Malaysia govt agency to sell 100 mln rgt Islamic bond

KUALA LUMPUR, March 19 (Reuters) - A local Malaysian government agency will issue up to 100 million ringgit ($27.38 million) of Islamic bonds based on a profit-sharing contract to fund infrastructure projects, the deal's arranger said on Thursday.

The city council of central Malacca state will sell the mudaraba bonds, Malacca mayor Yusof Jantan said.

Under mudaraba, a bank will provide capital for a project while the entrepreneur will manage the deal. Profits are split according to a pre-determined ratio and the bank will bear any monetary losses that arise.

AmInvestment Bank, the investment banking arm of Malaysia's No. 6 lender AMMB Holdings Berhad (AMMB.KL), is the deal's arranger.

"This bond will help the expedition of the development of the state," Mohd Effendi Abdullah head of Islamic Markets at AmInvestment Bank, told reporters.

"This will be a catalyst for them to fund the projects in a fast way."

Malaysia announced a 60 billion ringgit two-year stimulus plan this month, in an attempt to shield its economy from the full effects of the economic downturn.

Like conventional credit markets, Islamic bond issuance has plummeted due to the severe global economic downturn. Globally, the value of Islamic bonds, or sukuk, issued in 2008 fell more than 56 percent to $14.9 billion from 2007, according to Standard & Poor's.

The Asian arm of Islamic lender Kuwait Finance House (KFIN.KW) said on Wednesday sharia bond sales are likely to drop this year from 2008 although local currency issuances would help support markets. (Click on [ID:nISLAMIC] for more Islamic finance stories and ISLAMIC for a speed guide) ($1=3.652 Malaysian Ringgit)

(Editing by Kazunori Takada)