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Labuan: Offshore Business Sectors

Financial Exchange

The Labuan Offshore Securities Industry Act 1998 (since repealed and replaced by the Financial Services and Securities Act 2010) laid down a basis for the opening of a securities exchange and for the establishment and supervision of investment management companies.

Amendments in the Labuan Offshore Security Industries (Amendment) Act 2003 (LOSIA), which came into effect in May 2003, included several updated provisions relating to private funds and allowed fund managers to manage and administer foreign funds in Labuan.

The Labuan International Financial Exchange (LFX) was officially launched in October 2000. It is an offshore exchange wholly owned by the Kuala Lumpur Stock Exchange and trades in financial instruments such as equities, investment funds, debt instruments and insurance-related instruments. It is seen as one of the the key components in promoting Labuan as an offshore financial centre, and in particular as a prospective centre for Islamic finance.

Malaysia's capital controls do not affect LFX as dealings are carried out in US dollars.

LFX has no restrictions on the type of financial instruments and no pre-determined minimum quantity for listing. Also, there is no requirement for participants to have a physical presence in Labuan. Trading is done on its electronic bulletin board and trading agents place their interests to buy or sell on the board and conduct their own negotiations.

Labuan was spurred on to launch the LFX exchange by an announcement from neighbouring Brunei that it was setting up an international offshore financial centre of its own. However, it is in Islamic finance that Labuan is marking out its track. Malaysia's 2002 US$600 million Global Islamic Trust Certificates (Sukuk) was a world first. The five-year Sukuk maturing in 2007 listed on the Luxembourg Stock Exchange and Labuan International Financial Exchange (LFX) attracted wide participation from investors in Asia particularly in the Middle East, the United States and Europe.

"Comparatively, our Sukuk Al-Ijarah Trust Certificates were very popular," said LFX's Datuk Noorazman El Aziz. "For the first time, we have 27 new accounts from Middle East investors. They are putting their money into the country for five years.

"Sukuk is our benchmark. After the launch, we had a lot of people asking us about it. It is essentially a good alternative to the Yankee or even Samurai bonds. We are talking about yields here and Sukuk offers it."

On August 14, 2009, Bursa Malaysia announced the listings of its inaugural sukuk together with the conventional debt securities/bond by Petroliam Nasional Berhad (PETRONAS) and Cagamas MBS Berhad (Cagamas MBS). PETRONAS, via its special purpose vehicles, listed its USD1.5bn sukuk and USD3bn conventional bonds on Bursa Malaysia and the LFX. The securities, issued in US dollars, have durations of five and 10 years respectively. PETRONAS’s maiden global sukuk was structured based on the globally accepted Shari’ah principle of Ijarah (leasing).



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