KUALA LUMPUR: Sumitomo Corp is arranging the first Islamic funding deal in Japan, which could pave the way for other Japanese issuers to tap the $1 trillion industry, a source with knowledge of the deal said.
The yen-denominated issue, which would be the first by a Japanese issuer in the country, mirrors the structure of Islamic bonds but is not strictly sukuk as Japan’s banking regulations do not provide for such an offering.
The issue would follow a recent $100 million Islamic bond sale by Japan’s top brokerage Nomura Holdings in Malaysia, and reflects growing interest by the Asian economy in sharia-compliant financing.
"Just like Nomura, Sumitomo are keen on exploring Islamic finance," said the source who asked not to be identified as the deal has not been announced.
"Once they start to see that this can be done, probably they will start to do it for other similar transactions."
Sumitomo was not immediately available for comment.
The deal is expected to be signed in the third quarter and the issuance amount has yet to be finalized.
The issue would be underpinned by a series of sale and purchase transactions to meet the sharia’s requirement that financing deals have to involve specific assets.
Japan has been keen to develop its Islamic finance market, and state-owned Japan Bank for International Cooperation said in 2007 that it wanted to sell sukuk although that plan has yet to materialize.
"There is a need to educate the Japanese investors on what the sukuk structure represents and the various sukuk structures that are out there," said Lum Choong Kuan, head of fixed income at Malaysia’s CIMB Investment Bank.
"The Japanese are ready to embrace it but we need to have the central bank provide the incentives tax-wise and the infrastructure to accelerate the reception of Islamic products."
Most practitioners expect global sukuk sales in 2010 to top last year’s $23.3 billion, as the market recovers from the impact of Dubai’s debt restructuring and several high-profile defaults which had shaken investor confidence.
Malaysia has the world’s largest sukuk market, accounting for about 40 percent of total global issuance of $19.1 billion last year, Thomson Reuters data showed.
Nomura on Tuesday priced its $100 million sukuk ijara sold out of Malaysia at 160 basis points above LIBOR.
A growing number of issuers have tapped the Islamic bond market globally to diversify their funding sources and to access wealthy Gulf investors who can only buy sharia-compliant assets.
Authorities in Australia and Hong Kong are amending their regulatory frameworks to accommodate Islamic financing transactions.