Toyota, Aeon To Issue New Sukuk In Malaysia

Car maker Toyota and financial service firm Aeon Credit are the two Japanese companies that plan to raise sizeable fresh Shariah-compliant funds through their Malaysian branches this year.  The Malaysian unit of Toyota Motor Corp said it plans to set up a 2.5bn-ringgit ($655mn) programme through its local financing arm Toyota Capital Malaysia in order to raise funds via both Islamic and conventional bonds, according to a regulatory filing of the parent company. While Toyota has not revealed how much of the programme will be covered by Islamic bonds, it is expected that this part will be at least 1bn ringgit ($262mn) which is the size of Toyota Malaysia’s previous and first-ever sukuk programme, which was set up in 2008 and matured in June 2015.

The programme as a whole – including conventional bonds – is the largest ever bond issuance for a Japanese company in Malaysia.  Proceeds will be used to “strengthen the funding structure of Toyota Capital Malaysia to meet its mid-term expansion plans in both conventional and Islamic auto finance for Toyota and Lexus customers in Malaysia,” said Kuah Kock Heng, President of Toyota Capital Malaysia.
Bank of Tokyo-Mitsubishi UFJ Financial Group, Japan’s largest bank and one of the first in the country that started venturing into the global Islamic finance business, will be the lead manager of Toyota Malaysia’s bond programme together with Malaysia’s CIMB Bank, which will also act as the Shariah adviser for the sukuk part of the programme.
Aeon Credit Service, one of the largest credit card issuers and consumer credit providers in Japan that has been aggressively expanding in East and Southeast Asia over the past years, is planning to raise 1bn ringgit via Islamic bonds, also its second such issuance after a first one in 2007. Proceeds will be used for working capital, repayment of debt and to provide financing for its customers, the company said. Issuances from the planned seven-year murabaha programme will have tenures of between one and 12 months.
The increased sukuk activities of Japanese companies in Malaysia, the world’s largest sukuk issuer, are seemingly a result of Malaysian Prime Minister Najib Razak’s visit to Tokyo in May this year, where he actively supported the foray of Japanese banks into the Islamic finance sphere. The Japanese government amended banking legislation in 2008 to allow subsidiaries of the country’s lenders and insurers overseas to provide financial services in accordance with religious tenets. Since then, all of the country’s three large lenders, Bank of Tokyo-Mitsubishi UFJ Financial Group, Sumitomo Mitsui Banking Corp and Mizuho Financial Group, jumped upon the bandwagon.
However, sukuk issuances by Japanese companies are still few, says Bedi Gunter Lackmann, analyst at the Nomura Institute of Capital Markets Research in Tokyo. “Aeon Credit Service Malaysia became the first Japanese company to issue sukuk in 2007 [even before the law in Japan was amended], and Toyota Financial Services’ Malaysian subsidiary, UMW Toyota Capital – which is now called Toyota Capital Malaysia – was next with an issuance in 2008, both using a musharaka scheme,” Lackmann said.
“Next was Nomura Holdings which issued an ijarah sukuk backed by aircraft leases in 2010, and, more recently in September 2014, Bank of Tokyo-Mitsubishi UFJ Malaysia issued the world’s first yen-denominated sukuk,” he added.
In other latest developments, Bank of Tokyo-Mitsubishi UFJ was in July 2015 the first Japanese bank to receive a licence in Dubai to operate an Islamic finance window at its branch there. Sumitomo Mitsui is offering Islamic financial products through its Malaysian subsidiary using its own in-house Shariah advisory board.
In order to tap large liquidity pools in the Middle East and especially the Gulf, the Japan International Cooperation Agency has signed an agreement with the private sector arm of Jeddah-based Islamic Development Bank to develop Shariah-compliant transactions.