Malaysia's Syabas plans 500 mln rgt Islamic bonds

KUALA LUMPUR Oct 29 (Reuters) - Malaysian water firm Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) plans to issue 500 million ringgit ($140 million) of Islamic bonds, a source familiar with the plan said on Wednesday.

The issue plan comes as global capital markets struggle amid the financial market meltdown, with fears of a worldwide recession crippling financing activities of banks and corporates.

Several issuers such as Malaysian energy services firm Perisai Petroleum (PPTB.KL) and Kuwait's Abyaar Real Estate Development Co (ABYR.KW) have either cancelled or delayed Islamic debt sale plans citing difficult market conditions.

But the Islamic bonds, or sukuk, market as a whole appears to be weathering the global downturn better than conventional credit markets with some issuers still pressing ahead with their Islamic sale plans.

Bank Islam, CIMB Investment Bank and HSBC Bank Malaysia will be joint lead managers for Syabas's bond issue and proceeds would be used to finance the company's expansion, the source said.

Abdul Halem Mat Som, Syabas's general manager for corporate communications and public affairs, declined to comment.

Islamic bonds have to be backed by specific assets, such as property, as the sharia prohibits financial transactions from being purely speculative activity.

Unlike conventional bond-holders, sukuk-holders are often technically owners of an asset, not lenders.

(For more Reuters coverage of Islamic finance, click on [ID:nISLAMIC])

($1 = 3.5780 ringgit) (Reporting by Liau Y-Sing; Editing by Kazunori Takada))