CIMB expects sovereigns to issue green Islamic bonds in 2018

CIMB Group Holdings Bhd expects sovereigns to issue 'green' Islamic bonds for the first time this year, a top executive at Malaysia's second-biggest lender by assets said.

More than one sovereign could tap the Islamic bond market to raise funds for climate-friendly investments, Rafe Haneef, Chief Executive of CIMB's Islamic banking arm told Reuters in an interview on Monday.

"We predict about 3 to 5 sovereign sukuk issues to come to market this year and we expect some of them to be green issuances," Rafe said. "Corporates are also eyeing green sukuk issuances."

Indonesia's finance minister told Reuters last month that the Southeast Asian country was working towards a U.S. dollar-denominated green sukuk.

If Indonesia proceeds with the green sukuk, it would be both the first sovereign to issue green Islamic bonds and the first Asian country to issue green bonds.

Green bonds are a growing category of fixed-income securities, raising capital for projects with environmental benefits.

Global green bond issuance hit a record $155.5 billion in 2017, and could reach $250 billion to $300 billion this year, research from the Climate Bonds Initiative showed last month.

Poland was the first sovereign to issue green bonds in late 2016, but no country has yet issued a green sukuk.

Rafe said more and more investors are allocating funds for socially responsible investments (SRI) and Islamic bond issuers could benefit from that.

"By issuing a green sukuk, you are not only tapping Islamic funds, but also the (SRI) funds. There is a big demand for that. There would be more incentives for sovereigns and corporate to go the green route," he said.

Green bonds make up a small fraction of the overall global bond market, but they are attracting more attention because meeting emissions-cut targets will require trillions of dollars of capital from public and private sectors.

Rafe expects the total number of Islamic bond issuances this year to be "slightly higher" than last year, driven mainly by infrastructure bonds in Southeast Asia.

"We expect more issuances in the first half, than the second half," he said.

Rafe said he does not expect any "jumbo" sukuk issues in 2018, following Saudi Arabia's $9 billion international sukuk last year.

However, he expects some new issuers to enter the sukuk market, saying state-owned enterprises from the United Arab Emirates and Qatar were possibilities.