Raja Teh Maimunah is the brave new face of the Malaysian Islamic capital market. As the global head of Islamic capital markets at Bursa Malaysia Berhad, the national stock exchange, she is responsible for putting the bourse on the global map in the field of inter alia Islamic equities and investment funds, sukuk and liquidity management based on commodity Murabaha trading (Tawarruq).

In the field of equities, Malaysia has the largest pool of Islamic unit trusts and mutual funds of over 160 with funds under management just under $10 billion. In September, Bursa Malaysia’s ambition to become the global liquidity management scheme for Islamic banking took a step nearer in London when Gatehouse Bank plc, the latest Islamic bank in the UK to be granted an FSA license, completed the first trade outside Malaysia with CIMB Islamic Bank using the Bursa Malaysia Suq Al-Sila’ platform, which is an end-to-end Shariah-compliant commodity trading platform that facilitates commodity-based Islamic financing under the Murabaha contract. In October 2009, several GCC (Gulf Cooperation Council) banks and Malaysian counterparts also executed the first trades on the Bursa Suq Al-Sila’ platform out of the Gulf.

Bursa Malaysia last week emerged as the top listings exchange in the world for sukuk in a space of a mere five months since its inaugural listing in August 2009, thus overtaking Nasdaq Dubai, the London Stock Exchange, Luxembourg Stock Exchange and Bahrain Stock Exchange. By the end of December 2009, the value of sukuk program listings totaled $17.6 billion, comprising a total 12 sukuk issuances.

Here Raja Teh Maimunah explains the reasons for the bourse’s spectacular progress and the challenges that lie ahead for the sukuk market. Excerpts:

What are reasons for the increased sukuk listings on Bursa Malaysia, especially in a space of five months?

The sukuk listing regime was only recently introduced in December 2008. The first listing was recorded in August 2009 after a series of awareness initiatives were undertaken to educate Issuers and investors on the benefits of listing, namely to enhance governance and transparency and Issuer profile.

Are you confident that Bursa Malaysia’s listing criteria are consistent with the best practice of the major bourses such as the London Stock Exchange and Nasdaq?

Malaysia has deep debt capital markets and is one of the forerunners in the development of emerging Asian market debt. We have the largest bond market in ASEAN and 3rd largest in Asia. We are also the world’s largest sukuk issuer with a 30 year history of developing the industry. The establishment of the listing regime is in adherence to best practices and was designed primarily to enhance governance and transparency, which is imperative to uphold integrity and sustainable growth in Malaysia’s domestic bond market. A listing of a sukuk on Bursa Malaysia commands Issuers to adhere to post listing obligations, amongst others submissions of financial statements and dissemination of material information.

The bulk of the sukuk listings on Bursa Malaysia are those from the big hitters such as Khazanah, CIMB, Petronas. Surely, the acid test would be for increased listings from non-Malaysian international issuers both from the US, Europe and the Middle East?

The introduction of the listing regime was first and foremost to facilitate continued growth in the domestic Malaysian bond market hence the concentration on domestic issuers. Nonetheless, as Malaysia gains repute as a premier sukuk issuance center, we expect to see more foreign issuers tapping into our regional markets to raise funds. To this end, we saw GE Capital sukuk selecting Malaysia as one of its listing destinations as it taps into the South East Asian investor markets.

Sukuk listing per se is meaningless without active trading in the secondary market to create liquidity. What is the experience of Bursa Malaysia in this respect and how does this compare with other bourses such as Nasdaq Dubai, Bahrain Stock Exchange, Luxembourg Stock Exchange and London Stock Exchange?

At present, the listing regime provides for a shelf listing to address primarily issues of governance and transparency. Malaysia has an active government and corporate bond (including sukuk) secondary market which is traded OTC and supported by a settlement system operated by Bank Negara Malaysia. An exchange traded bond regime is being contemplated at present and is under detailed review by the regulators on its feasibility.

What are Bursa Malaysia’s plans to consolidate its attractiveness for sukuk listings going forward? Also, do you have plans for leveraging other Islamic capital market products?

Malaysia remains the world’s single most active corporate sukuk market at present. The attraction of our market is the availability of a different class of Asian investors i.e. Shariah-compliant ones as well as the establishment of price discovery for RM sukuk. Further, in light of the recent global crisis, Asia has emerged relatively unscathed and is thus regarded by many as the preferred destination to raise funds. This will inevitably result in higher traffic volume of foreign sukuk coming by our way as Issuers seek to diversify their investor base and tap into the Asian investor pool. Malaysia also has a domestic Islamic IPO, REIT and ETF regime, which we hope to extend to include international products over time.

What is your outlook for the global sukuk market for 2010 — the opportunities and the challenges?

The global sukuk market was certainly not spared the effect of the global credit crisis and suffered a slowdown in FY2008. However, we saw an overall rebound in FY2009. I see 2010 as a promising year with several sovereign issues in the pipeline including debuts from several Asian sovereign issues. Further, as the world economy recover, we expect to see a return of the corporate sukuk market as led by the recent GE and Petronas issuances.

The challenge is to ensure that best practice and governance are being adopted in the structuring of a sukuk and adequate legal framework to support them, especially in jurisdiction that has a young debt capital market. It is important to dispel concerns raised on inadequate governance and investor protection issues arising from recent high profile sukuk defaults. The opportunity lies in the shift of appetite from conventional products to Islamic products by investors in the aftermath of the global crisis as the latter is seen to be safer.