RAM Ratings releases credit FAQs on Malaysia's first SRI sukuk

Published on 23 April 2015 In conjunction with the assignation of RAM Ratings' inaugural AAA(s) rating to Ihsan Sukuk Berhad's RM1 billion Sukuk Ihsan Programme, we have released a landmark report together with the rating rationale. Sponsored by Khazanah Nasional Berhad, the Sukuk Ihsan is the first sustainable responsible investment (SRI) sukuk to be approved under the Securities Commissions' revised sukuk guidelines (issued in August 2014). To our knowledge, it is also the first social-impact bond (SIB) to be rated globally. Although SIBs have no standard definition, they - as the name suggests - are typically structured based on a "pay for success" or "results-based" approach. Published today, the report addresses frequently asked questions on SRI sukuk and articulates RAM's rating approach to the Sukuk Ihsan. The initial issue of the Sukuk Ihsan will be established under the Islamic principle of Wakalah Al-Istithmar, where the proceeds will be used to fund eligible sukuk investments. Khazanah, in turn, will use the proceeds to fund Shariah-compliant eligible SRI projects. "Although the global SRI market is still nascent, we see tremendous growth potential given Malaysia's leadership in the global Islamic finance market as well as the increasing global and domestic demand for greater governance and ethical investment. In Malaysia, for instance, we see this in the various government initiatives to develop green energy," observes RAM Ratings’ CEO, Foo Su Yin. The depth of the local-currency market and familiarity with infrastructure financing, along with heightened consciousness on corporate social responsibility, makes for a potent combination. From a Shariah perspective, this is also in line with the principle of Maqasid al-Shariah, which outlines the purpose and wisdom prescribed in Islamic principles in all its rulings, to protect and preserve the benefits and interests of society. At the same time, the regulators and their Shariah advisory councils are increasingly moving towards realising this principle in the practice of Islamic finance in Malaysia. What is certain is that Khazanah's SRI sukuk will encourage greater private participation in sustainable and social-impact investments, and may even encourage new participants in the domestic sukuk market. "Expanding and developing this segment is not without its challenges. As a start, however, we believe that Malaysia is on the right track towards creating a vibrant and possibly sizeable SRI sukuk market," Foo adds. The landmark report, "Credit FAQs:  Rating Khazanah's SRI Sukuk" can be viewed at www.ram.com.my, or click here to download the full report. Media contact Siew Suet Ming (603) 7628-1171 suetming@ram.com.my