Malaysia’s planned global offering of US$1-1.5 billion in dollar-denominated Islamic bonds (sukuk) could cement further its position as regional center of Islamic finance. Whether it will be 100% sukuk or part-conventional, however, is yet to be decided.

The amount of the offering, Malaysia’s first since 2002 and its second sukuk offer, has been reduced slightly as the country’s improving economy meant less was needed to fix its budget deficit. It hopes to reduce the deficit as a percentage of GDP to 5.6%, from 2009′s blowout of 7.4%. The economy has grown 10.1% in the first quarter of this year and may reach 6% for 2010, beating the central bank’s estimates of 4.5-5.5%.

The Philippines, Indonesia and Vietnam have also held global bond offerings this year. Malaysia’s offer will reach a new benchmark, being rated “investment grade” both by Moody’s and Standard & Poor’s. It’s been suggested the Malaysian offering might even be primarily for benchmarking purposes, rather than fund raising.

Malaysia’s CIMB Investment Bank and HSBC are rumored to be handling the offer, though this has not been announced officially.

Islamic bonds, or sukuk, pay profits instead of interest dividends (illegal under shariah law) and can often provide greater returns to investors than conventional bonds. Malaysia is the world’s largest market for Islamic bonds and a global sale such as this would also increase its status as a world leader in the fast-growing area of finance.

sources & articles: Bloomberg BusinessWeek and The Edge