The World’s Leading Islamic Finance News Provider www.islamicfinancenews.com The International Islamic Liquidity Management Corporation (IILM) has this year finally announced its inaugural US$2 billion Sukuk program, a step that has divided opinions as players debate whether this long-awaited and much- disputed milestone will have any real impact on the industry. Promoted as a landmark breakthrough in liquidity management, the IILM program claims to be: “The first program in the market for the issuance of Shariah compliant US dollar-denominated highly- rated financial instruments with maturities of up to one year.” But critics have pointed out that its relatively small size and the length of time it took the agency to come to market may decrease investor confidence, while the issuance has also been dogged by controversy – including the very public departure last month of Saudi Arabia from the governing board. While its aims are admirable, concerns remain over the efficacy and efficiency of the program in truly assisting Islamic institutions manage their liquidity issues. This week, Islamic Finance news evaluates the program: what it involves, how it will operate and what challenges it may face in making a real contribution to the industry. The good The IILM program is designed to address the notorious liquidity management issues faced by most Islamic financial institutions, by offering short-term money market instruments designed to complement the current plethora of medium and long-term Sukuk in the market. Sheikh Abdullah Saud Al Thani, the chairman of the governing board of the IILM and the governor of Qatar Central Bank, noted that: “The launch of the highly-rated Sukuk program is a milestone for the IILM. It will be the first step towards creating a cross-border liquidity instrument for international Islamic financial institutions.” There is no question that the factors driving the program are positive, while its innovative structure is another point in its favor. The IILM plans to promote the program as the first money market instrument backed by sovereign assets, making it both highly rated and highly desirable for investors. In addition, it will be the first Sukuk program to be backed by a multi-jurisdictional primary dealer network to facilitate international distribution and ensure consistent liquidity. And players also suggest that as an alternative and short-term investor source, the IILM Sukuk could also contribute to secondary trading. “Banks will be able to trade and hold the papers to manage their short-term funds, so the secondary market looks set to become much more active,” explained a Dubai-based banker. The bad However, doubts remain as to the actual implementation of the program. Questions have been raised regarding the quality of the sovereign assets available and the strength of their rating; while it has been pointed out that despite the enthusiasm over the multi-dealer distribution network, only one primary dealer has in fact signed up so far – Standard Chartered Bank. And political issues including apparent disunity in the upper management levels of the IILM have done lile to stimulate confidence in the agency. The IILM Sukuk Program: An issue of assets continued on page 3 24 th April 2013 (All Cap) Powered by: 917.98 850 875 900 925 950 T M S S F T W 925.71 -0.84% IdealRatings ® Volume 10 Issue 16 IFN Rapids .........................................................2 Islamic Finance news .........................................6 Shariah Pronouncement .................................12 IFN Reports: Dubai pioneers Awqaf innovation; Miliman report highlights lack of consolidated data for Family Takaful; Arab countries lead issuance league table; Pakistan’s public sector crowding out private investment; VAT laws in the GCC — the good, the bad and a whole lot of work; 13 Special Report: Accommodating two worlds ...............................15 Case Study: Sharjah Islamic Bank Sukuk breaks ground ...16 IFN Country Correspondents: Maldives; Nigeria; Turkey ........................ 17 IFN Sector Correspondents: Regulatory Issues (Middle East); Real Estate (Europe); Debt Capital Markets ........................19 Features: Make way for Turkey...........................................21 Turning the wheels for Egypt ..........................22 Retail Sukuk in Indonesia ................................23 Deal Tracker .....................................................25 REDmoney Indexes ........................................26 Eurekahedge data ...........................................28 Performance League Tables...........................30 Events Diary.....................................................34 Company Index ...............................................35 Subscription Form ...........................................35
Transcript
T h e Wo r l d ’ s L e a d i n g I s l a m i c F i n a n c e N e ws P rov i d e r
www.islamicfi nancenews.com
The International Islamic Liquidity Management Corporation (IILM) has this year fi nally announced its inaugural US$2 billion Sukuk program, a step that has divided opinions as players debate whether this long-awaited and much-disputed milestone will have any real impact on the industry.
Promoted as a landmark breakthrough in liquidity management, the IILM program claims to be: “The fi rst program in the market for the issuance of Shariah compliant US dollar-denominated highly-rated fi nancial instruments with maturities of up to one year.” But critics have pointed out that its relatively small size and the length of time it took the agency to come to market may decrease investor confi dence, while the issuance has also been dogged by controversy – including the very public departure last month of Saudi Arabia from the governing board.
While its aims are admirable, concerns remain over the effi cacy and effi ciency of the program in truly assisting Islamic institutions manage their liquidity issues. This week, Islamic Finance news evaluates the program: what it involves, how it will operate and what challenges it may face in making a real contribution to the industry. The goodThe IILM program is designed to address the notorious liquidity management issues faced by most Islamic fi nancial institutions, by off ering short-term money market instruments designed to complement the current plethora of medium and long-term Sukuk in the market. Sheikh Abdullah Saud Al Thani, the chairman of the governing board of the IILM
and the governor of Qatar Central Bank, noted that: “The launch of the highly-rated Sukuk program is a milestone for the IILM. It will be the fi rst step towards creating a cross-border liquidity instrument for international Islamic fi nancial institutions.”
There is no question that the factors driving the program are positive, while its innovative structure is another point in its favor. The IILM plans to promote the program as the fi rst money market instrument backed by sovereign assets, making it both highly rated and highly desirable for investors. In addition, it will be the fi rst Sukuk program to be backed by a multi-jurisdictional primary dealer network to facilitate international distribution and ensure consistent liquidity. And players also suggest that as an alternative and short-term investor source, the IILM Sukuk could also contribute to secondary trading. “Banks will be able to trade and hold the papers to manage their short-term funds, so the secondary market looks set to become much more active,” explained a Dubai-based banker.
The badHowever, doubts remain as to the actual implementation of the program. Questions have been raised regarding the quality of the sovereign assets available and the strength of their rating; while it has been pointed out that despite the enthusiasm
over the multi-dealer distribution network, only one primary dealer has in fact signed up so far – Standard Chartered Bank. And political issues including apparent disunity in the upper management levels of the
IILM have done litt le to stimulate confi dence in the agency.
Disclaimer: Islamic Finance news invites leading practitioners and academics to contribute short reports each week. Whilst we have used our best endeavors and eff orts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions are accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.
DEALSSaudi-based contracting company Abdullah AM Al-Khodari Sons receives Islamic credit facility from Saudi Hollandi Bank
Al Baraka Turk appoints arrangers for its planned US$200 million Tier-2 Sukuk
Etihad Airways procures two aircraft s through Shariah compliant fi nancing
The IDB looks to invest in Egypt
The IDB, European Union and International Fund for Agricultural Development to collectively fund Yemen’s rural employment program
BNM Sukuk issues US$329.6 million Sukuk Murabahah
Malaysian government to issue Islamic treasury bills
Malaysia’s 1MDB Global Investments due to issue US$3 billion Sukuk
Dubai-based GEMS Education raises US$544.4 million through Islamic and conventional fi nancing to fund expansion plans
Petronas Dagangan gains regulatory approval for upcoming Sukuk program
NEWSThe IDB’s Sovereign Sukuk Insurance Policy to enable junk-rated member countries to issue Sukuk
South African freight transport company considers Sukuk to cut borrowing costs
Standard Chartered to acquire Absa Bank’s custody and trustee business
Islamic fi nance law network iSfi n makes Estudio Beccar Varela its exclusive partner for Argentina
Bank Muamalat Indonesia to become the fi rst Islamic bank to list on the Indonesia Stock Exchange
Meezan Bank introduces Musharakah fi nancing
The IDB to grant Kyrgyzstan US$9 million for support and development
Bank Negara Malaysia collaborates with the Association of Islamic Banking Institutions to set up mobile aid centers in east Malaysia in light of recent military intrusion
Indonesian banking arm to make up 30% of CIMB Islamic’s total Shariah banking business by 2015
Meezan Bank plans Indonesian entry
Affi n Holdings denies selling off Affi n Bank to AMMB Holdings
Pakistani banks convene to improve Islamic fi nancing standard operating procedures
RHB Capital and OSK Investment Bank merger creates Malaysia’s biggest stockbroker and investment bank by assets
EFG-Hermes still in the dark about QInvest merger
AlHuda Center of Islamic Banking and Economics estimates Islamic microfi nance market to be worth US$1 billion
Dubai banks expected to boost lending as economy picks up
No dent on the IILM Corporation’s Sukuk plans despite Saudi Arabian Monetary Agency pull-out
Kuwait Finance House expects total global Sukuk issuances to reach US$272 billion by the end of 2013
Legal fi rms Baker & McKenzie and UAE-based Habib Al Mulla to merge on the 1st July
The IDB reviews Bangladeshi government’s measures on Padma Bridge project
HSBC Middle East eyes infrastructure opportunities
Dubai International Financial Center approves 170 commercial licenses in 2012
Bahraini fi nancial institutions must merge to promote fair competition
Alizz Islamic Bank to launch Islamic fi nance products and services in the third quarter
Arcapita Bank fi les amended bankruptcy plan
Australia’s Board of Taxation works towards ensuring a level playing fi eld for Islamic fi nance
Soon-to-be established Sharjah Islamic University to off er Islamic fi nance courses in 2014
Tax laws and regulations to accommodate Islamic fi nance in Oman within the next six months
The National Commercial Bank holds fi rst Shariah board meeting
Sharjah Islamic Bank’s Sukuk listed on NASDAQ Dubai
Central Bank of Bahrain’s Sukuk Al-Salam oversubscribed by 266%
Saudi Arabia’s Shura Council considers new weekend
Arab Islamic Bank records a 29.9% growth in profi ts for the fi rst quarter
Bank Muscat’s net profi ts drop to US$64.74 million in the fi rst quarter
ASSET MANAGEMENTUp to US$1.13 billion in Indonesian Hajj pilgrimage funds to be transferred to Shariah banks within one year
UBL Fund Managers launch UBL Islamic Principal Preservation Fund with 100% stock market exposure
SEDCO Capital off ers more Shariah funds
TAKAFUL Takaful Ikhlas targets non-Muslims and youth as part of new growth strategy
The uglyDespite high hopes upon its establishment in October 2010, the industry has been consistently disappointed with the performance of the IILM since then and litt le action up till now has been taken to meet its stated goals of providing short-term liquidity management tools. Political maneuvering and management issues seem to have been factors in the slow start, and a year ago the inaugural CEO, Mahmoud Abu Shamma, was replaced by Dr Rifaat Ahmed Abdel Karim, the former secretary-general of the IFSB.
While some progress has been made since then, the surprise departure of Saudi Arabia from the governing body just a few days before the announcement of its inaugural Sukuk program suggests that all may still not be well in the upper levels. Although Saudi Arabia has declined to explain the reasons behind its decision to sell its shareholding to Qatar and Malaysia, experts have suggested a number of reasons. A key factor could be reluctance by the conservative central bank to be involved in trading Sukuk, while another suggestion is that the country did not want to put forward its own sovereign assets to back the papers. Either way, the shock move was an undeniable blow and has provided unwanted publicity for the program. Saudi Arabia is one of the biggest Islamic economies and some experts suggest that its departure could signifi cantly impact demand for the instruments; while others have speculated that its absence could negatively aff ect the rating of the program and its issuances.
Keeping perspectiveHowever Eric Gretch, the senior director of S&P in New York responsible for the rating of the program, confi rmed to Islamic Finance news in an exclusive interview that: “The political connotations and implications that impact the IILM are not part and parcel of our ratings process.”
Although the political impact of Saudi Arabia’s departure may seem signifi cant, Gretch explains that: “It is important to understand the role that the IILM plays. It is fulfi lling its mandate to create short-term liquidity tools through the establishment of the structure: but its role as an ongoing entity is really only
as a program administrator and an investment advisor. Other than that there is no actual rating dependency, in our analysis, for IILM. So there is no immediate impact in terms of Saudi Arabia moving away from the organization.”
Ratings reviewThe program has been issued a short-term foreign currency rating of ‘A-1’ by S&P, which is one notch below its highest rating of ‘A-1+’ despite the strong backing from a variety of sovereigns as well as the ‘AAA’ rated IDB Group.
An ‘A-1+’ rating would have allowed the IILM to off er the highest level of globally tradable ‘universal Sukuk’ which would have signifi cantly boosted demand. “There was early in the IILM conception time an idea about universal Sukuk. We were enthusiastic about the idea… but it seems it did not work, and probably that is why some stakeholders withdrew,” said Tariqullah Khan, a professor of Islamic fi nance at the Qatar Foundation, in a recent media interview.
However, Gretch points out that: “It was never intended to be an ‘A-1+’ vehicle. It really couldn’t be, because the ratings are determined primarily by the assets that are put
into the pool. And there is currently a shortage of ‘A-1+’ assets in the world to fund an ‘A-1+’ conduit.”
This conclusion might come as a surprise to many, given the popularity of Sukuk as a structure backed by real economic assets, and the high liquidity and strong sovereign spending of many of the leading Islamic nations, including Malaysia and Qatar, two of the biggest shareholders in the IILM. However, the issue is not a new one and concerns have been raised for some time now over the actual existence of assets backing the booming Sukuk market.
An issue of assetsIn fact, one of the main reasons behind the delay in launching the IILM program is reputed to have been a struggle to fi nd suitable assets to back the papers.
Freshfi elds Bruckhaus Deringer, the law fi rm advising the IILM program, said in a statement that: “The program will be backed by sovereign, sovereign-linked and supranational Sukuk assets.”
However, looking at the sovereigns to provide these assets, IILM shareholders include the central banks of Indonesia, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Turkey and the UAE, as well as the IDB Group. Of these, at least four (Indonesia, Mauritius, Nigeria and Turkey) are below investment grade while only one (the IDB) holds ‘AAA’ status. This raises concerns that the assets provided by the sovereign shareholders could struggle to meet the suitability requirements for the paper. It will also require member countries to be willing to contribute their highest-rated assets to the underlying pool; something that may be more challenging than the agency is willing to admit and a compelling reason why Saudi Arabia may have decided to part ways with the program.
In addition, it has been reported that sovereigns may not donate assets
directly, but could nominate entities to donate assets. This raises questions over not only the suitability of the assets themselves, but also the physical availability
of these assets to certifi cate holders – an issue that
The IILM Sukuk Program: An issue of assetsContinued from page 1
continued...
The surprise departure
of Saudi Arabia from the governing body just a few days before the announcement of its inaugural Sukuk program suggests that all may still not be well in the upper levels
Liquidity riskAs well as asset quality, other factors considered in the rating include issuance conditions to make sure there is enough liquidity in place, and physical delivery making sure there are suffi cient assets backing the certifi cates so that there is a match between principle balances, interest balances and expenses.
However most important, in terms of liquidity, is the issue that long-term assets are being funded through short-term certifi cates; and there is always a risk that the agency will not be able to continue to issue certifi cates should market conditions change, meaning that it will face a problem in funding these long-term assets. “This is the primary reason why certifi cate programs always enter into a liquidity facility,” explains Gretch. “But in this case, it is actually even more nuanced.”
Typically, a liquidity facility would be signed with a bank or commercial institution, which signs a contract to buy certifi cates when the issuer is unable to sell them under market conditions. In the case of the IILM program, the agency has instead set up a theoretically more secure primary dealer agreement; whereby a number of dealers commit to buy a certain percentage of notes in every issuance from the program, thus ensuring a diversifi ed and constant liquidity source.
However, at the moment, the IILM has managed to sign up only one primary dealer, Standard Chartered, with no confi rmed reports as yet of any further interest. Why, with such a landmark issuance that is purported to hold such promise for the industry, are institutions so reluctant to commit themselves?
Positive demandDemand is unlikely to be an inhibiting factor, as despite the doubts over the program, it is still likely to appeal to a wide range of investors: especially Islamic money market funds and the treasury departments of Islamic banks who are seeking short-term tenors to manage liquidity. A Dubai-based banker points out
that: “Although buyers will initially be att racted to tenors of three to six months, should an active secondary market develop, longer-dated paper of up to 12 months will also become popular.”
However, ongoing demand will depend on a number of key factors including the yield that the Sukuk pays as compared to the cost of funds for individual banks; as well as the overall size of the issuances – which will go a long way towards determining the program’s success.
Size mattersNo fi rm indication of the total size of the program has yet been given, although a US$500 million initial Sukuk has been suggested for the third quarter of 2013. However, an issuance of this size would be barely a drop in the ocean and will have litt le eff ect on overall liquidity management challenges. To have any real impact, the program would have to run into the billions and there are concerns that this simply will not happen.
However, some are more optimistic than others. “Is it planning to get bigger?” asks Gretch: “Yes. S&P have assigned
a size to the program based upon having one signed primary dealer agreement. However, the expectations are that it will get much larger in a short period of
time as more dealers sign up.”
The IILM itself has suggested that it plans
to eventually reach up to US$3 billion in its fi rst program, with more to follow. If it achieves regular, successful repeat issuance of short-term paper, this could fi nally have the potential to break the buy-to-hold mentality that is one of the biggest obstacles to the growth of a secondary market: giving Sukukholders the confi dence they need to sell by ensuring a consistent, liquid supply.
And new programs are already in the pipeline, with the recent signing of an MoU between the IILM and the Asian Development Bank (ADB) which aims to: “Facilitate mutual cooperation and collaboration” and could see the issuance of short-term Sukuk from the ADB itself, backed by the IILM, to off er liquidity management solutions to its own member countries.
Wait and seeBut while there has been frenzied publicity and media speculation surrounding the program launch, it must be remembered that nothing has actually happened yet. “They haven’t issued any certifi cates. They haven’t bought any assets,” points out Gretch. Neither has the IILM yet revealed any details of the planned Sukuk structure, or what type of assets it will be based on.
Although there are many fl aws surrounding the IILM program which require att ention, there is no doubt that should these be satisfactorily resolved, the overall platform has the potential to transform the Islamic fi nance industry.
The question is whether it will ever actually get there. — LM
The IILM Sukuk Program: An issue of assetsContinued from page 3
Why, with such a landmark
issuance that is purported to hold such promise for the industry, are institutions so reluctant to commit themselves?
DEALSCapital expenditure expansionSAUDI ARABIA: Contracting company Abdullah AM Al-Khodari Sons has received a SAR1.04 billion (US$277.28 million) Islamic credit facility from Saudi Hollandi Bank for its capital expenditure and working capital. Fift y two percent of the facility comprises of Murabahah and Tawarruq fi nancing, while 48% is represented by multi bonds and documentary credits.
The Murabahah/Tawarruq facilities will be cashed out monthly at amounts between SAR40,000 (US$10,665) to SAR13 million (US$3.46 million).
The chosen onesGLOBAL: Al Baraka Turk, a unit of Bahrain’s Al Baraka Bank in Turkey, has chosen fi ve banks for a potential Tier 2 Sukuk issuance. The mandated banks are Al Hilal Bank, Barwa Bank, BNP Paribas, Emirates NBD and Nomura. Al Baraka
Turk will be conducting its roadshow in the Middle East and Europe beginning the 18th April.
Etihad takes offUAE: Etihad Airways has procured two Boeing 777-300 ER aircraft s, expected to arrive in May 2013, through a 12-year Ijarah Muntahia Bitt amleek fi nancing facility worth approximately US$359 million provided by First Gulf Bank. The bank is also the lead arranger, underwriter, facility agent and security trustee for the deal.
Major ICD investmentEGYPT: The IDB intends to pump an estimated US$3 billion-worth of fi nancing and investments into the Egyptian market over the next fi ve years, according to Khaled Al Aboody, CEO and general manager of the Islamic Corporation for Development of the Private Sector (ICD), a subsidiary of the IDB. The bank sees potential in long-term investment opportunities in the Egyptian market.
The IDB’s Sovereign Sukuk Insurance Policy to enable junk-rated member countries to issue SukukGLOBAL: The IDB, via its insurance arm, the Islamic Corporation for Insurance of Investment and Export Credit (ICIEC), will be providing a new insurance product, dubbed the Sovereign Sukuk Insurance Policy, to insure Sukuk investors against default on Sukuk issued by sovereign members of the IDB and ICIEC.
The product, which was endorsed and agreed upon by the ICIEC’s board of directors yesterday, is expected to allow the ICIEC’s member countries, particularly those whose ratings are not so favorable, to tap the international capital markets and boost investor confi dence in the issued papers.
Dr Abdel Rahman Al Tayeb Taha, CEO of the ICIEC, explained: “In line with its mandate to facilitate the fl ow of investments and project fi nance to its member countries, the ICIEC has taken the initiative to launch this innovative insurance product which is the fi rst of its kind in the market. We are targeting sovereign Sukuk Ijarah at the outset, and will roll this product out to other forms of Sukuk in due course. This is in line with the strategy of the IDB Group to promote infrastructure development and the expansion of Islamic fi nance across its member countries.”
He added that the product will enable member countries which are rated below investment grade, or unrated, to gain access to the international capital markets, while the ICIEC’s ‘Aa3’ rating by Moody’s will serve as “a strong credit enhancement mechanism, and encourage international banks and investors to participate in such Sukuk off erings.”
IDB member countries such as Egypt and Tunisia are currently rated as junk by rating agency S&P and it is expected that such a policy will aid in catalyzing these countries’ goals to issue Sukuk this year.
A UK-based credit analyst said: “The IDB’s plan is a positive development for the Sukuk market and demonstrates that Shariah compliant capital market instruments are maturing. A direct guarantee is probably a stronger form of protection than credit default swaps.”
Petronas Dagangan RM 651.6 million 22nd April 2013
1MDB Global Investments US$ 3 billion 19th April
Al Baraka Turk US$ 200 million 17th April 2013
Al Bayan Holding Group RM 325.8 million 16th April 2013
Al Baraka Turk’s Sukuk TURKEY: Al Baraka Turk has revealed plans for a US$200 million subordinated Sukuk issuance with a maturity of 10 years by the end of April or early May, said Adnan Ahmed Yousif, the president and CEO of Al Baraka Banking Group, to Reuters.
IDB, EU and IFAD to collaborate YEMEN: The IDB, along with the International Fund for Agricultural Development (IFAD) and the European Union (EU), will collectively provide US$40 million to the Yemen Economic Opportunities Fund for the development of SMEs in the country’s rural areas.
BNM Sukuk MurabahahMALAYSIA: BNM Sukuk, an SPV of Bank Negara Malaysia, has issued a RM1 billion (US$ 329.6 million) Sukuk Murabahah on the 23rd April with a maturity of fi ve months, due on the 24th September. They received bids up to RM3.51 million (US$1.14 million).
Islamic T-billsMALAYSIA: The government of Malaysia has issued Malaysian Islamic
treasury bills on the 19th April with a maturity of one year, due on the 18th April 2014, which has received bids up to RM316 million (US$120.95 million).
GEMS expansion supportedUAE: Dubai-based education company GEMS Education has raised AED2 billion (US$544.4 million) through Islamic and conventional fi nancing facilities to fund its expansion plan of building 10 new schools in the UAE within the next two years. Abu Dhabi Islamic Bank, Dubai Islamic Bank, Noor Islamic Bank and Mashreq Bank were the lead arrangers of this deal.
PDB gets SC nodMALAYSIA: The marketing arm of Petronas, Petronas Dagangan (PDB) has received approval from the Securities Commission Malaysia to issue a RM2 billion (US$651.6 million) Sukuk Murabahah, comprising Islamic commercial papers and Islamic medium-term notes. The issuance, which is jointly advised, arranged and managed by CIMB Investment Bank and HSBC Amanah Malaysia, has been aff orded preliminary long and short-term ratings of ‘AAA(IS)’ and ‘MARC-1(IS)’ by MARC carrying a stable outlook.
AFRICASukuk an option for TransnetSOUTH AFRICA: South African freight transport company Transnet is considering selling Sukuk and Samurai bonds as well as procuring loans from China in order to cut borrowing costs. The company is looking to raise up to ZAR86 billion (US$9.32 billion).
“Should there be a problem in our traditional markets, which are the EU and the US, we can explore new markets
like the Japanese Samurai bond market or Sukuk,” said Brian Molefe, Transnet’s group CEO.
StanChart explores South AfricaSOUTH AFRICA: Standard Chartered Bank has announced plans to acquire the custody and trustee business of South Africa-based Absa Bank and will invest in Islamic banking and mortgages while enhancing its investments in mobile payments technology, as well as staff and branch expansion.
Malaysia’s 1MDB Global Investments due to issue US$3 billion SukukMALAYSIA: 1Malaysia Development (1MDB), an investment arm of the Malaysian government, will issue a US$3 billion Sukuk via its SPV, 1MDB Global Investments (1MDB GI), to fund a 50:50 joint venture between 1MDB and Aabar Investments; which is wholly-owned by the government of Abu Dhabi. The entity, dubbed the Abu Dhabi Malaysia Investment Company, will invest in various projects “for the strategic interest” of Malaysia and Abu Dhabi.
1MDB GI is an SPV set up by 1MDB — a Malaysian government initiative to transform Malaysia into a high income economy — in the British Virgin Islands. The Malaysian government has explicitly expressed its intentions to fi nancially support the payments of the notes and is legally obligated to ensure full and timely payments by the issuer.
Global rating agency S&P has assigned an ‘A-‘ rating to the issuance, which is due in 2023, alongside an ‘axAAA’ ASEAN regional scale rating on the notes. According to S&P, the rating is based on the government of Malaysia’s willingness to support the payment obligations of 1MDB GI under the notes.
Despite the current political uncertainty in Malaysia, in light of the upcoming 13th General Elections, analysts at S&P have clarifi ed with Islamic Finance news that the rating on the upcoming notes is exempt from political connotations and is based solely on the credit quality of the Malaysian government and the country’s sovereign rating.
AMERICASSouth American partnershipARGENTINA: Islamic fi nance legal network iSfi n has partnered with Argentina-based law fi rm, Estudio Beccar Varela, to extend its reach into the South American market.
ASIAIPO for BMIINDONESIA: Bank Muamalat Indonesia (BMI) will be the fi rst Shariah compliant bank to be listed in the Indonesian stock exchange, following its plan to raise about US$300 million, or 20% of its capital, through an IPO scheduled to be conducted in the second quarter of 2013.
Musharakah structure brought forthPAKISTAN: Pakistan-based Meezan Bank has executed a short-term Musharakah for the facilitation of its subsidiary, Al Meezan Investment Management’s fi nancial needs. Meezan Bank and Al Meezan have transacted into a Musharakah Shirkat-ul-Aqd and agreed to invest in the identifi ed special pool of Al Meezan’s business operations. In this transaction, the actual profi ts will be shared according to their pre-agreed ratios while losses are to be shared as per their Musharakah investment ratios.
Kyrgyz Republic receives funding KYRGYZSTAN: The Ministry of Foreign Aff airs has approved the draft agreement to grant US$9 million-worth of funding between the IDB and the Kyrgyz government for the support and development of villages. In total, the bank aims to contribute up to US$17.5 million for the implementation of the republic’s Sustainable Villages Development Program.
BNM-AIBIM-ABM to help SabahMALAYSIA: Bank Negara Malaysia will be collaborating with the Association of Islamic Banking Institutions (AIBIM) and the Association of Banks in Malaysia (ABM) to set up mobile centers in the east Malaysian state of Sabah to assist citizens who have suff ered fi nancially due to the recent intrusion by armed Filipino
militants. The centers will be in operation as early as the 11th May this year.
The intrusion, known in the media as the Lahad Datu standoff , was initiated by Filipino militants, who dubbed themselves the ‘Royal Security Forces of the Sultanate of Sulu and North Borneo’, on the 11th February this year on grounds to reassert territorial claims to eastern Sabah.
CIMB’s high hopes for IndonesiaINDONESIA: CIMB Islamic expects its Indonesian banking arm, CIMB Niaga Syariah, to constitute up to 30% of the bank’s total Islamic banking business by 2015; up from the current 6%, based on the country’s large Muslim population and high potential.
Expansion schemeINDONESIA: Pakistan-based Meezan Bank is seeking partners to enter Indonesia aft er seeing its profi t growth stalled in its home-base. The bank’s president and CEO, Irfan Siddiqui, said that there are plans to establish an Indonesian bank off ering Shariah compliant retail deposits, home loans and corporate services that would have up to 20 branches within three years of its opening.
Further clarificationMALAYSIA: The deputy chairman of Affi n Holdings, Lodin Wok Kamaruddin, has dismissed speculation that the bank was involved in negotiations with AMMB Holdings and six other banks for the sale of its banking unit, Affi n Bank. Lodin also announced the board’s approval for discussions in view of its acquisition of Hwang-DBS.
Islamic banking practices revised PAKISTAN: In order to facilitate the availability of Shariah compliant venues for the deployment of excess liquidity of Islamic banks, senior Shariah scholars and advisors of Islamic banks and conventional banks with Islamic windows have agreed to standardize Forex and interbank Musharakah agreements between Islamic banks and Islamic windows. This agreement was reached during a meeting called by Meezan Bank to discuss challenges in Islamic treasury operations.
RHB Investment Bank and OSK Investment Bank merger creates Malaysia’s biggest stockbroker and investment bank by assets MALAYSIA: RHB Investment Bank and OSK Investment Bank have successfully merged into a single entity, now known collectively as RHB Investment Bank (RHBInvest). This entity is now the country’s largest stockbroker and investment bank by assets.
Speaking to Islamic Finance news, a company offi cial noted that there are still a number of uncertainties within the new institution’s management as OSK and RHB staff see their positions redefi ned: including the absorption of former head of Islamic banking at OSK, Yazit Yusuff , into the investment arm of RHBInvest.
No details have yet been released with regards to the fi nalized merger. However, ongoing reports from the initial merger proposal in late 2011 suggest that the acquisition of OSK may have cost RHB Group as much as RM1.95 billion (US$642.71 million).
The agreement is expected to boost the group’s involvement in Islamic capital market deals through its Shariah compliant arm, RHB Islamic. The deal is also expected to increase the banking group’s att ractiveness as an acquisition target for foreign investors; especially Middle East investors who are keen to tap into the booming Malaysian Islamic banking market.
However, without a CEO to head RHB Islamic, following the retirement of Abdul Rani Lebai, its former CEO and managing director (as fi rst reported in Vol 10 Issue 13 of Islamic Finance news), things are still up in the air with regards to the future of the new entity’s Islamic business.
RHB was initially approached by Malaysia’s two biggest banks; CIMB Group and Maybank, for separate merger negotiations in mid-2011. However, these were both called off following issues over price.
GLOBALKept in the darkGLOBAL: Egypt-based bank EFG-Hermes has stated that it still has not received approval from Egypt’s fi nancial regulator for its merger with Qatar’s QInvest. The Egyptian prime minister, Hisham Qandil, previously said that the deal would go through before the end of April.
“EFG-Hermes Holding has not been informed of any development and accordingly we have published a disclosure to the EGX (Egyptian Exchange) this morning confi rming
that we didn’t receive a ‘no objection’ response on the deal till date,” said an EFG spokesperson to Reuters.
Ballpark figure for global microfinanceGLOBAL: Due to its widespread acceptance by Muslim and non-Muslim countries, the Islamic microfi nance sector is estimated to have reached US$1 billion, according to Muhammad Zubair Mughal, CEO of AlHuda Center of Islamic Banking and Economics. At present, there are more than 300 Islamic microfi nance institutions off ering services to 1.6 million clients across 32 countries.
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Dubai banks expected to boost lending as economy picks up UAE: Dubai property prices have seen a steady gain of 6.2% since 2011 and as industries such as trade, tourism and project fi nancing pick up in the emirate, analysts have indicated a rise in risk appetite amongst domestic companies — particularly banks. According to government data, Dubai’s economy saw a 4.1% expansion in 2012, with tourism thought to be a key contributor, as the number of fl ights through Dubai International Airport rose to 57.7 million, or by 13%. Bloomberg data also showed banks such as Dubai Islamic Bank, Mashreq Bank and Emirates NBD posting higher fi nancing growth, outpacing other banks in the emirate.
Development projects have also resumed in the emirate, which following the 2008 property crash had become something of a ghost town. Figures now point towards growing investor confi dence and accelerated project launches, with the emirate’s major property developers Emaar Properties and Nakheel announcing a resumption of housing developments following a surge in demand.
As a prudent measure, the Central Bank of the UAE proposed a cap on mortgage lending at the end of last year. However, this was met with pockets of resistance from the fi nancial community, especially bankers, who did not see an end to speculative buying despite the imposition of a cap; and feared a dip in demand in the property market.
According to Moody’s, Dubai is expected to see an increase of 5-10% in credit growth this year, on the back of a 2.6% rise in 2012. However, Saudi Arabia and Qatar are expected to supersede this, following strong credit growth performances of 16% and 27% in 2012.
IILM barely affectedGLOBAL: The Saudi Arabian Monetary Agency’s sudden pullout from the International Islamic Liquidity Management Corporation (IILM) would not necessarily deter Saudi banks from buying the IILM Sukuk, industry players believe. Even if it did, as mentioned by industry executives to Reuters, there will still be ample demand from other countries.
Great expectations for global Sukuk issuancesGLOBAL: A Kuwait Finance House report released on the 21st April has noted a 21.5% increase in global Sukuk issuances for the fi rst quarter of 2013, reaching US$34.2 billion; and expects Sukuk issuances to reach US$272 billion by the end of this year.
Sovereign issuances led the way in the fi rst quarter of this year at 61.9%, while corporate issuances and quasi-government issuances fulfi lled 23.2% and 14.9% respectively.
Legal merger on the horizonGLOBAL: Legal fi rms Baker & McKenzie and UAE-based Habib Al Mulla are scheduled to merge on the 1st July, under the name Baker & McKenzie Habib Al Mulla. The enlarged entity will have over 4000 practicing lawyers across 45 countries.
Baker & McKenzie was the advisor to Saudi-based Dow Chemical Company’s US$1.4 billion Islamic fi nancing facilities transaction in 2012.
Revival of fundsGLOBAL: Following a decision to revive its funding support for the government of Bangladesh’s Padma Bridge project, the IDB is currently reviewing the terms of the deal and recent government measures.
Those in the know expect the IDB to commit to the pre-agreed amount of US$140 million for the construction of a road on the sub-district Jajira side of the bridge.
Access to capital markets via infrastructureGLOBAL: As the MENA region’s infrastructure market continues to pick up, the deputy chairman and CEO of HSBC Middle East, Simon Cooper,
expects the bank to gain further access to the capital markets via this sector. He said: “The continued growth in infrastructure investment is going to be the key theme in the region.”
MIDDLE EASTDIFC sees rise in registered companiesUAE: Dubai International Financial Center (DIFC) has reported a 7% year-on-year increase in number of active registered companies operating within the DIFC, to 912 fi rms in 2012. The center also approved more than 170 new commercial licenses last year, a 27% accretion from 2011.
At present, 37% of the companies hosted by the DIFC are from Europe, followed by 26% from the Middle East, 18% from North America, 11% from Asia and 8% from the rest of the world.
More mergersBAHRAIN: The governor of the Central Bank of Bahrain, Rasheed Mohammed Al Maraj, has called for more mergers between the country’s fi nancial institutions in order to achieve fair competition between Islamic and conventional banks.
Third quarter debutOMAN: Alizz Islamic Bank aims to launch its Islamic fi nance products and services in the third quarter of this year, according to Jamal Darwiche, its chief operating offi cer.
The bank will introduce a variety of Islamic fi nance contracts, including Mudarabah, Ijarah, Istisnah and Wakalah, said Darwiche to Reuters.
New bankruptcy planBAHRAIN: Bahrain-based Arcapita Bank has fi led an amended plan of reorganization in its US bankruptcy case, which has been endorsed by its main creditors. The new plan is backed by an
Australia’s Board of Taxation works towards ensuring a level playing field for Islamic finance AUSTRALIA: Bernie Ripoll, the parliamentary secretary to the treasurer and a member of the Australian Labor Party, has announced that the country’s Board of Taxation has submitt ed its fi nal report on Islamic fi nance tax treatments to ensure a level playing fi eld for Islamic banking and Takaful products.
“We see Islamic fi nance as a way of opening our capital and credit markets, enhancing competition and innovation, fostering social inclusion, and promoting greater engagement and integration in the Asia Pacifi c,” he said during a recently-held forum in Melbourne. “More importantly, the Shariah prohibition on highly speculative activities not only helps to protect the economy against abuses and distortions, but also forges a closer link between fi nancial activity and the real economy,” Ripoll added.
In 2010, the Australian Board of Taxation was commissioned by the government to review the current tax treatments towards Islamic fi nance instruments; resulting in a consultation paper which was open to feedback from the industry’s stakeholders before being fi nalized. The report has called for the board to inquire into the treatment of Islamic fi nance products by the existing Australian tax law and proposed the removal of any regulatory barriers to its development. In line with this, the board has appointed a working group comprising government offi cials and assisted by an expert panel, members of the board’s secretariat and offi cers from the Treasury and Australian Taxation Offi ce.
It is encouraging to see Australia, one of the most bullish economies since the 2009 global credit crisis, take to Islamic fi nance and appreciate its value to the country’s fi nancial and economic system. Superannuation funds and Islamic home mortgages are among the products expected to kick off when the Australian Islamic fi nance industry gains traction.continued...
offi cial committ ee of unsecured creditors and a separate group of signifi cant creditors and will maximize recoveries to creditors and stakeholders.
Islamic finance courses offeredUAE: Dr Shaikh Sultan Mohammad Al Qasimi, a UAE supreme council member and ruler of Sharjah, has announced the establishment of an Islamic university named Jameaat Al Qasimia or Sharjah Islamic University, which is expected to be completed in 2014. The university will be off ering Islamic fi nance courses.
Tax adjustmentsOMAN: Tax laws and regulations in Oman will be adjusted to take into consideration Shariah compliant banking transactions within the next six months, according to Philip Bond, the director of tax at KPMG.
NCB’s maiden Shariah board meetingSAUDI ARABIA: The National Commercial Bank (NCB) held its fi rst Shariah board meeting on the 23rd April in Jazan University Theater, att ended by NCB employees and customers. This is in line with the bank’s intentions to increase customer interaction with its Shariah board to address any queries related to the bank’s products and Shariah objectives.
Bell ringing ceremony for SIBUAE: Sharjah Islamic Bank’s US$500 million Sukuk has been listed on the NASDAQ Dubai, with its chief executive, Mohammed Abdulla, ringing the opening bell at the Dubai Financial Market to offi ciate the listing.
CBB’s oversubscribed SukukBAHRAIN: The BHD18 million (US$47.50 million) monthly issue of Sukuk Al-Salam by the Central Bank of Bahrain has been oversubscribed by 266%. The papers carry a maturity of 91 days and were issued on behalf of the Bahraini government.
New working days SAUDI ARABIA: The Shura Council of Saudi Arabia has agreed to review a study by the Ministry of Civil Service proposing a switch in weekend from the
current Thursday-Friday to a Friday-Saturday; in line with the rest of the GCC countries.
RESULTSArab Islamic BankPALESTINE: Arab Islamic Bank‘s net profi ts before tax reached US$1.02 million in the fi rst quarter, an increase of 29.9% compared to the same period last year. Total assets of the company reached US$394.15 million as of the 31st March, while its total liabilities, restricted and unrestricted investments increased by 6.4% compared to last year.
Bank MuscatOMAN: Bank Muscat reported a dip in net profi ts to OMR25 million (US$64.74 million) in the fi rst quarter of 2013 against OMR33.4 million (US$86.5 million) in the same period last year, due to loss of operating provisions relating to a prepaid travel card fraud amounting to OMR15 million (US$38.85 million). Net income reached OMR1.5 million (US$3.88 million) for the bank’s Islamic banking business, while receivables were at OMR188 million (US$486.87 million) and customer deposits stood at OMR126.4 million (US$327.34 million).
Bank SoharOMAN: Bank Sohar has reported a net profi t of OMR6.08 million (US$15.74 million) in the fi rst quarter of 2013, marking a 14.1% increase from 2012; while its total assets grew by 14.8% to OMR1.79 billion (US$4.63 billion) from OMR1.56 billion (US$4.04 billion). The bank’s total shareholder equity, which includes the rights of issue raised for its Islamic banking window in the fi rst quarter, also advanced by 23.6% to OMR157.23 million (US$407.06 million).
RHB CapitalMALAYSIA: RHB Capital has announced a pre-tax profi t of RM2.38 billion (US$775.41 million) for the year ended the 31st December 2012, increasing from RM2.25 billion (US$733.05 million) the previous year. The growth is att ributed to higher net interest income, income from its Islamic banking business, other operating income, lower impairment losses on other assets and contributions from OSK Investment Bank.
RATINGSSIB affirmed at ‘BBB+’UAE: Sharjah Islamic Bank’s long-term issuer default rating has been affi rmed at ‘BBB+’ by Fitch, carrying a stable outlook and a viability rating of ‘bb’.
‘BBB(EXP)’ for Turkiye Finans Katilim BankasiTURKEY: Fitch has assigned Turkiye Finans Katilim Bankasi’s upcoming Sukuk issuance an expected rating of ‘BBB(EXP)’.
Westports’ stable outlookMALAYSIA: Westports Malaysia’s Sukuk program has been assigned a rating of ‘AA+IS’ by MARC, carrying a stable outlook. The program includes a Sukuk Musharakah issuance worth up to RM2 billion (US$651.60 million) and Musharakah medium-term notes worth up to RM800 million (US$260.64 million).
continued...
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Etiqa TakafulMALAYSIA: Local Takaful and insurance operator Etiqa has announced a 15% increase in combined gross premiums and contributions of RM5.4 billion (US$1.78 billion), from both its Takaful and conventional insurance subsidiaries this year. The group’s total assets also saw a 9% growth to RM27.5 billion (US$9.06 billion) from RM25.1 billion (US$8.27 billion) in the previous year.
Sabana REITSINGAPORE: Sabana REIT has announced a 9.5% year-on-year increase in gross revenues to SGD21.5 million (US$17.38 million) in the fi rst quarter of 2013, against SGD19.7 million (US$15.92 million) in the same period last year. Its distributable income also rose to SGD15.5 million (US$12.53 million) from SGD14.5 million (US$11.72 million), marking a 7.1% increment.
Union National BankUAE: Union National Bank, which is jointly owned by the governments of Abu Dhabi and Dubai, recorded an increase in net profi ts to AED495 million (US$134.74 million), a 4.2% growth for the fi rst quarter. The growth is att ributed to the 3.9% rise in Islamic fi nancing income to AED642 million (US$174.75 million), 4.7% increase in operating income due to a year-on-year rise in net interest and 7.7% accretion of non-interest income at AED176 million (US$ 47.91 million).
Qatar International Islamic BankQATAR: Qatar International Islamic Bank has reported a net profi t of QAR185.3 million (US$50.87 million) in the fi rst quarter of 2013, a 5.6% growth from the same period last year.
ASSETMANAGEMENTShariah banks to manage Hajj fundsINDONESIA: The republic’s pilgrimage funds, currently worth up to IDR11 trillion (US$1.13 billion), will be transferred from conventional banks to Shariah compliant banks within a time frame of one year in order to meet the demands of Hajj pilgrims, according to Anggito Abimanyu, the director general of the Religious Aff airs Ministry.
He noted that three Shariah compliant banks will be mandated for the transaction, but did not disclose the names of the banks.
New Shariah compliant fund launchedPAKISTAN: UBL Fund Managers has launched its debut Shariah compliant UBL Islamic Principal Preservation Fund, which promises 100% exposure to the Pakistani stock market, while benefi ting from the principal preservation advantage.
Brand new fundsSAUDI ARABIA: Local Shariah compliant fund manager SEDCO Capital has launched two new funds – the SC Income Fund, worth US$100 million, and the SC Global Markets Sentiment Fund, worth US$150 million. As a result, the company now has a total of seven funds in the off ering, well on its way to meet its target of 15 funds by the end of the year.
TAKAFULNew demographicMALAYSIA: Takaful Ikhlas is targeting the Malaysian non-Muslim and youth markets in hopes to expand its business lines, as these markets hold great growth potential, according to the fi rm’s president and CEO, Abdul Latiff Abu Bakar. The non-Muslim market currently comprises 13% of the fi rm’s customer base.
MOVESArab Banking CorporationBAHRAIN: Dr Khaled Kawan has been promoted from deputy chief executive of Arab Banking Corporation (ABC) to acting president and chief executive, with immediate eff ect. ABC off ers Islamic products through ABC Islamic Bank and ABC International Bank’s Islamic Asset Management.
Ministry of AwqafQATAR: The Qatari Ministry of Awqaf and Islamic Aff airs has announced new appointments for the Awqaf General Directorate. Mohammed Lahdan Al Mohannadi is now the assistant to the director general, while Khalifa Jassim Al Kubaisi has been elected the director of the Department of Endowment Banks.
Emirates NBDUAE: Emirates NBD’s group CEO, Rick Pudner, has tendered his resignation aft er seven years at the bank. Pudner will remain with Emirates NBD until the end of the year.
Warba BankKUWAIT: Shariah compliant Warba Bank has promoted Hosam Nasser Al Muzaiel to become its investment department manager, bringing with him over 16 years of industry experience. Hosam was formerly an investment manager at the bank’s investment and treasury group.
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This query is related to transfer of ownership to the bank before the bank fi nances a fl eet of cars for its customer (a car dealer) under a Murabahah contract. The question is whether the formal registration of cars purchased by the bank from the manufacturer is mandatory in the bank’s name before the bank sells the cars to the dealer on Murabahah basis?
As per market practice, the cars are registered only in the name of the end buyer when they purchase the cars from the dealer in cash or get them fi nanced through conventional or Islamic banks.
Since conventional banks do not need to purchase the cars in their name in order to fi nance their customers as they simply lend money to the customer to buy cars from dealers, the registration issue is not relevant for them.
However, since Islamic banks cannot sell anything which they do not fi rst own, guidance is needed for avoiding the requirement of the registration of cars in the name of the Islamic bank to confi rm ownership, since this will result in extra cost and eff ort, making Islamic car fi nancing a more expensive aff air for the dealers; who may pass on such extra costs to the end buyers.
Pronouncement:
It is correct that as per Shariah, it is necessary for the bank to fi rst acquire the ownership of the cars from the manufacturer before it sells them to the dealer. This is based on the known Shariah principle that you cannot sell what you do not own and possess. The opposite to this is termed as short-selling which is prohibited in Shariah.
However, according to Shariah, the primary requirement to conclude a sale and purchase contract for any Shariah compliant object between the two parties is their mutual consent, which must be evidenced by the exchange of the off er and acceptance between them, provided each of them is eligible as per Shariah to enter into such a transaction.
If the sale and purchase contract is concluded as per the above principle, the ownership or title, together with all the title-related rights and obligations, is transferred from the seller to the buyer forthwith. The title transfer through a sale contract, along with possession, gives right to the new buyer to sell the same to a third party.
Formal registration of the title is not a compulsory Shariah requirement but is useful in protecting the buyer’s rights. The Shariah principles for trading were perfected in the seventh century AD, when there were no such bodies to register the title. As such, if the Islamic bank has completed its due diligence and is comfortable to enter into a Murabahah contract with the dealer, it can do so without fi rst registering the cars it has purchased from the manufacturer in its own name in order to avoid increasing the cost of the Murabahah transaction.
Moreover, as the Islamic bank shall have purchased the cars only aft er obtaining a ‘promise to purchase’ from the dealer, the Islamic bank shall only hold the ownership briefl y. Such temporary ownership risks are usually covered by way of Takaful (Islamic insurance).
Similarly, the dealer is also not required to get all the cars bought by it from the Islamic bank registered in its own name before it starts selling them to end users, in whose names the cars will eventually be required to be formally registered.
Dr Hussain Hamed HassanShariah scholar & managing directorDar Al Sharia Legal & Financial Consultancy
This Fatwa is brought to you exclusively by IFN in collaboration with Dar Al Sharia Legal & Financial Consultancy-Dubai. The Fatwa appearing in this space are those which were obtained by Dar Al Sharia for their client institutions and depict issues faced. This Fatwa was compiled by Dr Muhiuddin Ghazi.
As part of its eff ort to position itself as a global center for Islamic fi nance, the UAE is not only focusing on the popular pillars of retail, capital markets and Takaful, but has extended its reach to lesser known aspects of the Shariah compliant fi nancial system. In January this year, Dubai-based Noor Investment Group signed an MoU with the Awqaf & Minors Aff airs Foundation (AMAF) to establish Noor Awqaf, an independent company that will manage Awqaf funds in the emirate and provide fi nancial services for similar institutions around the world.
The secretary-general of AMAF, Tayeb Abdulrahman Al Rais, focused on this issue at a recent event held in Dubai this month. He warned that although historically Awqaf has played an important role, with the creation of endowments leading to “job opportunities, infrastructure enhancement and economic diversifi cation”, the administration of Awqaf in most countries is currently ineffi cient.
“Funds which could be used for the bett erment of society languish in
bank accounts. Rents are uncollected. Investments deliver low returns. For Awqaf to be eff ective, it needs to be guided by an effi cient institutional system that delivers sustainable revenues that benefi t not only today’s needy, but also help secure benefi ts for generations to come.”
AMAF is a department of the Dubai government that is responsible for the welfare of minors, as well as managing Dubai’s Awqaf endowments and investments in a fully Shariah compliant manner. Founded in 2007, it currently operates fi ve Awqaf accounts (mosques, health, education, social and general) and in 2012, generated operating revenues of around AED162 million (US$44 million), with a further AED115 million (US$31 million) in rental income and around AED78 million (US$21 million) from endowments.
The new joint venture with Noor Investment Group represents a signifi cant step forward in the modern day management of Awqaf and should it succeed, it is to be hoped that other countries might follow suit. In March, the group launched its fi rst project,
partnering with Awqaf New Zealand to give international aid agencies access to New Zealand meat producers to provide a supply chain for Halal meat as a means of relief aid during famine and natural disasters.
However, other leading Islamic countries have taken a diff erent route to managing their Awqaf responsibilities. In Malaysia, for example, it was recently reported that the government is considering the privatization of its Islamic endowments, which are currently managed by religious bodies on a state-by-state basis. It is estimated that at the moment only 20% of Malaysian Awqaf projects generate any signifi cant revenue, despite holding over 11,000 hectares of land worth over RM1.2 billion (US$394.6 million), according to the Department of Awqaf, Zakat and Hajj, which believes that opening Awqaf up to corporate management will make the assets more productive.
It remains to be seen which approach is more eff ective. Either way, it looks as if Awqaf could be emerging as an interesting asset class to watch on the Islamic fi nance stage. — LM
Dubai pioneers Awqaf innovation
The recently launched Miliman Global Family Takaful report makes clear that there is currently “no single source containing the quantifi cation of Family Takaful premiums (or contributions) globally, by region, or country.” According to the publishers, the data was collected via company fi nancials, regulatory reports, industry reports and industry estimates — where necessary.
For 2011, global Family Takaful gross contributions were estimated at US$2.12 billion, or 16% higher than in 2010, while charting a compound annual growth rate of 32% between 2007 and 2011.
The highest growth was witnessed in Southeast Asia and Indonesia, while the Middle East and Africa are said to still be struggling to grow their Family Takaful
businesses; mainly due to regulatory uncertainty.
By region, Southeast Asia contributed to 78% of global Family Takaful contributions, followed by the Middle East and Africa at 20%, and South Asia at 2%. Gross contributions are expected to grow to US$5.6 billion by 2016, with Southeast Asia leading the way. — NH
Miliman report highlights lack of consolidated data for Family Takaful
According to the latest data by Dealogic, Arab-based issuers are leading the Sukuk issuance league table for the period between March and April 2013. The largest issuances to date, by Sadara Chemical Company (Sadara) and Saudi Electricity Company (SEC), tie at US$2 billion and originate from Saudi Arabia.
Breaking from the norm of private placement issuances, the SEC Reg
S/144A Sukuk and the Sadara Sukuk Musharakah were both marketed as public issues; with the SEC issuance open to the global market, and the Sadara Sukuk placed domestically.
The top fi ve global Sukuk issuers between the 13th March and the 24th April were Sharjah Islamic Bank with its US$500 million Sukuk; Sadara Chemical company with its US$2 billion Sukuk
Musharakah; Saudi Electricity Company with its US$2 billion Reg S/144 A Sukuk; Asya Sukuk Company with its US$250 million issuance; and Dubai Islamic Bank Tier-1 Sukuk with a US$1 billion Sukuk. HSBC were involved as managers in four out of these fi ve deals. — NH
Despite the encouraging growth of the Islamic banking sector in Pakistan, which many see as one of the few bright spots in a country struggling with economic and political challenges; the Sukuk market has on the contrary experienced an overall contraction in recent years, with government involvement pushing aside private investment in a bid to fi nance its growing budget gap. However, recent changes to legislation bring hope that Pakistan’s Islamic capital market could fi nally start to push forward its stagnating economy.
In 2007, the country issued 21 Sukuk, raising around PKR49.3 billion (US$500.9 million), most of which were corporate. By 2008, this had fallen to 18 issuances raising PKR31.9 billion (US$324.2 million) and continued to decline. And a key trend that has since emerged is the disappearance of corporates from the market, with the private sector crowded out by a
government wielding Sukuk to raise desperately-needed public funds and fi nance its huge budget defi cit.
Last year, the government issued three sovereign Sukuk worth PKR163.6 billion (US$1.66 billion) compared to three corporate Sukuk raising a combined total of just PKR5.4 billion (US$54.8 million), while in 2011, the government raised a reported PKR412 billion (US$4.2 billion) through Sukuk, meeting around 23% of its budget needs. Arsalan Shaikh, a senior associate with PwC Pakistan, agrees that: “Sukuk now forms the major contribution of fi nancial papers issued by the government of Pakistan.”
Serious concerns have been voiced over the amount of credit being sucked up by public fi nancing needs, to the detriment of private investment and the eventual stagnation of the overall economy. Analysts have also expressed concern over the assets used to back these government Sukuk, which include Karachi Airport
and large tracts of motorway land along with other public infrastructure assets. And questions have been raised over the Shariah compliance of these fl oating Sukuk issuances, whose return are linked to treasury bills which scholars say is forbidden as linking Sukuk to a fi xed rate of return becomes Riba.
Some analysts suggest that the government should instead use Sukuk as a tool to privatize public sector enterprises, such as the Pakistan Railways, which could stimulate private sector investment while continuing to fi nance public debt.
In October 2012, Pakistan issued new draft rules for the issuance of Sukuk as part of its fi ve-year plan to boost Islamic fi nance. It is hoped that the new legislation, which is based on AAOIFI guidelines, will bring regulatory clarity to the market and spur interest from both foreign investors and private players. — LM
Pakistan’s public sector crowding out private investment
In the last month, talk of implementing value-added tax (VAT) laws in the GCC have escalated; fuelled by an announcement from authorities in Oman saying that they are seriously reviewing the prospects of implementing such laws. From a bird’s eye perspective, it is rather hard to fathom why such laws would be implemented; particularly in a region where Islamic transactions are beginning to gain traction. Why now?
It is well known that in Asia, countries such as Indonesia and Japan have had to fi ght an uphill batt le to exempt Shariah compliant structures from VAT, which beckons another question: How would the introduction of VAT impact the region’s up and coming Islamic fi nance sector?
According to Kashif Jahangiri, a director at KPMG’s global Islamic fi nance center, although some GCC countries are developing a VAT framework; achieving the implementation of a VAT regime across the entire GCC by 2015 might be a challenge. “Developing a VAT regime is not just about draft ing the VAT law, it also involves the development of the mechanics of the whole system — where the tax will be collected, how will the cash come
in, how will it be reported — basically the entire administrative, procedural and technological aspects relating to the implementation of the VAT framework. Additional work will be needed if a pan-GCC VAT framework is to be developed.
“There might be a delay as a lot of things were put on hold due to the Arab spring. Majority of the governments did not want to impose additional burden on their people. While VAT would be a source of revenue for the governments, but it would also aff ect their own people. I think a pan-GCC VAT framework would be rolled out, but it might be aft er 2015.”
In terms of the eff ects of VAT on Islamic fi nance, Kashif believes that there are both positive and negative implications for taxpayers as well as for the tax collectors. From a taxpayer’s perspective, the negative aspects include increasing costs on Murabahah transactions and Shariah compliant mortgages, where the transfer/lease of assets may incur additional VAT costs. In addition, it might create administrative hassle in some cases, such as VAT registration and fi ling of returns in those cases where it would not be warranted had the person entered into a comparable conventional
fi nancial transaction. On the fl ipside, there could be a positive impact for a taxpayer if the transaction results in a VAT recovery that is higher than what would be under the comparable conventional fi nancial transaction. “In Islamic fi nance, the fi nancial structures typically involve buying and selling and leasing of assets. An Islamic bank might therefore be able to recover VAT on an Islamic fi nancial transaction in relation to those costs (such as, accounting legal or tax advisory costs) on which VAT recovery might not be possible under a comparable conventional fi nancial transaction, as fi nancial transactions that are in the form of conventional lending are typically exempted from VAT, ” said Kashif.
However, Kashif hopes that the authorities in the GCC responsible for implementing the VAT laws would come up with a set of enabling provisions or clarifi cations to ensure that the VAT treatments on Islamic fi nance transactions are “not negatively or positively discriminated, and that such transactions are subjected to VAT on the same basis as comparable conventional fi nancial transactions.” Kashif says that the same approach was adopted in other countries, such as the UK and Ireland. — NH
VAT laws in the GCC — the good, the bad and a whole lot of work
In the pursuit of the globalization of fi nancial markets, the resemblance between conventional fi nance leases and Islamic compliant fi nance schemes (ICFS) is a positive one. It gives conventional banks the chance to adopt ICFS without modifying their whole fi nancial philosophy. This, along with the growing market for ICFS due to the increasing number of Muslims in the west, not only allows conventional banks and fi nancial institutions to get their share of the market but also provides competition that will ultimately benefi t prospective consumers.
Moreover, because conventional banks can aff ect institutional change, such banks are more adept in creating order and scale. Yet, there are still challenges that must be addressed before reconciliation can be fully achieved. A short paper such as this one will not be able to discuss all the issues; thus, the discussion will only revolve around two main issues or challenges.
Firstly, ICFS are more expensive than conventional fi nance leases, essentially punishing Muslims fi nancially for adhering to their religious beliefs. In Chian Wu’s paper entitled ‘Islamic Banking: Signs of Sustainable Growth’ published in the Minnesota Journal of International Law; Wu quotes Kim Norris, who stated that in the 1990s, “the Bank of Kuwait charged Islamic mortgages the equivalent of an additional two percentage points more than conventional mortgages”. This led to Muslims either renting houses instead, or in some cases, less devout Muslims taking out conventional loans.
On the aca-devotional front, some scholars even went as far as allowing Muslim minorities in western countries to take out conventional Riba mortgages out of sheer necessity. This was because devoted Muslims were fi nding themselves paying enough rent to have bought more than one house through conventional mortgages, especially aft er paying rent for many years. Therefore, Islamic jurists such as Egyptian Yusuf al Qardawi, in accordance with the
Islamic objective of maintaining wealth, issued an Islamic legal decree (Fatwa) lift ing the prohibition on Ribā in cases of necessity. This is however, a minority opinion and not shared by the majority of contemporary Islamic jurists.
The increased expense of an ICFS is an understandable one, as with ICFS, conventional banks are taking on increased risks at increased costs to the debtors. However, conventional banks did leverage on their ability to aff ect institutional change to help make ICFS more aff ordable to prospective debtors.
For example, the Murabahah-based mortgage was much more expensive than conventional mortgages due to the double stamp duty which was triggered once when the bank bought the property from the vendor and then again, when the buyer consequently bought the property from the bank. The stamp duty is a tax that is a percentage of the home’s price when purchased. The Bank of England formed a working group that aimed to abolish double stamp duty on Islamic mortgages, fi nally succeeding in 2003, thus making Islamic mortgages much more aff ordable and competitive.
Another example in the US is one that concerns selling Islamic mortgages in the secondary mortgage market. Mainstream lenders successfully pushed for institutional change in that fi eld allowing for sales of Islamic mortgages in the secondary mortgage market, hence, enabling lenders to free up funds and originate more loans (It is important to note that Islamic jurists have diff ered on whether or not Islamic mortgages could be sold in the secondary mortgage market). In short, one would not expect conventional banks, or even perhaps Islamic banks, to off er ICFS with similar costs in comparison to Ribā loans anytime soon, as the risks of ICFS are simply higher and it is the higher risks that essentially make those schemes compliant with Islamic fi nance laws.
The second challenge is to form ICFS that are not only compliant with Islamic fi nance laws, but are also compatible
with other legal regulations in the country in which the ICFS operates. In the US, the structure of Islamic mortgages was very diff erent from that of conventional mortgages, leading to some questioning whether US mortgage laws were applicable to Islamic mortgages. This would lessen or completely deprive Islamic mortgages of fi nancial credibility, driving away investors and consumers. In this case, prominent proponents of ICFS in the US made it clear that the ICFS were subject to US laws and regulations. This, in addition to educating bank regulators on Islamic mortgages and seeking their approval of Islamic mortgages, helped make ICFS more transparent and therefore, more reliable for prospective investors.
Nonetheless, government regulators have employed positive responses to such potential confl icts, as demonstrated in the UK by the double stamp duty problem mentioned earlier. In the US, there seemed to be a confl ict between many ICFS and the National Bank Act of 1864 that prohibited banks from the purchase, holding of legal title, or possession of real estate to secure any debts to it for a period exceeding fi ve years. The Offi ce of the Comptroller of the Currency (OCC) dealt with this confl ict positively by concluding that exceptions could be made for specifi c versions of Murabahah and Ỉjarah transactions if the standards for functional equivalence to conventional asset fi nancing were met.
While it would be complicated to meet all these standards fully; from an Islamic perspective, the onus is now on Islamic jurists to try to derive more progressive reconciliation initiatives and hopefully start a fruitful dialogue with offi ces such as the OCC to facilitate a bett er understanding of each other’s policy issues. As a result, this will accelerate the rate at which ICFS can fully penetrate fi nancial markets without fear of confl ict of law and policy obstacles.
Hamid Harasani is a PhD researcher at King’s College London and consultant to Taylor Wessing. He can be contacted at [email protected].
Accommodating two worldsAs the Islamic fi nance industry penetrates ever further into the global fi nancial market, Islamic jurists and national regulators alike have a responsibility to encourage a positive reconciliation between Islamic and conventional structures that will allow Islamic fi nance schemes to develop uninhibited by legal obstacles. HAMID HARASANI evaluates the current situation.
The Sharjah Islamic Bank (SIB) Sukuk worth US$500 million, part of its US$1.5 billion program, marked the fi rst issuance from a fi nancial institution in the UAE region for 2013. The trust certifi cates, which have been admitt ed for listing at the Irish Stock Exchange and are recently listed on the NASDAQ Dubai, are said to have att racted massive book orders from global investors of up six times the initial issuance size; at US$3.24 billion.
The geographical distribution of the paper constituted 53% in the Middle East, 17% in Europe and 30% in Asia; while its institutional investor breakdown comprised of banks, which subscribed to 39% of the issuance; followed by funds at 36%, hedge funds and insurance companies at 7%, private banks at 4% and supranational agencies with 14%.
A market player close to the deal commented: “Given SIB’s absence of almost two years from the international debt capital markets, SIB launched a focused marketing strategy. Through a series of fi xed-income investor meetings in key fi nancial centers, SIB’s senior management team eff ectively conveyed their updated credit story to investors in Kuala Lumpur, Singapore, and London.”
He added: “As the fi rst senior fi xed income Sukuk from the region in 2013, SIB was able to take advantage of the positive market backdrop and the strong pent-up demand for quality issuers among Islamic investors, establishing a new benchmark rate for future issuances off their program. By correctly positioning the SIB credit and given the scarcity value of such a reputed name in
the international Sukuk market, the deal att racted a wide range of investors across geographies and investor types.”
The deal not only marks the fi rst foray by an Islamic fi nancial institution into the UAE capital markets for 2013, but also sees the establishment of the bank’s funding platform, moving forward.
— NH
Sharjah Islamic Bank Sukuk breaks ground
As the first senior fixed
income Sukuk from the region in 2013, SIB was able to take advantage of the positive market backdrop and the strong pent-up demand for quality issuers among Islamic investors, establishing a new benchmark rate for future issuances off their program
Sharjah Islamic Bank Trust Certifi cates (Sukuk)
US$1.5 billion
16th April 2013
Issuer Sharjah Islamic Bank
Issuance Size US$500 million (part of a US$1.5 billion program)
Purpose of issuance
To diversify funding sources and to tap the capital markets
Tenor Five years (due 2018)
Coupon/ Rate 2.95%
Currency US dollars
Maturity date 16th April 2018
Lead managers/ Bookrunners
Al Hilal Bank, HSBC Bank, Liquidity Management House for Investment, Standard Chartered Bank
Co-managers Dubai Islamic Bank/ Qatar Islamic Bank
The Maldives Monetary Authority has given approval to the national bank of the Maldives, Bank of Maldives to commence an Islamic banking window operation. This is the fi rst time that an approval for a conventional bank to open an Islamic banking window, under the Islamic Banking Regulation 2011, has been given in the country.
At the moment, the country has one fully-fl edged Islamic bank, Maldives Islamic Bank; one Takaful company, Amana Takaful Maldives, which is operating under a conventional insurance license; and one Islamic fi nance window, HDFC Amna, opened by the Housing Development Finance Corporation. The Housing Development Finance Corporation also recently announced its intention to issue the fi rst corporate Sukuk in the country.
The approval to off er Islamic banking window services was given by the central bank on the 26th March, although the
company did not publicly announce the development until the 10th April. The company has already appointed an in-house Shariah Advisory Committ ee consisting of three members. Currently, the Bank of Maldives has 25 branches and is the bank with the widest reach in the country.
This remarkable development means that not only has the country’s biggest insurer opened an Islamic window, but its biggest conventional bank (Bank of Maldives) will also off er Islamic fi nancial services. Hopefully, this suggests that a fully-fl edged Islamic fi nance industry will develop in the Maldives in the near future and the country can be the Islamic fi nance hub for the SAARC (South Asian Association of Regional Cooperation) region.
Aishath Muneeza is the head of Islamic fi nance at the Capital Market Development Authority. She can be contacted at [email protected].
First Islamic window for the Maldives
NIGERIA
By Auwalu Ado
In its eff orts to contribute to the growth of Islamic fi nance in Nigeria, the country’s National Insurance Commission (NAICOM) has released guidelines on Takaful in the West African nation that took eff ect from last month. They are pursuant to Section 7 of the NAICOM Act 1997.
In issuing the guidelines, NAICOM noted that they are part of its ongoing att empt to increase insurance penetration in Nigeria and increase the contribution of insurance to the national GDP. It stated that the need for insurance was identifi ed following detailed research. Several insurance operators and customers have called for Takaful to cater for those who fi nd conventional insurance against their religious teachings.
NAICOM indicated that the market surveys it undertook showed signifi cant religion-based objections to conventional insurance practices. This motivated
the commission to come up with the guidelines in order to provide regulatory guidance for the Takaful industry, with the goal of enhancing fi nancial inclusion in Nigeria and to ensure Takaful providers are not unintentionally disadvantaged.
Takaful means ‘joint guarantee’ or ‘shared responsibility’ in Arabic. It is an insurance system that operates based on Islamic principles. Products and services are designed to cater for Muslims and non-Muslims. The products are meant to encourage a savings culture and to build capital over a period of time to meet personal or business needs. The new guidelines stipulate that every Takaful operator is required to appoint an advisory committ ee of experts (Shariah advisors) to advise them on issues related to product development and compliance.
Auwalu Ado is an internal Shariah auditor at Jaiz Bank. He can be contacted at [email protected].
IFN Country CorrespondentsAFGHANISTAN: Zulfi qar Ali Khanhead of Islamic banking division, fi nancial supervision department, Da Afghanistan BankAFRICAAfzal Seedat, managing director, Islamic banking, Absa
AUSTRALIATalal Yassine, managing director, Crescent WealthBAHRAIN: Dr Hatim El-Tahirdirector, Islamic Finance Knowledge Centre, Deloitt e & ToucheBANGLADESH: Md Shamsuzzamanexecutive vice president, Islami Bank BangladeshBELGIUM: Prof Laurent Marliere CEO, ISFIN BERMUDA: Belaid A Jheengoordirector of asset management, PwCBRUNEI: James Chiew Siew Huasenior partner, Abrahams Davidson & CoCANADA: Jeff rey S Grahampartner, Borden Ladner GervaisCZECH REPUBLIC: JUDr Ivana Hrdlickova,judge, Judiciary, Appelate Court PardubiceEGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Kader Merbouhco head of the Executive Master of the Islamic Finance,Paris-Dauphine UniversityHONG KONG & CHINA: Anthony Chanpartner, Brandt Chan & Partners in association with SNR DentonINDIA: H Jayeshfounder partner, Juris CorpINDONESIA: Farouk A Alwynichairman, Center for Islamic Studies in Finance, Economics, and DevelopmentIRAN: Majid PirehIslamic fi nance expert, SEOIRAQ: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & CoIRELAND: Ken OwensShariah funds assurance partner, PwC IrelandJAPAN: Serdar A. Basarapresident, Japan Islamic FinanceJORDAN: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & CoKOREA: Yong-Jae Changpartner, Lee & KoKUWAIT: Alex Salehpartner, Al Tamimi & CompanyLUXEMBOURG: Marc Theisenpartner, Theisen LawMALDIVES: Aishath Muneezahead of Islamic fi nance, Capital Market Development AuthorityMALTA: Reuben Butt igiegpresident, Malta Institute of ManagementMAURITIUS: Sameer K Tegallyassociate, Conyers Dill & PearmanMOROCCOMohamed Boulif, principal consultant, Al Maali Islamic Finance Training and Consultancy NEW ZEALAND: Dr Mustafa Faroukcounsel member for Islamic fi nancial institutions, FIANZNIGERIA: Auwalu AdoShariah auditor, Jaiz BankOMAN: Anthony Watsonsenior associate, Al Busaidy Mansoor Jamal & CoPAKISTAN: Bilal Rasuldirector (enforcement), SEC of PakistanPHILIPPINES: Rafael A Moralesmanaging partner, SyCip Salazar Hernandez & GatmaitanQATAR: Amjad Hussainpartner, K&L GatesRUSSIA: Roustam Vakhitovmanaging partner, International Tax AssociatesSAUDI ARABIA: Nabil Issapartner, King & SpaldingSENEGAL: Abdoulaye MbowIslamic fi nance advisor, Africa Islamic Finance CorporationSOUTH AFRICA: Amman MuhammadCEO, First National Bank - Islamic FinanceSINGAPORE: Yeo Wico,partner, Allen & GledhillSRI LANKA: Roshan Madewaladirector/CEO, Research Intelligence UnitSWITZERLAND: Khadra Abdullahiassociate of investment banking, Faisal Private Bank TANZANIA: Khalfan Abdallahhead of product development and Sharia compliance, Amana BankTUNISIA: Karim AmousManaging partner, SmartecoTURKEY: Ali Ceylanpartner, Baspinar & PartnersUAE: Moinuddin MalimCEO, Mashreq Al IslamiUK: Siraj Ibrahimcorporate fi nance manager, QIB UKUS: Saeid Hamedanchi, CEO, ShariahSharesYEMEN: Moneer Saifhead of Islamic banking, CAC Bank
IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports. For more information about becoming an IFN Correspondent please contact [email protected]
TURKEY
By Ali Ceylan
As an outcome of the growing investor interest in the participation bank sector, the Turkish government has decided to take part in the Turkish Shariah compliant banking market by establishing two state-owned participation banks. It is expected that the government’s recent move will accelerate the growth of the participation bank sector and strengthen investor confi dence in Islamic fi nance.
The Turkish participation bank sector currently has a value of around US$72 billion and holds a 6% share of the total banking market. Not only has the Islamic banking sector grown in recent years, but Islamic fi nance instruments - especially Sukuk - are also att racting more investors. Sukuk issuances worth up to US$450 million were carried out last year and it is expected that this amount will increase up to US$2 billion by the end of 2013. This expected dramatic increase is a result of the government’s interest in Islamic fi nance instruments and issuing sovereign Sukuk certifi cates.
Turkish banking legislation does not currently allow banks to carry out conventional banking and participating banking activities together. Banks can only have either a conventional banking license or participation banking
license. Therefore, it is not possible for the current government banks to hold a participation banking license. The Banking Regulation and Supervision Agency issues new banking licenses under the condition that the bank shall have a minimum capital of US$300 million at the incorporation stage.
Fahrett in Yahsi, the general manager of Albaraka Turk,one of Turkey’s four existing participation banks, stated that the two future state-owned participating banks will att ract more investors, since the current 700 branches of the four current banks do not meet the demand and cannot cover the whole of Turkey. Additionally, the establishment of these two new banks will create a competitive environment which may help the participation bank sector to off er a cheaper and bett er quality service to customers.
Rating agency S&P has raised Turkey's credit rating one notch to ‘BB+’, the highest speculative grade by market participants. This signifi es a growing confi dence in Turkey's economy, with a stable outlook. However Mehmet Şimşek, the country’s minister of fi nance, commented that although the increased rating is encouraging, Turkey deserves a higher grade.
Ali Ceylan is a partner at Baspinar & Partners. He can be contacted at [email protected].
Turkish government enters participation bank sector
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The Al-Azhar Council of Senior Scholars has given its opinion on the Sukuk resolution which was approved by the parliament and forwarded to the Egyptian president, Mohamed Morsi. The president referred the law to Al-Azhar to obtain its opinion, as according to the Egyptian constitution Al-Azhar is the senior authority on any issue related to the Islamic Shariah.
Al-Azhar has asked for the amendment and deletion of several clauses in order to make the new law Shariah compliant.
The council has also recommended a maximum Sukuk tenor of 25 years. However, its major concern is related to ensuring the government may not use sovereign assets as underlying assets for Sukuk issuance, as the scholars have concerns that these could then be taken over by Sukukholders in case of any default or failure by the government to meet its obligations. This observation came despite government assurances that it would not use any asset that is strategically vital, such as the Suez Canal, against issuance of Sukuk.
Al-Azhar has a unique status in the Muslim world in relation to Islamic Fiqh, hence, it is anticipated that any
comments purely related to Shariah aspects for issuing Sukuk will form a base for discussion among global Shariah scholars of Islamic fi nance.
Overall, the last couple of weeks have been important for Sukuk in the MENA region from a regulatory perspective. In addition to the above activity in Egypt, the Muscat Securities Market in Oman and the Dubai Financial Market in the UAE also held discussions about Sukuk standards for the issuance and trade of Sukuk.
Mohammad Abdullah Malik Dewaya is the head of Shariah compliance and audit of Maisarah Islamic Banking Services. He can be contacted at [email protected].
REAL ESTATE (EUROPE)
By Philip Churchill
With London’s Westminster Council this week approving the planning application to create the UK’s most expensive private home, it makes me wonder if there is any limit to residential values in London.
Having bought the former In and Out Club opposite the Ritz Hotel in 2011, the UK billionaire entrepreneurs David and Simon Reuben have achieved consent for a palatial 48-room family residence that could be worth up to GBP200 million (US$304.6 million), equal to more than GBP3,300 (US$5,026) for each of its 60,000 square feet.
Not more than 10 years ago, I remember a transatlantic conference call where my US employer couldn’t believe that prime London residences could exceed GBP1,000 (US$1,523) per square
foot. That all looks cheap now, with values regularly in the GBP3,000-5,000 (US$4,569-7,616) per square foot range. So what has changed?
Knight Frank’s recently published ‘Wealth Report 2013’ sheds some light on what is driving this top end of the residential market. Globally mobile high net worth individuals (HNWIs) typically have more than three homes now, with a desire to increase that further as a store of wealth; and are looking for global cities where the culture, tax structure and oft en the education requirements of their children suit their needs. Asking global wealth advisors which cities are considered the most important to their HNWI clients, London secured the top spot, with New York and Singapore making up the top three.
The Islamic fi nance industry has long recognized the unique characteristics of London: and whilst the Malaysian
purchase of the iconic Batt ersea Power Station and Qatar’s backing for both One Hyde Park and Chelsea Barracks have fi lled many column inches, there is signifi cant Islamic fi nance activity with more modest but no less important (for their investors) developments.
Arab Banking Corporation and Bank of London and The Middle East have been increasing their fi nancing of such prime residential developments, while 90 North has recently commenced its fi rst central London residential development with backing from Saudi investors.
When it comes to prime residential development perhaps the property mantra of "location, location, location" should be changed to “London, London, London”.
Philip Churchill is the founder partner at 90 North Real Estate Partners. He can be contacted at [email protected].
Sukuk under regulatory spotlight in Egypt, Oman and the UAE
London, London, London
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STOCK BROKING & TRADING: Athif Shukri, research analyst, Adl Capital
SUKUK Marco Mauri, senior director of asset management, Alkhair Capital Saudi Arabia
TAKAFUL & RE-TAKAFUL: Sutan Emir Hidayat, senior lecturer, University College of Bahrain
TREASURY PRODUCTS: Nafi th ALHersh Nazzal, certifi ed fi nancial & investment advisor
TECHNOLOGY: Ali Shervani, country head, Fin8
IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short sector reports. For more information about becoming an IFN Correspondent, please contact [email protected]
DEBT CAPITAL MARKETS
By Muhammad Shoaib Ibrahim
The fi rst quarter of 2013 remained very active in terms of the issuance of Islamic bond and equity instruments. The main driving force of the Islamic debt market was Sukuk issuance. Strong investor appetite is continuously pushing Sukuk into the mainstream segment of the Islamic fi nance industry globally. Based on the performance of the fi rst quarter, good growth is expected for the rest of the year. By 2017, it is forecast that the global demand of Sukuk could grow to around US$900 billion.
Again, the GCC and Asia remain key growth areas for the Sukuk market. Within the GCC, Saudi Arabia witnessed the most signifi cant activities in Sukuk issuance and we estimate that in 2013, Saudi Arabia will see its share of the global Sukuk market increase.
At present, the Islamic capital market is standing on around US$230 billion in outstanding Sukuk papers, which represents a very strong platform for international liquidity and fundraising activities around the world; particularly within Islamic countries. Egypt, the Philippines and Jordan are currently planning to raise money through Sukuk. Other jurisdictions have also shown interest in issuing Sukuk including Senegal, Libya, Tunisia and Nigeria; and are in process of making regulatory inroads for future issuances.
Turkey is working on new regulations to allow the wider use of Islamic bonds for the infl ow of liquidity. Islamic fi nance is rapidly growing in Turkey and the country is ideally positioned to play a vital role in the promotion of this industry within the region. The UK government is also considering the renewal of plans to sell Islamic bonds as part of an initiative to boost its role as a
center for Shariah compliant fi nancing. Pakistan and Egypt have also issued draft Sukuk regulations for future issuance.
On the issuance side, Sharjah Islamic Bank (SIB) issued US$500 million in fi ve-year Sukuk under its newly established US$1.5 billion Sukuk program (see Case Study, p.16). As the fi rst senior fi nancial institution Sukuk from the region in 2013, SIB was able to take advantage of the positive market. The order book was over six times subscribed (US$3.24 billion), representing one of the most robust order books from the region.
Allen & Overy, in association with a leading local law fi rm, advised Saudi Electricity Company, the Gulf's largest utility company, on its fi rst US$2 billion Sukuk off ered to US and other international investors. Gulf banks are likely to continue tapping the bond markets at favorable rates to keep sound capital and liquidity positions as they look to enhance their asset base. Banks in the region have been examining ways to raise funds to support Tier 1 capital through issuance of Sukuk. Recently Abu Dhabi Islamic Bank and Dubai Islamic Bank have also issued Sukuk papers for Tier 1 support.
More sovereign issuers are anticipated to raise liquidity through Sukuk in 2013 as governments will continue to raise funds to support economic growth and fund fi scal defi cits. Increasing demand and popularity for Shariah compliant products through innovative structures are creating a viable platform for the Sukuk market.
Muhammad Shoaib Ibrahim is the managing director & CEO of First Habib Modaraba. He can be contacted at [email protected].
Active first quarter for Islamic debt
Next Forum Question:
In light of the recent allegations on the First Islamic Investment Bank (Vol 10 Issue 15) do you think there is a need for off shore centers to heighten their regulatory oversight and be more selective in terms of the companies that are allowed to be incorporated? If you would like to air your views on the next Forum Question, please email your response of between 50 and 300 words to Christina Morgan, forum editor, at: [email protected] before the 26th April 2013.
Despite Turkey’s nearly 75 million Muslim-strong population, Islamic fi nance has not received the att ention it deserves in the country until recently. For many years, Islamic banks have taken a backseat, primarily because of the strongly secular political environment in the country. However, as Turkey’s political and economical structure evolves and transforms, a new chapter is opening for Islamic fi nance.
While there is signifi cant interest in the Islamic banking industry in Turkey, the Islamic capital market, like its conventional counterpart, has been slow to develop. Historically, the Turkish Islamic capital market has roots dating back to 1984 when the Turkish Treasury issued revenue-sharing certifi cates (income bonds) on Bosphorus Bridge revenues.
Subsequently, the treasury issued several diff erent debt instruments considered to be Islamic by the public but never offi cially designated as Islamic fi nance instruments.
A successful sovereign Sukuk issuance by the treasury (which raised about US$1.5 billion) in 2012, however, paved the way for Turkish companies to raise money through Islamic bonds and may help the country become a major market for Islamic investors from the Gulf and Southeast Asia. But how easy will it be for Turkish corporations to launch Sukuk on the global markets?
Turkish corporations have to overcome three main obstacles to create a successful issuance of Sukuk. The fi rst is the sovereign credit rating of Turkey. Most Sukuk are rated by credit rating agencies, which can give investors confi dence. Turkey has suff ered from low rating scores for a decade despite its relatively strong economic performance. This hinders Turkish fi rms from issuing competitive fi nancial instruments in the international market.
On the other hand, this disadvantage opens a new perspective for Islamic
fi nance in Turkey as low credit ratings also discourage conventional interest-based fi nancing for Turkish fi rms, leaving open the narrow corridor of asset-based/backed fi nancing structures of Islamic fi nance for Turkish corporations seeking global funds.
A second obstacle is the legal framework in Turkey. As many Sukuk investors are Islamic investors located in the Gulf region, Turkey needs a legal environment which is acceptable to these investors. Turkish laws such as the Commercial Code and Civil Code have serious inadequacies in covering the basic mechanisms of Sukuk issuance such as the lack of a trustee concept.
And for domestic issuances, apart from the fact that Islamic law is not applicable, Turkey is also not a ‘common law’ country. This creates a deep chasm between Islamic fi nance and the Turkish legal environment, as Islamic fi nance needs a more fl exible environment. All the details of Sukuk issuance must be covered by legislation. As a consequence of the current gaps in legislation, delays in the Sukuk issuance process can arise and may cause problems.
A third issue is the knowledge level of Turkish corporations about Islamic fi nance. As Turkish corporations approach Sukuk as a way to access a new source of funds, they do not necessarily take a deep interest in the Islamic fi nance principles behind
the structures. For example airlines in Turkey serve alcoholic beverages, which could prevent the fi nancing of aircraft through Islamic fi nance. Another example can be found in the construction industry in Turkey. Some of the shopping centers in Turkey comprise of tenants that sell tobacco or liquor, which can prevent fi nancing through Islamic means. Therefore, Turkish corporations need to evaluate their activities on the basis of Islam and may need proper consulting and education in order to do so.
Access to the global Sukuk market is easier for the treasury and for the Turkish participation banks as they already have the knowledge and resources to overcome these obstacles. In this respect, Turkish corporations have a comparatively narrow corridor to reach Sukuk fi nancing through global markets.
On the other hand, Turkey off ers considerable potential for Islamic fi nance, particularly Sukuk. Impressive construction projects to be conducted by Turkish corporates include the third Bosphorus bridge (US$2.5 billion) while huge privatization projects such as highways are creating a demand for funds which could be fi nanced through Sukuk.
As the world’s 17th largest economy, Turkey urgently needs a diversifi cation of its fi nancing model. As Islamic fi nance fi nally fi nds a foothold in Turkey following years of political reluctance, the treasury and the existing participation banks should do all they can to encourage the healthy expansion of this path — including both fi nancial and non-fi nancial companies.
To achieve success, Turkey needs a more fl exible approach to legal structure, while Turkish corporates must take a deeper look at the principles behind Islamic fi nance.
Atila Yanpar is an expert at the Capital Markets Board of Turkey. He can be contacted [email protected].
Make way for Turkey Following the Turkish government’s recent and well-received maiden Sukuk, investors are clamoring for more. ATILA YANPAR examines the opportunities that the sovereign Sukuk has opened up for corporates in the country, along with the challenges that may still inhibit issuance.
As a consequence of
the current gaps in legislation, delays in the Sukuk issuance process can arise and may cause problems
Islamic fi nance has made signifi cant inroads in the international fi nancial markets and has achieved growing global awareness. Islamic fi nance as an industry now has a presence in over 60 countries, predominantly in Muslim countries. In the context of fi nancial infrastructure, the Egyptian Islamic fi nancial system is both robust and fast-growing. The market has highly diversifi ed players, with Islamic banks, investment banks, Takaful companies, development fi nancial institutions, savings institutions, fund management companies, stock brokers and unit trusts.
Participation in the Islamic fi nance process requires the development of a comprehensive and well-established Islamic fi nancial system including: a wide range of products and services, a good legal system, adequate fi nancial infrastructure with competitive tax structures, low cost of doing business, high standards of business ethics and conducive living conditions and cultural off erings. It also needs to be supported by adequate human resources talent that can drive business and spur innovation. In addition, a strong regulatory regime is another pull factor.
The Egyptian government’s support for Islamic banking is increasing, according to the Ministry of Investment. Egypt has a long tradition in providing Islamic banking products and showed an early interest in modern Islamic fi nance. In 1963, Ahmad El Najjar established the Mit Ghamr Savings Bank largely in line with the principles of Shariah compliant investment.
However, presently the country lags behind other countries in the Gulf and Southeast Asia. The current government is exploring opportunities off ered by the Sukuk market and Islamic banking in the region, in addition to Abu Dhabi Islamic Bank’s expansion into Egypt. As the Ministry of Finance has indicated that Islamic fi nance is to develop within the banking structures currently in place, a prerequisite is that Islamic fi nancial
institutions must respect the rules of disclosure, monitoring and prudent regulations. The funds that would pour into Egypt upon further development of this industry by the Egyptian government would undoubtedly contribute to the country’s fi nancial position. Most notably, it would stimulate the job market and generate more capital for investments.
New Sukuk lawEgypt will issue its fi rst Islamic debt guidelines and amend its capital market law in a drive to spur Arab investment and open itself to investment from the Gulf and Southeast Asia. The move will allow oil-rich countries to invest in the roughly 180 companies listed on the Egyptian stock market.
“The Board of Directors for the Egyptian Financial Supervisory Authority (EFSA) has issued… its initial approval of the amendment proposal to the Capital Market Law No 95 of 1992 that involves the issuance and organizing of Islamic bonds (Sukuk),” announced a statement published by the fi nancial watchdog this month.
The statement also noted that the proposal will be discussed by experts and other involved parties before being fl oated for fi nal approval by Egypt’s cabinet.
Egypt could become a major global platform for Islamic fi nance in view of its resources, expertise in Shariah compliant products and services, and world class regulatory framework. It is signifi cantly active in the major global Islamic centers such as Malaysia. Also, there is a growing demand for Islamic fi nance in Egypt and in the region.
Egypt’s market has three listed Shariah compliant banks: Al Baraka Bank, Faisal Islamic Bank of Egypt and National Bank for Development.The global market for Islamic fi nancial services was estimated to have reached US$729 billion at the end of 2007, a 37% year-on-year increase, according to a 2009 paper by the
Egyptian British Chamber of Commerce entitled ‘Report on Islamic Banking in the UK and Egypt’.
The logic behind introducing Sukuk in the Islamic world is that any form of interest derived from investments is forbidden. Islamic fi nance works from the premise that both the individual customer and bank should be at equal risk upon investment; any possible profi ts or losses should be equally divided between them. Conventional fi nancial services, as well as fi nance for activities related to alcohol, gambling and tobacco, are incompatible with the principles set out in Shariah law and therefore prohibited in the Islamic banking system. The Egyptian government recently approved a draft law that will allow the state to issue Islamic bonds, or Sukuk, a move that could help narrow a gaping budget defi cit and boost foreign currency reserves that have fallen to critically low levels.
Finance minister Al Mursi Al Sayed Hegazy said Egypt could raise around US$10 billion a year from the Sukuk market — much more than some analysts expect — but added that it would take at least three months to push through the necessary regulations. Shaped by Egypt’s fi rst Islamist-led administration, the law will also allow private borrowers to issue Sukuk. Egypt has never before issued bonds that adhere to Islamic principles, under which the payment of interest is impermissible.
The law will be referred to the Islamist-dominated upper house of parliament before fi nal approval from president Mohamed Morsi. An earlier version of the Sukuk law was criticized by Islamic scholars, forcing a rethink. With the Morsi administration facing a deep economic crisis, the issuance of Islamic bonds could provide some fi nancial support as parliamentary elections approach. The voting is set to begin in late April and stretch into late June.
Abu Bakr Abdel Rahman is a fi nancial consultant to Abu Dhabi Islamic Bank. He can be contacted at [email protected].
Turning the wheels for Egypt With the current government facing a worrying economic crisis following the revolution in 2011, could Islamic fi nance be the bridge to channel much-needed foreign funds into a country struggling to rebuild itself? ABU BAKR ABDEL RAHMAN takes a look at the current and future opportunities for Shariah compliant banking in Egypt.
Infrastructure development in Indonesia is set to expand as the government’s Masterplan for the Acceleration and Expansion of Indonesian Economic Development (MP3EI) comes into eff ect, outlining infrastructure development in Indonesia from 2011-25. The MP3EI represents a large investment fund into the sector, including:
1. Indications of investment into the development of six economic corridors to the amount of IDR4.01 trillion (US$412.9 million).
2. Indications of investment into infrastructure development to the amount of IDR1.79 trillion (US$183.8 million).
However, as sources of government funding are limited, the Indonesian government is seeking private parties to fi nance infrastructure development. For example, the state has recently issued fi nancing instruments including governments bonds, treasury bills and Sukuk.
Sukuk is one of the instruments that is growing in popularity following the monetary crisis in Indonesia. The government has worked hard towards developing this instrument, which consists of state Sukuk Ijarah regular fi xed rate papers (IFR), Indonesian retail Sukuk (SR), Islamic savings bonds, Islamic treasury bills (SPN-S) and project fi nancing Sukuk.
During most of this time, Sukuk investors have been institutions. However, in order to expand its customer base for Sukuk, the Indonesian government has been issuing retail Sukuk since 2009. Retail Sukuk is sold to individual Indonesian citizens through a selling agent in the primary market. It has been planned that retail Sukuk will be issued each year.
The purpose of government retail Sukuk issuance is as follows:
1. Financing the state budget, including fi nancing infrastructure projects and improving public services and government investment.
2. Expanding the resource base of state budget fi nancing and diversifying the Sukuk investor base.
3. Boosting the growth and development of the Islamic fi nancial market in Indonesia. At this point the government wants to develop alternative investment instruments and create a benchmark in the Islamic fi nancial market.
4. Optimizing the utilization of state property and encouraging the orderly administration of management of state property.
Retail Sukuk schemeRetail Sukuk uses the Ijarah or asset leasing structure, with transaction schemes as follows:
1. The government, as the Ijarah objects buyer, and the issuing company of Sukuk as the provider of Ijarah objects, reach an agreement of Ijarah object ordering. Ijarah objects are the Sukuk assets, of which the type, value, and certain specifi cations are rented through a contract of Ijarah assets to be leased.
2. The issuing company of Sukuk, as the endorser and the government as the recipient, then come into a Wakalah agreement (authorization) in order to provide the Ijarah object used as the Sukuk asset.
3. The issuing company then issues Sukuk as evidence for the investors
participation/ownership of the Sukuk assets and use of funds from issuing the Sukuk for paying the availability of Ijarah objects which will be used as the Sukuk asset.
4. The issuing company of Sukuk as the lessor and the government as the tenant, agree to a lease (Ijarah assets to be leased) of the Sukuk assets.
Risks of retail SukukAs with other investment instruments, retail Sukuk have both potential benefi ts and risks of loss. The potential benefi ts of retail Sukuk are the payment of yields/return, which are paid each month, and guaranteed by the government; and the potential capital gain from the diff erence between the sales price and the purchase. Potential Sukuk losses include default risk, market risk and liquidity risk.
Retail Sukuk investment is an investment that, in principle, is free of the default risk that the government might fail to pay benefi ts and nominal value to investors because the retail Sukuk principal is guaranteed by the government.
Market risk in the form of capital losses occurs in the secondary market. This is possible due to the risk of the retail Sukuk selling at a price lower than the purchase price. The risk of capital loss can be avoided by not selling retail Sukuk to maturity.
Liquidity risk due to potential losses might also happen if before the maturity, the owner of retail Sukuk has diffi culties in selling retail Sukuk in the secondary market at a reasonable market price. A mitigation of this risk can be achieved if the retail Sukuk is sold on the secondary market, pledged or mortgaged to other parties.
Performance of retail SukukRetail Sukuk have already been launched fi ve times in Indonesia including the series SR-001, SR-002, SR-003, SR-004 and SR-005 off ered in 2013. Since its launch, retail Sukuk have seen a consistent
Retail Sukuk in Indonesia With multiple large state infrastructure projects on the horizon, investment in Indonesia is expected to pick up as the government seeks to raise private fi nance to fund its economic development masterplan. TONY HIDAYAT discusses the opportunities this could provide for retail Sukuk in the rapidly developing country.
As sources of government
funding are limited, the Indonesian government is seeking private parties to finance infrastructure development
increase in sales. However, the returns of retail Sukuk have declined. This indicates a potential expansion of the domestic investor base and an increased effi ciency of public funds.
From SR-001 to SR-005, the sales agents have continued to increase. This indicates that retail Sukuk has huge business potential, as can be seen in Table 1.
Table 1: Agents selling retail Sukuk
Series Sales Agent Amount
Bank Securities Company
SR-001 5 8 13
SR-002 10 8 18
SR-003 11 9 20
SR-004 13 11 24
SR-005 16 9 25
The nominal sales performance of retail Sukuk from SR-001 to SR-005 has also increased, as can be seen in Table 2.
Table 2: Nominal sales performance of retail Sukuk
Series Coupon Total of National Sales
SR-001 12.50% IDR5.5 trillion (US$566.1 million)
SR-002 8.70% IDR8 trillion (US$823.5 million)
SR-003 8.15% IDR7.3 trillion (US$751.4 million)
SR-004 6.25% IDR13.6 trillion (US$1.39 billion)
SR-005 6% IDR14.9 trillion (US$1.53 billion)
The last type of retail Sukuk that was issued in Indonesia is the retail Sukuk Seri-005 (SR-005). SR-005 was off ered from the 8th- 22nd February 2013 and published on the 27th February 2013. The Indonesia government targeted sales of IDR14.9 trillion (US$1.53 billion). However, the Ministry of Finance noted that the total number of bookings exceeded the selling amount of IDR20.87 trillion (US$2.14 billion) when it closed on the 25th February 2013. The series reached 17,783 investors.
Sukuk and Islamic bankingSelling agents consist of banks and securities companies. With the series SR-005, 25 sales agents consisted of 16 banks and nine securities companies, were appointed by the government. Of
the 16 banks, three were Islamic banks: Bank Syariah Mandiri, Bank BRI Syariah and Bank Muamalat Indonesia. Islamic windows of conventional banks may also sell Sukuk on behalf of their parent bank. Some Islamic banks have also joined forces with securities companies, such as Bank Syariah Bukopin .
The advantages for an Islamic bank to act as a retail Sukuk sales agent are:
1. Achieving fee-based income which is equal to 0.45% (net) of the initial market value of investments, and the opportunity to get the FBI transactions in the secondary market.
2. The addition of accounts, fund administration and FBI accounts of new investors.
3. Long-term customer loyalty.4. Cross-selling with other bank
products, such as savings products, e-banking etc.
The advantages for bank customers to be retail Sukuk investors are:
1. Earning a higher return than the rate of return provided by the bank’s own products (such as time deposit and saving accounts). Yield/return is fi xed and payable monthly until maturity.
2. Investment in retail Sukuk is safe, because yields/return payments and principal are guaranteed by the government.
3. Diversifi cation of investment portfolios.
4. Investment in retail Sukuk is not contrary to the principles of Shariah.
5. Retail Sukuk can be traded in the secondary market in accordance with
the market price, so investors are likely to achieve capital gains in the secondary market.
6. The principal of retail Sukuk is guaranteed 100% by the government, while deposits only are only guaranteed up to IDR2 billion (US$205,761). Sukuk also has a lower tax rate than deposits.
7. Retail Sukuk provides opportunities for people to participate in and support national development fi nancing.
To increase its sales of retail Sukuk, an Islamic bank should implement the following strategies:
1. Prepare a cost budget for the retail Sukuk selling process: including promotional cost, form printing cost, socialization cost, investor gathering cost, etc.
2. Off er the socialization of Sukuk to Islamic bank employees and existing customers.
3. Provide product knowledge and skills training on Sukuk to frontline staff .
4. Provide product knowledge and skills training on Sukuk to marketing and frontline staff
5. Develop IT systems compatible with retail Sukuk transactions and monitoring.
6. Optimize the offi ce channeling with the parent bank to expand the network sales of retail Sukuk
Tony Hidayat is the program manager for Micro, Retail & Business Banking Academy at Bank Syariah Mandiri. He can be contacted att [email protected].
REDmoney Global Shariah Index Series (All Cap) 6 Months REDmoney Global Shariah Index Series (Large Cap) 6 Months
REDmoney Global Shariah Index Series (Medium Cap) 6 Months REDmoney Global Shariah Index Series (Small Cap) 6 Months
Utilities2%Telecomunication Services
2%
Technology14%
Basis Materials15%
Non-CyclicalConsumer Goods Services
7%
Energy8%
Financials4%
Healthcare11%
Industrials22%
Consumer Goods Services15%
REDmoney Global Shariah
Equities are considered eligible for inclusion into the REDmoney Global Shariah Index Series only if they pass a series of market related guidelines related to minimum market capitalization and liquidity as well as country restrictions.
Once the index eligible universe is determined the underlying constituents are screened using a set of business and fi nancial Shariah guidelines.
The REDmoney Global Shariah Index Series powered by IdealRatings consists of a rich subset of global listed equities that adhere to clearly defi ned and transparent Shariah guidelines defi ned by Shariyah Review Bureau in Jeddah, Saudi Arabia.
The REDmoney Shariah Indexes provides Islamic investors with an accurate and Shariah-specifi c equity performance benchmark with optimized compliance credibility due to the intensive research conducted to ensure that index constituents do not confl ict with the defi ned Shariah requirements.
IdealRatings™ is the leading provider of Shariah investment decision support tools to investors globally, including asset managers, brokers, index providers, and banks to empower them to develop, manage and monitor Shariah investment products and Shariah compliant funds. IdealRatings is headquartered in San Francisco, California. For more information about IdealRatings visit: www.idealratings.com
REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC
REDmoney Global REDmoney MENA REDmoney US
500
640
780
920
1060
1200
AprMarFebJanDecNov 450
580
710
840
970
1100
AprMarFebJanDecNov
REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC
REDmoney Global REDmoney MENA REDmoney US
500
760
1020
1280
1540
1800
AprMarFebJanDecNov
REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC
REDmoney Global REDmoney MENA REDmoney US
500
700
900
1100
1300
1500
AprMarFebJanDecNov
REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC
Comprehensive data from Eurekahedge will now feature the overall top 10 global and regional funds based on a specifi c duration (yield to date, annualized returns, monthly returns), Sharpe ratio as well as delve into specifi c asset classes in the global arena – equity, fi xed income, money market, commodity, global investing (which would focus on funds investing with global mandate instead of a specifi c country or geographical region), fund of funds, real estate as well as the Sortino ratio. Each table covering the duration, region, asset class and ratio will be featured on a fi ve week rotational basis.
Eurekahedge Islamic Fund Index
Inde
x Va
lues
Top 10 Yield-to-Date Returns for ALL Islamic Funds
Fund Fund Manager Performance Measure Fund Domicile
1 NBAD UAE Islamic (Al Nae'em) National Bank of Abu Dhabi 18.65 UAE
2 Amanah GCC Equity SABB 13.90 Saudi Arabia
3 AlAhli Healthcare Trading Equity The National Commercial Bank 13.46 Saudi Arabia
4 Jadwa Saudi Equity Jadwa Investment 13.27 Saudi Arabia
5 Jadwa GCC Equity Jadwa Investment 12.75 Saudi Arabia
6 Bakheet Saudi Trading Equity Bakheet Investment Group 11.71 Saudi Arabia
7 Al Dar Securities ADAM 11.70 Kuwait
8 Jadwa Arab Markets Equity Jadwa Investment 11.47 Saudi Arabia
9 Al Madar US Index Almadar Finance & Investment 11.22 Kuwait
10 Al Danah GCC Equity Trading Banque Saudi Fransi 10.47 Saudi Arabia
Eurekahedge Islamic Fund Index 2.40
Top 10 Sharpe Ratio for ALL Islamic Funds since Inception
Fund Fund Manager Performance Measure Fund Domicile
1 Meezan Tahaff uz Pension - Money Market Sub Al Meezan Investment Management 10.38 Pakistan
2 BIG Dana Muamalah Bhakti Asset Management 5.64 Indonesia
3 Meezan Tahaff uz Pension - Debt Sub Al Meezan Investment Management 5.14 Pakistan
Fund Fund Manager Performance Measure Fund Domicile
1 NBAD UAE Islamic (Al Nae'em) National Bank of Abu Dhabi 18.65 UAE
2 Amanah GCC Equity SABB 13.90 Saudi Arabia
3 AlAhli Healthcare Trading Equity The National Commercial Bank 13.46 Saudi Arabia
4 Jadwa Saudi Equity Jadwa Investment 13.27 Saudi Arabia
5 Jadwa GCC Equity Jadwa Investment 12.75 Saudi Arabia
6 Bakheet Saudi Trading Equity Bakheet Investment Group 11.71 Saudi Arabia
7 Al Dar Securities ADAM 11.70 Kuwait
8 Jadwa Arab Markets Equity Jadwa Investment 11.47 Saudi Arabia
9 Al Madar US Index Almadar Finance & Investment 11.22 Kuwait
10 Al Danah GCC Equity Trading Banque Saudi Fransi 10.47 Saudi Arabia
Eurekahedge Islamic Fund Equity Index 4.11
Top 10 Islamic Globally Investing Funds by 3 Months Returns
Fund Fund Manager Performance Measure Fund Domicile
1 AlAhli Healthcare Trading Equity The National Commercial Bank 13.46 Saudi Arabia
2 ETFS Physical Palladium ETFS Metal Securities 10.43 Jersey
3 AmOasis Global Islamic Equity AmInvestment Management 8.92 Malaysia
4 AlAhli Small Cap Trading Equity The National Commercial Bank 7.39 Saudi Arabia
5 EasyETF DJ Islamic Market Titans 100 BNP Paribas Investment Partners 7.35 France
6 Reliance Global Shariah Growth - USD I Reliance Asset Management (Malaysia) 7.19 Guernsey
7 CIMB Islamic Global Equity CIMB-Principal Asset Management 7.13 Malaysia
8 HSBC Amanah Global Equity Index HSBC Amanah Central Shariah Committ ee 6.00 Saudi Arabia
9 Al Rajhi Global Equity UBS 5.60 Saudi Arabia
10 AlAhli Global Trading Equity The National Commercial Bank 5.59 Saudi Arabia
Eurekahedge Global Islamic Fund Index 1.89
Based on 66.88% of funds which have reported March 2013 returns as at the 23rd April 2013
Based on 82.46% of funds which have reported March 2013 returns as at the 23rd April 2013
Contact EurekahedgeTo list your fund or update your fund information: [email protected] further details on Eurekahedge: [email protected] Tel: +65 6212 0900
DisclaimerCopyright Eurekahedge 2007, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an “as is” basis and you assume and will bear all risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its affi liates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and fi tness for any purpose.
Perc
enta
ge
Eurekahedge Islamic Fund Balanced Index over the last 5 years Eurekahedge Islamic Fund Balanced Index over the last 1 year
Top 30 Issuers of Global Sukuk 12 MonthsIssuer Nationality Instrument Market US$ (mln) Iss Managers
1 State of Qatar Qatar Sukuk Euro market public issue
4,000 8.6 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest, Barwa Bank
2 Saudi Electricity Company
Saudi Arabia
Sukuk Euro market public issue
2,000 4.3 Deutsche Bank, HSBC
2 Dubai DOF Sukuk UAE Sukuk Euro market public issue
2,000 4.3 HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Citigroup, Standard Chartered Bank, Emirates NBD
4 Sadara Chemical Saudi Arabia
Sukuk Musharakah
Domestic market public issue
2,000 4.3 Deutsche Bank, Riyad Bank, Al-Bilad Bank, Alinma Bank
5 Turus Pesawat Malaysia Sukuk Murabahah
Domestic market public issue
1,734 3.7 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank
6 Celcom Transmission (M)
Malaysia Sukuk Murabahah
Domestic market public issue
1,590 3.4 HSBC, CIMB Group, Maybank Investment Bank
7 Republic of Turkey Turkey Sukuk Euro market public issue
1,500 3.2 HSBC, Kuwait Finance House, Citigroup
8 National Higher Education Fund
Malaysia Sukuk Domestic market public issue
1,497 3.2 CIMB Group, Maybank Investment Bank, RHB Capital, AmInvestment Bank
9 Tanjung Bin Power Malaysia Sukuk Domestic market private placement
1,298 2.8 CIMB Group, Maybank Investment Bank
10 Malakoff Malaysia Sukuk Domestic market public issue
1,260 2.7 Maybank Investment Bank
11 Khazanah Nasional Malaysia Sukuk Domestic market private placement
1,247 2.7 Kenanga Investment Bank, DRB-HICOM, CIMB Group, AmInvestment Bank
12 DanaInfra Nasional Malaysia Sukuk Domestic market public issue
1,242 2.7 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank, Hong Leong Bank
13 Perusahaan Penerbit SBSN Indonesia III
Indonesia Sukuk Ijarah Euro market public issue
1,000 2.1 Standard Chartered Bank, Deutsche Bank, HSBC
13 Dubai Electricity & Water Authority
UAE Sukuk Ijarah Euro market public issue
1,000 2.1 Standard Chartered Bank, RBS, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD
13 DIB Tier 1 Sukuk UAE Sukuk Euro market public issue
1,000 2.1 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD
13 Abu Dhabi Islamic Bank
UAE Sukuk Euro market public issue
1,000 2.1 Standard Chartered Bank, Morgan Stanley, HSBC, National Bank of Abu Dhabi, Abu Dhabi Islamic Bank
17 Medjool UAE Sukuk Wakalah
Euro market public issue
993 2.1 Standard Chartered Bank, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD
18 Johor Corporation Malaysia Sukuk Domestic market public issue
939 2.0 CIMB Group, Affi n Investment Bank, AmInvestment Bank, Maybank Investment Bank
19 Malaysia Malaysia Sukuk Murabahah
Domestic market public issue
817 1.8 Maybank Investment Bank
20 Sime Darby Global Malaysia Sukuk Ijarah Euro market public issue
800 1.7 Standard Chartered Bank, HSBC, Citigroup, Maybank Investment Bank
20 IDB Trust Services Saudi Arabia
Sukuk Euro market public issue
800 1.7 Saudi National Commercial Bank, Standard Chartered Bank, BNP Paribas, HSBC, CIMB Group
22 Qatar Islamic Bank Qatar Sukuk Euro market public issue
750 1.6 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest
22 BSF Sukuk Saudi Arabia
Sukuk Euro market public issue
750 1.6 Deutsche Bank, Citigroup, Credit Agricole
24 Qatar International Islamic Bank
Qatar Sukuk Euro market public issue
700 1.5 Standard Chartered Bank, HSBC, Qatar National Bank
25 Jafz Sukuk UAE Sukuk Euro market public issue
650 1.4 Standard Chartered Bank, Abu Dhabi Commercial Bank, National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD
26 Syarikat Prasarana Negara
Malaysia Sukuk Murabahah
Domestic market public issue
644 1.4 RHB Capital, Kenanga Investment Bank, CIMB Group
27 Malakoff Corporation
Malaysia Sukuk Domestic market private placement
577 1.2 Maybank Investment Bank
28 Golden Assets International Finance
Singapore Sukuk Domestic market public issue
571 1.2 RHB Capital
29 TASNEE Saudi Arabia
Sukuk Domestic market private placement
533 1.1 HSBC
30 SIB Sukuk Co III UAE Sukuk Euro market public issue
500 1.1 Standard Chartered Bank, HSBC, Kuwait Finance House, Al Hilal Bank
30 Emaar Sukuk UAE Sukuk Euro market public issue
500 1.1 Standard Chartered Bank, HSBC, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Emirates NBD, Noor Islamic Bank, Al Hilal Bank, Barwa Bank
30 EIB Sukuk UAE Sukuk Euro market public issue
500 1.1 Standard Chartered Bank, HSBC, Dubai Islamic Bank, Emirates NBD, Credit Agricole
30 DIB Sukuk UAE Sukuk Euro market public issue
500 1.1 Deutsche Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD
Top Islamic Finance Related Loans Mandated Lead Arrangers Ranking 12 Months
Mandated Lead Arranger US$ (mln) No %
1 SABB 1,165 5 5.7
2 Arab National Bank 905 3 4.5
3 CIMB Group 842 3 4.2
4 Maybank Investment Bank 831 4 4.1
5 AmInvestment Bank 816 3 4.0
6 RHB Capital 794 2 3.9
7 Emirates NBD 765 6 3.8
8 Saudi National Commercial Bank 750 4 3.7
9 Banque Saudi Fransi 713 4 3.5
10 Standard Chartered Bank 693 8 3.4
11 Abu Dhabi Islamic Bank 691 9 3.4
12 Samba Capital 642 5 3.2
13 Dubai Islamic Bank 596 4 2.9
14 HSBC 574 5 2.8
15 Al-Rajhi Banking & Investment 541 3 2.7
16 Citigroup 516 4 2.5
17 Noor Islamic Bank 499 6 2.5
18 Riyad Bank 478 3 2.4
19 Credit Agricole 459 2 2.3
20 Mitsubishi UFJ Financial Group 382 2 1.9
21 Mashreqbank 362 6 1.8
22 Al Hilal Bank 351 6 1.7
23 National Bank of Abu Dhabi 341 3 1.7
24 Abu Dhabi Commercial Bank 291 2 1.4
25 Standard Bank 289 1 1.4
25 National Bank of Kuwait 289 1 1.4
25 Gulf Bank 289 1 1.4
25 DBS 289 1 1.4
29 First Gulf Bank 253 5 1.3
30 Saudi Investment Bank 218 1 1.1
Top Islamic Finance Related Loans Mandated Lead Arrangers12 Months
Bookrunner US$ (mln) No %
1 Credit Agricole 867 1 12.5
1 Banque Saudi Fransi 867 1 12.5
1 Al-Rajhi Banking & Investment 867 1 12.5
4 QInvest 624 3 9.0
5 Abu Dhabi Islamic Bank 597 5 8.6
6 HSBC 412 3 6.0
7 Emirates NBD 368 3 5.3
8 Citigroup 367 3 5.3
9 Samba Capital 362 2 5.2
10 Dubai Islamic Bank 293 2 4.2
Top Islamic Finance Related Loans by Country 12 Months
Nationality US$ (mln) No %1 Saudi Arabia 7,449 8 36.72 UAE 7,137 9 35.23 Malaysia 3,697 5 18.24 Turkey 577 3 2.95 Qatar 574 2 2.86 Sri Lanka 350 2 1.77 Singapore 207 1 1.08 Brunei Darussalam 170 1 0.89 Pakistan 90 4 0.510 Indonesia 30 1 0.2
Global Islamic Loans - Years to Maturity (YTD Comparison)
Are your deals listed here?If you feel that the information within these tables is inaccurate, you may contact the following directly: Mandy Leung (Media Relations) Email: [email protected] Tel: +852 2804 1223
Top Islamic Finance Related Loans by Sector 12 Months
0US$ bln 1 32 654
Transportation
Government
Mining
Metal & Steel
Telecommunications
0% 20% 40% 60% 80% 100%2007200820092010
201120122013
0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs
Top Islamic Finance Related Loans Deal List 12 Months
Credit Date Borrower Nationality US$ (mln)
28th Mar 2013 Emirates Aluminium UAE 3,400
25th Jul 2012 Zain Saudi Saudi Arabia 2,600
11th Jun 2012 DanaInfra Nasional Malaysia 2,525
18th Dec 2012 Ma'aden Saudi Arabia 2,400
4th Jul 2012 Dubai Duty Free UAe 1,749
13th Jun 2012 JAFZA UAE 1,198
30th Jun 2012 TIBAH Saudi Arabia 1,193
25th Jun 2012 Bawabat Al Shamal Real Estate Company
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MAY 2013
7th IFN Australia Roadshow Melbourne, Australia REDmoney Events
28th — 29th IFN Europe Forum London, UK REDmoney Events
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JUNE 2013
4th — 5th 4th Annual World Islamic Banking Conference: Asia Summit (WIBC Asia 2013)
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12th IFN Japan Roadshow Tokyo, Japan REDmoney Events
12th - 13th Sukuk Summit London, UK ICG-Events
19th IFN Africa Forum Dubai, UAE REDmoney Events
25th IFN Hong Kong Roadshow Hong Kong REDmoney Events
1IMDB Global Investments 690 North Real Estate Partners 19Aabar Investments 6,8AAOIFI 14Abdullah AM Al-Khodari Sons Company 5Absa Bank 20Abu Dhabi Islamic Bank 6,22Abu Dhabi Malaysia Investment Company 6Affi n Bank 7Affi n Holdings 7AIBIM 7Al Baraka Bank 5,22Al Baraka Banking Group 6Al Baraka Turk 5,6,18Al Hilal Bank 5Al Meezan Investment Management 7AlHuda Center of Islamic Banking and Economics 8Alizz Islamic Bank 9Allen & Overy 20AMAF 13AMMB Holdings 7Arab Banking Corporation 11,19Arab Islamic Bank 10Arcapita Bank 9Asian Development Bank 4Asya Sukuk Company 14Australian Taxation Offi ce 9Baker & McKenzie 9Bank BRI Syariah 24Bank Muamalat Indonesia 7,24Bank Muscat 10Bank Negara Malaysia 6,7Bank of England 15Bank of Kuwait 15Bank of Maldives 17Bank Sohar 10Bank Syariah Bukopin 24Bank Syariah Mandiri 24Barwa Bank 5Baspinar & Partners 18BLME 19BNM Sukuk 6BNP Paribas 5Capital Markets Board (Turkey) 21Central Bank of Bahrain 9,10Central Bank of UAE 8CIMB Group 7
CIMB Investment Bank 6CIMB Islamic 7CIMB Niaga Syariah 7CMDA (Maldives) 17Dar Al Sharia 13Dealogic 14DIFC 9Dow Chemical Company 9Dubai Financial Market 10,19Dubai Islamic Bank 6,8,14,20EFG Hermes 8Egyptian British Chamber of Commerce 22Egyptian Exchange 8Emaar Properties 8Emirates NBD 5,8,11Estudio Beccar Varela 7Etihad Airways 5Etiqa Takaful 11Faisal Islamic Bank (Egypt) 22First Gulf Bank 5First Habib Modaraba 20Freshfi elds Bruckhaus Deringer 3GEMS Education 6Habib Al Mulla 9HDFC (Maldives) 19HDFC Amna 17HSBC 14HSBC Amanah 6HSBC Middle East 9Hwang-DBS 7ICD 5ICIEC 5IDB 5,6,9IDB Group 3IILM 1,3,4,9In and Out Club 19Indonesia Stock Exchange 7Irish Stock Exchange 16iSfi n 7Jaiz Bank 17Jazan University Theater 10King’s College 15KPMG 10,14Kuwait Finance House 9Kuwait Finance House Research 9Maisarah Islamic Banking Services 19Maldives Islamic Bank 17
MARC Ratings 6Mashreq Bank 6,8Maybank 7Meezan Bank 7Mit Ghamr Savings Bank 22Monetary Authority (Maldives) 17Moody’s 5Muscat Securities Market 19NAICOM 17Nakheel 8NASDAQ Dubai 10,16National Bank for Development 22National Commercial Bank 10Nomura 5Noor Investment Group 13Noor Islamic Bank 6OSK Investment Bank 7,10Pakistan Railways 14Petronas Dagangan 6PwC Pakistan 14Qatar Central Bank 1Qatar Foundation 3Qatar International Islamic Bank 11QInvest 8RHB Capital 10RHB Investment Bank 7RHB Islamic 7Ritz Hotel 19S&P 3,4,5,18Sabana REIT 11Sadara Chemical Company 13Saudi Arabia Monetary Agency 9Saudi Electricity Company 13,20Saudi Hollandi Bank 5Securities Commission Malaysia 6SEDCO Capital 11Sharjah Islamic Bank 10,16.20Sharjah Islamic University 10Standard Charted Bank 1,4Takaful Ikhlas 11Taylor Wessing 15Turkiye Finans Katilim Bankasi 10UBL Fund Managers 11Union National Bank 11Warba Bank 11Westports Malaysia 10
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