CIMB offers first collateralised sukuk
(13 April 2015 – Malaysia) CIMB Group is planning to become the world’s first Islamic bank to sell a collateralised debt via a sukuk backed by a pool of loans.
The bank is looking to raise 1 billion ringgit (A$355.6 million) from an offering of five-year notes this quarter, according to a 3 April interview of CIMB Islamic Bank Bhd’s chief executive Badlisyah Abdul Ghani.
It is expected the collateralised debt concept could be picked up by the Middle East if Shariah scholars give approval, as the quality of the issuer and the underlying assets are key for buyers.
The securitised debt will diversify funding options in the US$1.7 trillion (A$2.2 trillion) Islamic finance industry, where innovative products are being rolled out to meet investor demand.
The past two years have seen debut offerings of perpetual notes, Basel III bonds and covered securities.
Sukuk pay returns from an underlying asset to comply with Islam’s ban on interest and are vetted by scholars to ensure compliance with Shariah law, which promotes risk-sharing and condones speculation.
Badlisyah said CIMB Islamic’s new notes would be sold through private placement to investors who are comfortable with this type of security.
The loans backing the debt are sold on to the bondholders who only have a claim on the underlying assets and not the issuer, he said.
Under Shariah law the underlying assets cannot be securitised more than once unlike their conventional counterparts, Badlisyah told Bloomberg.
“That automatically acts as an immediate mitigate to risk.”
While securitised sukuk can also be used by financial institutions to boost Basel III capital-adequacy requirements, they haven’t taken hold because they tend to be more expensive, Badlisyah said.