By Niam Seet Wei and Harizah Hanim Mohamed
KUALA LUMPUR, July 21 (Bernama) -- The United Kingdom (UK) wants to deepen its trade ties with Malaysia particularly in the Islamic capital market, and in return, Malaysia can tap into a bigger pool of international investors when it uses London as a platform to issue debts.
Throwing in the idea, Lord Mayor of the City of London, Alderman Peter Estlin said the UK recognised Malaysia’s role and knowledge in an Islamic debt instrument, as well as the largest sukuk market with 50 per cent of the global share and the innovator of green sukuk.
However, the issuance was largely domestic issuance and not international, he noted.
"As for the UK, the area (of Islamic debt market) hasn't really developed in the same way as other segments of the market,” he told Bernama during his two-day official visit to Malaysia recently.
The situation was a golden opportunity for both the UK and Malaysia,” because for us, there is a desire to see greater retail investment and we are ready to work closely with Malaysia and support Malaysia in the related area," he added.
London Stock Exchange Group plc (LSEG) was dubbed as home to the first sovereign sukuk issued outside the Islamic world in June 2014 when the UK government listed a £200 million (£1 = RM5.13) sukuk and to date, there were 74 sukuk listings on London’s markets with about US$55 billion had been raised.
Estlin, who also serves as the global ambassador for UK-based financial and professional services industry from Nov 9, 2018, for a one-year term, said, however, if Malaysia was keen to attract global investors, it must provide a clearer investment policy.
He pointed out that among the first things to do was to ensure documentation was based on an international standard so that investors feel that there was genuine risk protection in the case of construction risk to the extent that it was supported by an appropriate level of insurance and risk management.
These were the things that Malaysia could do and at the same time, it was important for the UK to understand Malaysia's strategy and focus on where it could help, Estlin said.
"(Therefore), the question for Malaysia is, are you interested in attracting further international investments? if so, there's a way that we can collaborate and encourage Malaysian issuers to leverage on the LSEG as a way to get greater international capital,” he added.
The UK, he said was particularly interested in sustainable financing for infrastructure projects that Malaysia seemed to focus on.
There are three related Islamic markets on the LSEG namely, the FTSE Shariah Global Equity Series, Shariah Fixed Income Indexes and Saudi Equity Indexes, and currently, there are 28 active sukuk with a total outstanding amount US$27 billion.
According to BNM report, as at end-January 2019, Malaysia's Islamic financing comprised 32 per cent of the overall system's loans while Islamic banking assets stood at RM874 billion or 30.4 per cent of the total banking assets as at end September last year, with an annual growth of 10 per cent over the past three decades.
Whereas in the UK, the UK-based institutions offering Islamic financial services have approximately US$4.5 billion of assets.
According to Ram Ratings, Malaysia has maintained its leadership as a global sukuk issuer with its issuance accounting for US$13.9 billion (US$1 = RM4.10) of the sukuk issued globally.
The research house revealed that the sukuk issuance reached US$39.5 billion at end-March with Malaysia's issuance portion stood at 35.1 per cent followed by Indonesia and Saudi Arabia with respective shares of 17.0 per cent or US$6.7 billion and 15.3 per cent or US$6.1 billion.
Estlin's two-day visit in the country included meetings with Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus, Finance Minister Lim Guan Eng, Attorney-General Tommy Thomas, as well as representatives from Khazanah, Securities Commission Malaysia and financial technology (fintech) association.
"I'm here to listen to their ideas, especially with the new government. There might be opportunities that arise for us to collaborate," he said.
Commenting further, he said the UK had issued a fair amount of sukuk over the years but had not done so in the last 12 months, plus it had yet to do issuance for Malaysians.
"The reason why there hasn't any sukuk issuance in the UK is that we are about to have a political change in the UK... I did have a conversation with UK councillors regarding green issuance and sukuk issuance, maybe we might issue another round of green sukuk but I cannot comment on that, it is up to the UK government," he said.
Estlin said as the world moved towards sustainable financing that integrates environmental, social and governance (ESG) elements, he believed that the ESG aspects had already embedded in sukuk.
"Sukuk is increasingly becoming more attractive as the available product in the market that focuses on sustainable financing. Sukuk and Islamic financing as a whole fit into that sphere as the same as takaful insurance. As for the UK, the strength that we have is in terms of how we developed the insurance market to support the growth," he added.
Commenting on the trade war and how it affected investor sentiment globally, he explained that trade disputes were common as global trade flourishes over the years, but to lessen the impacts it was important to establish financial stability.
"We will always have disputes but if we create financial stability by recognising different products and have various distributors across multiple platforms, that's really important and can be achieved through actual and physical tie-up between our countries, in stock exchanges, by distributing each others' products in different markets it creates financial stability, it also strengthens ties between corporate. We have been doing with other markets, we want to do it with Malaysia," he added.
Meanwhile, on Islamophobic, Estlin stressed that the issue never came up in the financial market and among the investors.
"Realistically, the UK has a reputation as a global financial provider. It is a global market place with 42 per cent workforce in financial technology that was not born in the UK, there are Muslims and other people too, the principles of Islamic finance are very consistent with sustainable financing, therefore, Islamophobic is not something that we focus on," he said.