Malaysia Debt Ventures will offer Islamic loans convertible into equity in March. It hopes to boost its earnings and pave the way for it to undertake musharaka and mudaraba partnership financing.
The scheme would give the government agency an option to convert part of the loan into equity upon the occurrence of stipulated events such as mergers, acquisitions or initial public offerings, its chief executive Zubir Ansori Yahaya said.
“To concentrate on loans itself has its limitations,” Zubir said. “We do have a fixed cost when we issue in the bond market. We need to find new products that will offset too low a margin.”
MDV will begin disbursing convertible loans with an initial sum of US$33 million to test their viability before embarking on bigger loans, he said.
“Eventually when we have stabilised, we will start moving to mudaraba and musharaka,” Zubir said. “To move straight from debt to equity would be too abrupt for MDV, especially for very high-risk sectors.”
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