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Old Posted May 3, 2021, 9:08 AM
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Strong sukuk interest shows Malaysia's ability to raise capital in reserve currencies: Moody's
By Azanis Shahila Aman - April 27, 2021 @ 11:17am
KUALA LUMPUR: The strong interest in its international sustainability sukuk has demonstrated Malaysia's ability to access market financing in reserve currencies, according to Moody's Investors Service.

Moody's said this complemented Malaysia's access to deep domestic capital markets, supporting its assessment of the government's low liquidity risk even as financing needs rose because of wider fiscal deficits.

On April 22, the government successfully issued two tranches of its first sovereign international sustainability sukuk, comprising US$800 million of 10-year trust certificates and US$500 million of 30-year trust certificates.

The increased issuance, which was originally slated for just US$1 billion combined, in part reflected investor interest in sustainability-linked Shariah-compliant products, Moody's said.

This issuance would pave the way for other Malaysian issuers to tap into this funding base to address ESG concerns, it added.

The agency also said the issuance also reinforced Malaysia's leading position in Islamic finance.

Since issuing the world's first sukuk in 1990, the country has become the largest sukuk market, accounting for 32 per cent of total global sukuk issuance in 2020.

Moody's expects the government's fiscal deficit to be around six per cent of gross development product (GDP) in 2021, narrowing to about five per cent in 2022-2023, but still wider than the deficits of around 3.0-4.0 per cent before the Covid-19 pandemic.

Meanwhile, Moody's assess Malaysia's exposure to environmental risk to be moderate, reflecting the government's exposure to petroleum-related income, which accounts for around a fifth of total revenue.

"A global transition away from hydrocarbon fuels threatens the long-term viability of this income stream.

"Malaysia is also exposed to deforestation stemming from the expansion of palm oil plantations and mining and logging activity, which contributes to flooding."

Green projects that effectively addressed some of these vulnerabilities could help reduce Malaysia's exposure to environmental risk, it added.

Moody's said the focus on social projects supported its view that Malaysia's exposure to social risk was neutral to low.

This reflects favorable demographics, the access to quality education, housing, healthcare and basic services, as well as policies that address the needs of the B40.

"These strengths help to offset social issues that could arise from systematic policies that are designed to promote the economic interests of the ethnic Malay majority (bumiputera policies), including the use of quotas in university admissions, public service recruitment, housing and other areas," it added.
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