South Korean firms set to boost Asian sukuk market
MANAMA: South Korean institutions are showing increasing interest in Islamic financing to diversify capital raising avenues. That was the conclusion of delegates at a seminar on Korean sukuk held this week in Seoul by BNY Mellon, a leading provider of corporate trustee and agency services on Islamic transactions and other complex structured finance deals globally.
As the global financial markets recover from the financial crisis, Islamic finance is appealing as an alternative to conventional financial instruments. Islamic bond issuers do not need to be Islamic entities, nor is the market restricted to the Middle East. There is anecdotal evidence which suggests that most sales of sukuk this year will be generated from Asia.
Malaysia continues to dominate the sukuk market today with an 80 per cent market share in the global Islamic bonds market, but last year also saw other sovereigns such as Indonesia, with its successful sukuk treble, make their way into the market. Singapore also made a relatively small but significant debut.
Although a relatively latecomer to Islamic finance in Asia, South Korea is following the stated ambitions of its neighbouring countries, such as Hong Kong and Singapore, in trying to establish itself as an international Islamic capital market hub. The country’s National Assembly is currently considering a bill aimed at facilitating tax neutrality for the issuance of sukuk.
“South Korea was largely unaffected by the sub-prime crisis and is financially well-positioned globally as it accelerates out of the financial turmoil of 2009,” said BNY Mellon’s head of corporate trust business in the Asia Pacific region, Gary Lew. “Sukuk can help Korean firms diversify their financial resources, and expose them to Middle Eastern and Southeast Asian markets. “If they choose to use it, sukuk can offer Korean companies a new fund-raising avenue through which they can leverage the pool of Islamic capital. “If the legislation passes, the industry could see the first South Korean corporate sukuk as early as late 2010.” BNY Mellon’s corporate trust business services nearly $12 trillion in outstanding debt from 58 locations in 20 countries.
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