April and May looked to be banner months for sukuk. Two deals, one from the Saudi Electricity Company (SEC) and the other, from Banque Saudi Fransi, the Saudi lender part-owned by Credit Agricole, marked two rare but popular US dollar denominated issues which were highly prized by investors. The benchmark deals helped underscore growing investor appetite for Islamic bonds.

Saudi Fransi, Saudi Arabia’s fifth largest bank, launched $750m five-year Islamic bond mid-month at par amid strong investor demand for the issue in mid-May. The issue is the bank’s first sukuk sale under a recently-established $2bn debt programme.

The sukuk came in at a spread of 185 basis points (bps) over midswaps, at the lower end of its ­indicated range. Initial price guidance was 200bps over midswaps. The deal was heavily oversubscribed, attracting investor orders worth $4bn, under­scoring growing investor appetite for sukuk issuance. The sukuk carries a profit rate of 2.947%. Citi, Deutsche Bank and Credit Agricole were arrangers on the deal.

The deal marks the second dollar denominated sukuk emanating from the Kingdom so far this year. Saudi Electricity’s $1.75bn sukuk, issued three weeks earlier, raised the bar with some $17.5bn in investor orders.  The Saudi Electricity Company (SEC), which is rated A1/AA-/AA- all Stable, is the largest utility in the GCC. The issue was made up of a five year $500m tranche and a $1.25bn ten year element. The ­transaction was led by Deutsche Bank and HSBC marked the inaugural ­international sukuk issuance by SEC and the largest international debt capital markets issuance out of Saudi Arabia for some years. The issuer also wanted to achieve a long tenor bond supported by a diversified investor base, which the arrangers helped secure after a comprehensive global road show. The dual-tranche Sukuk transaction was well received globally and generated a large order book with over 440 investors placing orders.

Shortly after the issue the SEC’s chief executive Ali Al Barrak explained, “The sukuk issue is important to us for strengthening our funding mix, accessing longer-tenor financing, broadening our investor base and helping us become more in line with our global peers while supporting SEC’s capital expenditure requirements.”

Saudi Arabian dollar-denominated bonds come to market relatively infrequently, and attract substantial demand when they do; illustrating that Gulf issuers are benefiting from their own economic micro-climate and are providing something of an oasis for investors starved of comprehensive corporate issuance opportunities. 

Investor appetite for the deals was marked and might just be a sign of a growing preference for Islamic instruments. The evidence is still thin: however Banque Saudi Fransi’s existing $650m conventional bond, which carries interest of 4.5% and matures in 2015, was bid at just over 103.97 in the second week of May, to yield about 2.8%, coming under some selling pressure ahead of the new issue.

Also in mid May Islamic Development Bank (IDB) enhanced the size of its medium term notes (NTN) ­programme from $1.5bn to $3.5bn, which will be issued in both London and Kuala Lumpur. The IDB’s forthcoming medium term sukuk (which is expected to range between five and seven years) will be issued under this programme sometime in June and is expected to raise between $750m and $1bn. Funds will be used to provide blended credits in support of capital goods projects in member countries. IDB, which is AAA-rated, priced a $750m five-year sukuk last May at a spread of 35bps over midswaps to yield 2.35%. According to local Saudi press reports, the sukuk will be 144a-compliant and, therefore, open to investors from the United States; though the IDB did not respond to questions about its forthcoming issue. 

Elsewhere, bond traders expect the first restructuring of an Islamic bond.  United Arab Emirates’ Dana Gas, the Sharjah-based energy company, is expected to restructure its $920m sukuk in coming weeks as investor concerns have heightened over the ability of the utility to meet its payment ­commitments. Up to now no Islamic bonds have been renegotiated though there have been examples of outright defaults (in both Saudi Arabia and Kuwait).

Dana has reportedly hired Blackstone, Latham Watkins and Deutsche Bank to advise on the various options for repaying the sukuk. The company is “committed to finding a consensual solution that is equitable to all stakeholders”, it said in a statement to the Dubai stock exchange.

Meantime, the Central Bank of Bahrain (CBB) says its monthly issue of the short-term Islamic leasing bonds, Sukuk Al-Ijaara, has been oversubscribed by 175%. Subscriptions worth BD35mwere received for the BD20m issue, which carries a maturity of 182 days. The expected return on the issue, which matures in mid-November 2012, is 1.34%.

source: FTSE Global Markets

The United Arab Emirates needs a centralized body for the Islamic finance industry to help develop its sukuk market further, a top central bank official said on Wednesday.

Saif al-Shamsi, assistant governor for monetary policy and financial stability, said the law calls for a central sharia committee at the federal level that would work with sharia boards at the corporate level but that has not been implemented yet federally. 

“Despite the advanced state of the UAE in issuing Islamic sukuk, we believe that we still need to do more,” he said in a speech. “This includes finding a unified body for the main fatwas (decrees) in the Islamic financial services domain, as is the case in Malaysia.”

At present the industry is governed by a patchwork of national regulators, Islamic standard-setting bodies and scholars interpreting Islamic law - a recipe for different rules and practices.

“For sukuk to be issued there must be the regulation and infrastructure that is Islamic compliant and that is to be determined by (federal) sharia board and that is not there yet. We are calling for this.

Islamic financial assets hit $1.3 trillion globally last year, a 150 percent rise in the past five years as the industry expanded beyond core markets in the Middle East and Malaysia, financial lobby group TheCityUK estimates.


source: Reuters

The rapid international expansion of Islamic finance reflects its ability to remain competitive and to increasingly meet the complex requirements of the global financial community.

With various countries now intensifying efforts to develop their respective Islamic financial capabilities, it is becoming increasingly vital to build deeper relationships between the key markets for Islamic finance and also between the leading industry players in each of these jurisdictions.

Held under the official support of the Monetary Authority of Singapore, the 3rd Annual World Islamic Banking Conference: Asia Summit (WIBC Asia 2012), which will be held on the 5th and 6th of June 2012 in Grand Hyatt Singapore, will set the stage for high-level discussions that will focus on strengthening international connectivity and capturing cross-border opportunities enabling further growth of the Islamic finance industry in Asia.

Announcing the launch of the 3rd annual edition of WIBC Asia, David McLean, Chief Executive of the World Islamic Banking Conference: Asia Summit noted that “there can be no doubt that Islamic banking, as a force on the world financial stage, can be a powerful catalyst for expanding investment and trade ties between Asia and the Middle East and beyond.

In order to better facilitate cross-border relationships, more intensive international co-ordination of regulatory approaches is needed – together with the drive from the industry itself, the leading international Islamic banks – to respond to the huge potential emerging from these inter-regional opportunities.”

“With Asia Pacific becoming an increasingly attractive destination for investments that are Shari'ah compliant, there is a need to make further advances towards achieving global connectivity and deepening economic cooperation with other key centres for Islamic finance to reap the full benefit of the region's rapid expansion and robust development”, he added.

The 3rd Annual World Islamic Banking Conference: Asia Summit is set to begin on the 5th of June with an inaugural address by H.E. Ravi Menon, Governor of the Monetary Authority of Singapore. The inaugural address will be immediately followed by an opening keynote address by H.E. Dr. Ahmad Mohamed Ali Al-Madani, President of the Islamic Development Bank.

Speaking ahead of the event, H.E. Ravi Menon, Governor of the Monetary Authority of Singapore said that “WIBC Asia has become an important bridge connecting Asia and the Middle East to the growing participants of Islamic finance. 

Since its launch in 2010, the event has grown in both size and stature. It is a unique gathering for the industry to discuss trends, share experiences and explore opportunities to tap the full potential of Islamic finance.”

A key highlight of WIBC Asia 2012 will be the exclusive Power Debate session led by internationally respected CEOs and industry leaders. Moderated by Haslinda Amin of Bloomberg Television, this session will analyze the expanding role of Islamic finance as a conduit for trade and capital flows between Asia and the Middle East and will also discuss how Islamic financial institutions can better develop the capacity to structure large-scale multi-currency and cross border transactions.

The Power Debate session will feature Toby O’Connor, Chief Executive Officer, The Islamic Bank of Asia; Hussain AlQemzi; Chief Executive Officer, Noor Islamic Bank and Group Chief Executive Officer, Noor Investment Group; Muzaffar Hisham, Chief Executive Officer, Maybank Islamic Berhad; Dato' Jamelah Jamaluddin, Chief Executive Officer, Kuwait Finance House (Malaysia) Berhad (KFH Malaysia); Syed Abdull Aziz Jailani Bin Syed Kechik, Chief Executive Officer, OCBC Al-Amin Bank Berhad; Shamsun Anwar Hussain, Director - Consumer Banking, CIMB Islamic Bank Berhad; and Wasim Saifi, Global Head, Standard Chartered Saadiq, Consumer Banking.

Confirming his participation at the event, Hussain AlQemzi from the Dubai based Noor Investment Group  said that “in order to ensure an orderly evolution of Islamic finance from a niche segment into the mainstream international financial markets, it is vital to further enhance the industry’s capabilities for cross-border activities, which in turn will encourage innovative product development, robust and standardised regulatory frameworks and the long term stability of the industry.

"What the industry lacks at the moment is the breadth and depth that investors enjoy in the conventional market. An inter-linkage between the key Islamic financial centres will facilitate investor access to a wider range of Shari’ah-compliant products beyond those available in their domestic market.”

He also said that “the annual World Islamic Banking Conference: Asia Summit is becoming an increasingly important platform that facilitates dialogues between the two key centres for Islamic finance – Asia and the Middle East. The theme for this year, "Islamic Finance in Asia: Strengthening International Connectivity and Capturing Cross-Border Opportunities", highlights the tremendous potential for significant cross-border transactions which the Islamic finance industry must tap into.”

“As a key industry player we are keen on exploring these unique opportunities and we look forward to this important gathering”, he added.

For the first time in Asia, the Bahrain based International Islamic Financial Markets (IIFM) will lead a pre-conference industry briefing at WIBC Asia 2012 on the 4th of June The IIFM executive briefing will focus on Islamic hedging and liquidity management instruments and, in addition to featuring the CEO and board members of IIFM, will also be inaugurated by Tai Boon Leong, Executive Director of the Monetary Authority of Singapore.

More than 450 international delegates from across the Islamic banking and finance world will participate in the 3rd Annual WIBC: Asia Summit in Singapore.


source: Business Intelligence Middle East

Morocco is considering a potential dollar-denominated international bond of up to $1 billion in September or October, a senior finance and economy ministry official said on Wednesday. 

“It would be our first issue in dollars and give us the opportunity to diversify,” said El Hassan Eddez, deputy director, treasury and external finance at the ministry's debt office. 

“(If issued) it would be an important size, between $500 million and $1 billion,” he said, speaking on the sidelines of an Arab Monetary Fund conference, adding an issue could come in September or October.

Morocco, the biggest recipient of European Union financial aid outside Europe, raised about 1 billion euros via its most recent international bond issue in 2010. 

Eddez said it was still unclear whether the North African country, which has managed to avoid some of the “Arab Spring” turmoil that has struck other countries, would proceed with a bond.

“The uncertainty (over issuance) is because we are almost five months late in our schedule. The budget was only voted on (recently) so we still don't have a clear idea on the policy.”

Last month, the Morocco’s parliament passed the 2012 budget, targeting a deficit below 5 percent and imposing higher taxes on corporates and alcohol as the government seeks to reduce wide social inequalities and tame protests over unemployment. 

Morocco’s current account deficit surged last year to the highest since the 1980s but government ministers have said the country is under no pressure to borrow.

Eddez said the government is also mulling issuing Islamic bonds, or sukuk, once the legal framework is in place possibly by next year. Morocco’s government, led since December by the moderate Islamist Justice and Development Party (PJD), outlined in March how it intends to develop Islamic finance in the country.

source: Reuters

Central banks from seven Muslim countries yesterday launched a regulatory body to oversee the booming Islamic investment market. The Islamic Financial Services Board (IFSB) was inaugurated here by founding members Malaysia, Saudi Arabia, Indonesia, Iran, Kuwait, Pakistan, Sudan and the Islamic Development Bank.

It is the culmination of two years of work by the founding members, with support from the International Monetary Fund and the Accounting and Auditing Organization for Islamic Financial Institutions. The Islamic financial market worldwide is estimated to be worth $200 billion and is growing at 15 percent a year.

Economists say there has been a boom particularly in the aftermath of the Sept. 11 terror attacks in the United States as investors pulled funds out of the West.

Malaysian Prime Minister Mahathir Mohamad said at the IFSB launch yesterday that the option to use the Islamic financial system must be open and voluntary so as not to cause turmoil and economic regression. The system combines Islamic laws against interest payments with modern banking principles.

Mahathir, a vociferous critic of Western economic ways, said an international financial system that was fair and rewarded hard work was needed rather than speculative activities that took advantage of the weak and ill-informed. “Speculation is really not business. It is a kind of gambling. It becomes worse when, in an effort to ensure high returns, manipulative measures are utilized,” he said, pointing to recent corporate scandals in the United States.

Mahathir said the road ahead for Islamic banking and finance is long and will be full of challenges. In the current global financial environment characterized by volatile and unpredictable market dynamics, rapid advancements in technology and financial innovation, have all culminated in increasing more complex and heightened financial risks.

“The birth of the IFSB, the international standard-setting body for Islamic financial institutions, comes at a time when the global economic and financial outlook is clouded by escalating uncertainty. The anticipated recovery in world growth has not yet happened. Indeed the risks have intensified. In the advanced economies, corporate failures and financial reporting problems have adversely affected investor confidence, resulting in downward trends in the global equity markets,” he said.

source: arab news

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) announces the finishing of new seven shari'a standards, which shall be added to the existing 41 shari'a standards and the 40 accounting standards which have been announced previously.

Minhaj Advisory, in its turn, organizes an event for announcing these standards, the event titled: "Ceremony for New AAOIFI Shari'a Standards 42 - 48" which shall take place on May 23rd at Grand Hyatt Dubai, to discuss these standards with the Islamic Bank industry practitioners, and how to implement them in their applications. 

The ceremony is sponsored by leading Islamic financial institutions; including Mawarid Finance (platinum sponsor), Al Hilal Bank (golden sponsor), Noor Islamic Bank (sliver sponsor), Arab Islamic Insurance Company "Salama" (sliver sponsor),: Al Khawarizmi International College (academic sponsor). 

Dr. Abdul Sattar Abu Ghaddah, Chairman of Minhaj Advisory; said: "the new standards come in line with the rapid growth in the Islamic finance industry and to meet the Institutions needs while running their business; and there are more standards still under process".

Mr. Mohamed Al Nueimi, CEO Mawarid Finance said "Mawarid Finance since its inception has been adopting the standards of AAOIFI in all the applications; sponsoring this event comes in line with our company goal to play a key role in developing and supporting the Islamic finance industry". 

The new standards are; Financial Rights and Its Management, the regulations of liquidity management, bankruptcy, Capital and Investment Protection, Agency in investment, calculation of the profit transactions and Options of trust. 

The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) which was established in 1990 and based in Bahrain, is an Islamic international independent non-for-profit corporate body that develops accounting, auditing, governance, ethics and Shari'a standards for Islamic financial institutions and the industry. Professional qualification programs (notably CIPA, and "CSAA". 


source: AME Info

As the industry grows out of its niche status, Islamic banks are increasingly targeting a clientele that is agnostic to their Shariah-compliant credentials.

Islamic finance in Pakistan has grown at a remarkably rapid clip, with the industry’s deposits growing at an average annual rate of close 65%, compared to just over 14% for the banking sector as a whole. As of June 2011, the latest month for which figures are available, Islamic banking deposits amount to Rs433 billion, or about 7.9% of total deposits in Pakistan.  

The branch networks of Islamic banks have also grown rapidly. There are now 726 dedicated Islamic banking branches across the country, about one-third of which are operated by conventional banks.

In short, Islamic banks – and the Islamic banking departments of conventional banks – are positively swimming in liquidity. Not a bad problem to have if you are a banker, but this is resulting in a rather interesting challenge for the sector.

The Islamic banking industry is finding it increasingly tougher to deploy their swelling deposit base into loans to high-quality borrowers who are also Shariah-conscious. And so Islamic banks are increasingly looking to market themselves to their corporate clients not as niche players, but rather as full-service banks that just happen to be Shariah-compliant.

“We are trying to go after large, high quality corporate clients who may not have Shariah-compliance as one of their requirements,” says Zubair Haider Sheikh, the head of corporate banking at Meezan Bank, the largest standalone Islamic bank in the country.

This leads to an interesting dichotomy: on the retail side, banks are aggressively marketing themselves as Islamic. Burj Bank, for instance, launched a highly aggressive media campaign that had “Shariat mein barkat” (Blessings in Shariah) as its tagline. As this strategy is paying off for them: Burj’s deposits rose by 67% in 2011.

Yet when it comes to the corporate side, banks are going after the same clients as the conventional banks. There was a time when this may not have been possible, since the Shariah-compliant counterparts of many key banking products did not exist. But since the advent of things like Islamic working capital finance and other products, Islamic banks can effectively compete with their conventional counterparts – and are doing so with relish.

“Effectively, our competition is the middle-tier banks: Standard Chartered, Bank AL Habib, Habib Metropolitan, etc,” says Sheikh.

This approach, though an immensely profitable one for the Islamic banking sector, is not without risks. Banks risk brand dilution and confusion, especially if their corporate communications and advertising for retail and corporate customers start to overlap. It is unlikely, for instance, that the Islamic banks’ Shariah-heavy taglines will be particularly appealing to multinational clients, for instance. Meanwhile, marketing themselves as a full-service bank while de-emphasising the Shariah-compliant aspect may alienate some of their deposit base.

It is a fine balance that the Islamic banking sector will have to strike, but for the most part, they seem to be doing it rather well. The industry is helped by the fact that while most retail advertising is at branches and through advertising campaigns in the media, most sales to corporate clients take place through personal meetings with corporate or commercial bankers.

This, in turn, means that recruiting high-quality talent will become ever more important for Islamic banks.

Islamic banking may have its critics, but there is no denying the fact that the industry is no longer a backwater of the overall financial services sector that it was once thought of as. And given its stricter risk controls, bank managers seem to like having Shariah-compliance as part of their offerings.

source: The express

Libya has approved an Islamic banking law that will introduce sharia-compliant banking in the North African country, a member of the ruling National Transitional Council (NTC) said on Thursday.

Libya has been working to amend its banking laws to attract foreign investment and stimulate its private sector following last year's war that ousted Muammar Gaddafi, the central bank governor has said.

NTC Chairman Mustafa Abdul Jalil said in October Libya's new rulers were working on an Islamic banking system. The central bank submitted a proposal on this to the council for approval in the last few months.

"The NTC has adopted the central bank's proposal regarding Islamic banking," Salwa Al-Dgheily, a member of the NTC judicial committee, told Reuters. She said it was up to the central bank to now announce the law.

The central bank has been looking to update a 2005 banking law which first allowed foreign banks into Libya.


source: Reuters

Malaysia’s efforts to become a global hub for Islamic finance by offering tax breaks is driving a record rally in foreign-currency sukuk, and arrangers say interest is increasing among local issuers. 

Standard Chartered Plc is in talks with about five companies to manage deals amounting to at least $1 billion, Leon Koay, the Kuala Lumpur-based head of global markets, said in a May 15 interview. The Bloomberg Malaysian Sukuk Ex-MYR Index, which includes notes of Khazanah National Bhd., is rising for a sixth quarter and has gained 9 percent since December 2010. 

Malaysia is seeking to strengthen its lead over the Persian Gulf in an industry that has more than $1 trillion in assets by exempting investors from capital gains taxes on non-ringgit sukuk through to 2014. Yields on state-owned Khazanah’s Singapore dollar-denominated bonds due in 2015 dropped 34 basis points this year to 2.26 percent, twice the pace of its similar- maturity local-currency securities that yield 3.52 percent. 

“Companies see sukuk denominated in currencies other than the ringgit as an alternative funding source” to expand their operations overseas, Mohd Effendi Abdullah, head of Islamic markets at AmInvestment Bank Bhd. in Kuala Lumpur, said in an interview yesterday. “The trend is rising.” 

Record in 2010 

AmInvestment Bank, the third-biggest sukuk arranger last year, said it’s receiving a growing number of inquiries from companies looking to sell foreign-currency Islamic bonds in Malaysia. 

Sales have reached $358 million this year, compared with $2.1 billion for the whole of 2011, which represented 6 percent of the $36.3 billion in local and foreign-currency issuance worldwide, according to data compiled by Bloomberg. There’s a good chance offerings of non-ringgit sukuk by local firms in the Southeast Asian nation will surpass 2010’s high of $2.5 billion next year, Effendi said. 

Yields on global Shariah-compliant notes, which pay returns on assets to comply with Islam’s ban on interest, have fallen this year on increasing demand and because of a shortage of new issues in which Islamic investors can park idle funds. Yields dropped 23 basis points, or 0.23 percentage point, to 3.76 percent in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The rate touched a five-month low of 3.58 percent on April 19. 

International sales of sukuk total $15 billion this year, compared with $6.1 billion in the same period of 2011, according to data compiled by Bloomberg. Issuance climbed more than two- fold last year, with Malaysia’s CIMB Group Holdings Bhd. the top arranger, while Standard Chartered was sixth. 

Ringgit Sukuk 

Khazanah, the country’s sovereign-wealth fund, sold $358 million of seven-year bonds convertible into shares at a negative yield in March. The company, which is rated A3 by Moody’s Investors Service, the fourth-lowest investment grade, also issued the first yuan-denominated Shariah-compliant notes in Hong Kong last year and S$1.5 billion ($1.2 billion) of five and 10-year sukuk in Singapore in August 2010. 

The company’s spokesperson Mohd Asuki Abas declined to say if the fund is considering more issuance of foreign-currency Islamic notes in an e-mailed statement on May 15. 

Adrian Khong, the head of treasury at OSK Investment Bank Bhd. in Kuala Lumpur, said some companies prefer to issue sukuk in ringgit instead of foreign currencies as they can tap the growing pool of cash in the country. 

Malaysia’s Islamic banking assets rose almost 24 percent to 435 billion ringgit ($140 billion) last year and accounted for 22.4 percent of the country’s total, the central bank said in its annual financial report on March 21. 

Cash Surplus 

Corporate sales of sukuk in Malaysia climbed 8 percent this year to 13.4 billion ringgit from the same period of 2011, after Tanjung Bin Energy Sdn. raised 3.3 billion ringgit in March in the biggest offering of 2012. Pembinaan BLT Sdn., a state-owned construction company, attracted demand that exceeded the 1.35 billion ringgit of sukuk on offer by 2.62 times, the company said in a statement a day after the March 27 sale. 

“There are so many funds that are long cash and short of assets,” Khong said. “All the recent corporate issuances have been very oversubscribed. There’s a lot of cash out there that’s chasing few assets.” 

Appetite for sukuk has driven down the yield premium investors demand over the London interbank offered rate this year. The gap narrowed 16 basis points to 257 basis points, according to the HSBC/Nasdaq index. Global Shariah-compliant bonds returned 3.3 percent in 2012, the gauge shows, while debt in developing markets climbed 4.7 percent, according to JPMorgan Chase & Co.’s EMBI Global Composite Index. 

G-10 Countries 

Yields on Malaysia’s 3.928 percent dollar Islamic notes due 2015 increased two basis points to 1.97 percent today, according to data compiled by Bloomberg. The difference in yields between Dubai’s 6.396 percent sukuk maturing in November 2014 and the Malaysian bond narrowed two basis points to 229 basis points. 

Most of the planned non-ringgit Islamic bonds that Standard Chartered has in the pipeline are denominated in dollars and currencies of other Group of 10 nations, Koay said. 

Malaysia’s government and local companies will continue to issue non-ringgit denominated bonds to finance overseas operations, Soon Teck Onn, head of investment funds overseeing about $250 million at Kuala Lumpur-based Zurich/Malaysian Assurance Alliance Bhd., said in an e-mail yesterday. The country is rated A3 by Moody’s and A- by Standard & Poor’s, the fourth-lowest investment grades. 

“Foreign bonds offer an alternative and sometimes are a cheaper financing option for Malaysian issuers,” Soon said. “Malaysian foreign bonds have been well-received by overseas investors due to the country’s investment-grade standing.” 

source: Bloomberg 

South Africa has delayed its debut Islamic bond issue while the Treasury reviews tax and revenue rules to ensure they are aligned with Islamic-financing laws, Thuto Shomang, head of asset and liability management in the Treasury, said on Thursday.

“We took longer than we had anticipated,” Shomang said. “We are waiting until all the regulations that are needed are in place.”

source: Bloomberg