond, which was part of a two-tranche offering that also included a $3 billion conventional bond, came from Asia.
The conference in Seoul was part of the Malaysia International Islamic Finance Centre's (MIFC) drive to internationalise the country's Islamic finance capabilities among Asian issuers. While wanting to attract more foreign issuers to Malaysia, the centre identifies that having multiple Islamic capital markets in Asia-Pacific will benefit the industry as a whole.
"What we offer is a platform for Korean issuers to issue non-ringgit sukuk in Malaysia," said Maimunah. "But we want those issuers to be able to issue in Malaysia and Korea."
When asked "why Korea?", she cited the country's high number of global brands, deep capital markets and "first-world" status. "Most importantly, the government is a driver," explained Maimunah. "Korea can be the next cradle for sukuk."
The MIFC has also worked with regulators in Hong Kong to build an Islamic capital market there.
Looking ahead, Maimunah and other market participants in Malaysia expect the country to continue to court foreign issuers. This summer Bursa Malaysia inaugurated non-ringgit denominated trading and settlement as part of its move to become more international.
"The next stage [for Malaysia's Islamic capital market] is to go international," said Muhammed Ibrahim, assistant governor at Bank Negara Malaysia, the country's central bank.
