GCC

Dana debacle highlights need for unified Islamic finance regulator

A recent report from Standard & Poor’s said that Islamic financial assets had accelerated toward the end of 2016, but that such progress was unsustainable in the long term. The agency pointed out too that a lack of standardization was a barrier to creating a truly global industry based in the Middle East. The Islamic economy would continue to grow but at much lower rates than in the boom years from 2007 onward. It is against this background that recent events at Dana Gas should be seen. In 2013, the company issued sukuk totaling $700 million. Dana, which does a lot of its business in Egypt and Iraq, had problems getting paid in those countries. Earlier this month, Dana said it had received new legal advice which meant its sukuk were no longer to be considered Shariah-compliant. The Dana debacle confirms the belief that what is really needed is a much more standardized regulatory approach in the Islamic finance market.

Fitch: Dana Gas case highlights #Sukuk's legal uncertainties

According to Fitch Ratings, credit rating implications for sukuk arising from Dana Gas's attempt to have its mudaraba sukuk declared unlawful will take time to emerge. The impact of the move remains unclear until all relevant proceedings are resolved. Fitch added that sharia compliance typically does not have credit implications for Fitch-rated sukuk. Fitch does not rate Dana Gas or its sukuk. Dana Gas started court proceedings in the UAE to have its sukuk declared unlawful and unenforceable in the UAE. Sukuk regulations have been introduced and updated in several countries in recent years, but standardisation, harmonisation and legal precedents are limited in most jurisdictions. This case could set an important precedent for the relationship between sharia compliance and credit risk, and give greater clarity on enforceability.

The rise of Islamic fintech, global opportunities for #Bahrain

At the moment Islamic fintech is more of an aspiration than a reality. As the fintech industry and the demand for ethical investments grows exponentially, we are witnessing a want for the convergence of two. Seeing this space in the Middle Eastern banking industry, the Kingdom of Bahrain has entered a partnership with fintech incubator Singapore Fintech Consortium (SFC) and asset management and advisory firm Trucial Investment Partners. This partnership stands to initiate, nurture and sustain Bahrain’s fintech ecosystem while pulling from the experience of global industry leaders. Likewise, Bahrain has also recently opened a consultation led by the Central Bank of Bahrain (CBB), with the aim of establishing a regulatory sandbox for fintech. It enables businesses to take advantage of the concentration of Islamic financial institutions and the consultation focuses on crowdfunding, including Shari’ah-compliant crowdfunding.

Moody's: Dana Gas Shari'ah breech is credit negative for #Sukuk investors

Dana Gas petitioned the English High Court of Justice for injunction after commencing legal proceedings in Sharjah courts to have its Mudharaba Sukuk declared unlawful. Dana Gas publicly stated on 13 June 2017 that its $700 million Sukuk in its present form is not Shari'ah compliant and is therefore unlawful in the UAE. If the company's petitions are upheld by the Sharjah courts, it would trigger a standstill on the two upcoming contractual payments, a credit negative for the Dana Gas Sukuk investors. Although most investors regard the company’s announcement as a tactical move in its debt negotiations, a ruling in favour of Dana Gas would potentially send shockwaves among Islamic finance and Sukuk investors.

#Kuwait’s Islamic finance sector on strong growth trajectory, IMF says

According to a recent study by the International Monetary Fund (IMF), Kuwait’s Islamic financial services sector is growing rapidly, with Islamic banking emerging as the most developed component of the industry. Islamic banks’ market share increased rapidly between 2005 and 2010 and has since then stabilised at around 38%. Kuwait’s Islamic banking sector includes systemically important banks. The largest Islamic bank in Kuwait accounts for 23% of total banking system assets, over 70% of the Islamic banking assets. The capital adequacy ratio and Tier-1 capital remain above 15%. The IMF report notes that the economic diversification effort could help drive further growth in Kuwait’s Islamic banking industry.

Fitch: Dana Gas Case Highlights #Sukuk Legal Uncertainties

According to Fitch Ratings, credit rating implications for sukuk arising from Dana Gas's attempt to have its mudaraba sukuk declared unlawful will take time to emerge. The impact of the move remains unclear until all relevant proceedings are resolved. Fitch added that sharia compliance typically does not have credit implications for Fitch-rated sukuk. Fitch does not rate Dana Gas or its sukuk. Dana Gas started court proceedings in the UAE to have its sukuk declared unlawful and unenforceable in the UAE. Sukuk regulations have been introduced and updated in several countries in recent years, but standardisation, harmonisation and legal precedents are limited in most jurisdictions. This case could set an important precedent for the relationship between sharia compliance and credit risk, and give greater clarity on enforceability.

Three-way bank #merger in #Qatar aims to close by year end -sources

Executives working on a three-way bank merger in Qatar expect to finish valuing the deal in the coming weeks. Shareholders at Masraf Al Rayan, Barwa Bank and International Bank of Qatar are committed to pushing ahead with the deal despite the current embargo by some of Qatar's Arab neighbours. A shake-up has long been mooted in the Qatari banking sector given that 18 local and international commercial banks serve a population of 2.6 million. The more than two-week travel and diplomatic boycott could further dent bank performance if the dispute drags on. In December, Reuters reported that the trio had begun merger talks which would create the Gulf state's second-largest bank. The new bank, which would be run in compliance with Islamic banking principles, would have assets worth around 160 billion riyals ($43.6 billion).

Goldilocks Investment builds Dana Gas stake

An Abu Dhabi Global Market fund, Goldilocks Investment, has acquired 5% of Dana Gas. Goldilocks has a reputation of buying companies going through financial difficulties. Goldilocks has recently acquired 350 million shares in Dana Gas, which has seen its share price rise by nearly 70% in the past month. Goldilocks is part of Jassim Alseddiqi's Abu Dhabi Financial Group, a diversified investment company with about US$5 billion under management. Dana Gas has assets in Egypt and the Kurdish region of Iraq that have had good operational results but have suffered from erratic payments. Dana Gas also has an ongoing dispute with holders of its $700 million in sukuk, for which it has taken preemptive legal action to avoid a declaration of default.

#GCC governments seek to diversify funding with Islamic #bonds

According to S&P Global Ratings, GCC sukuk issuances jumped 37.7% in the first half of 2017 as governments are seeking to plug deficits amid low oil prices. The rating agency added that issuances of sukuk will not grow at the same rate in the next couple of years, with hurdles such as a lack of standardisation of sukuk rules deterring sales. Mohamed Damak, primary credit analyst at S&P, said the volume of sukuk issuance is expected to remain strong in 2017, but this is likely to be the exception rather than a new norm. 2016 was a record year for regional bond issues in the GCC region, with over $60bn worth of fixed income sold. Last year Saudi Arabia sold $17.5bn worth of bonds in its first international sale and Qatar sold $9bn. Despite the record value of issuances, S&P said that a big funding gap remains. It is estimated at $275bn and about half of that gap is expected to be raised through bonds and sukuk.

Lessons from Dana Gas #Sukuk debacle

Dana Gas invited holders of its outstanding sukuk to open discussions on restructuring the payment. The reason given by Dana Gas was that the sukuk has now been declared non-syariah compliant and, therefore, not valid. The company also proposed to exchange the sukuk with a new four-year enforceable, syariah-compliant instrument. It seems that Dana Gas is trying to restructure cheap on the back of credit deterioration, hiding behind the façade of syariah validity. Moreover, the company has filed for protection in the Federal Court in Sharjah to impose its structuring plan on certificate holders. It is obvious that the sukuk debacle may have serious implications for Dubai’s ambitions of being a premier sukuk origination and Islamic economy hub. The Dana Gas sukuk is a failure of inadequate capital market legal framework, underdeveloped regulatory framework and a serious lack of uniformity.

Arabia CSR Network successfully conducts Middle East's first ever training on global standards for #sustainability reporting

The Arabia CSR Network (ACSRN) conducted the Middle East's first round of training for Global Reporting Initiative (GRI) Standards for Sustainability Reporting. The course covered GRI Standards, including an overview of how to implement these standards. According to Habiba Al Marashi, CEO of ACSRN, the move demonstrates the increasing importance of sustainability reporting. The training focused on the frameworks of the standards, how to apply these in actual reporting and the process of putting together a GRI Standards compliant report. The training will allow the participants to use the right methodology for putting together their sustainability reports. Participants received a certificate each, presented by GRI for successful completion of the course.

#UAE's Dana Gas gets injunction from English court blocking claims on $700 mln #sukuk

Dana Gas obtained an injunction from the English High Court of Justice in London restraining sukuk holders from taking any hostile action against the company. The company obtained similar injunctions from the Sharjah Federal Court of First Instance in the United Arab Emirates as well. Dana Gas announced last week that its outstanding $700 million sukuk were not sharia-compliant and were therefore unlawful in the UAE. The company said it would therefore halt coupon payments on the sukuk, and proposed exchanging the sukuk for new Islamic bonds with lower profit distributions.

Islamic finance #risks raised by Dana Gas case

Dana Gas applies Shari’ah non-compliance as a cause for restructuring. Dana Gas has proposed a restructuring to holders of its $700 million of Sukuk maturing in Oct 2017. Its proposal is on the basis that these Sukuk are no longer Shari'ah compliant because standards of interpretation have changed since they were issued in 2013. Dana Gas is seeking to have its existing Sukuk declared invalid in a UAE court and this court has granted Dana Gas an injunction protecting it from claims until the case is decided. If the precedent of revisiting Shari'ah compliance infects the Islamic finance industry, there is greater risk of a loss of confidence in other markets too. There are many examples of distressed conventional bond borrowers engaging in opportunistic negotiating positions. The result was higher cost of borrowing for them rather than for the broad asset class.

Dana Gas bid to void #debt stuns analysts who question motive

The gas producer's decision to declare its own Shariah-compliant bonds unlawful has baffled investors all over the world. Sharjah-based Dana Gas said it no longer considered its two Islamic bonds totalling $700 million issued four years ago as Shariah compliant under UAE law. The move comes after Dana Gas announced plans in May to restructure the debt. The company is owed about $1 billion from Egypt and the self-governed Kurdish region in northern Iraq. Dana Gas plans to replace the current sukuk with four-year bonds paying less than half of the current profit rates and without a conversion feature. The Sharjah Federal Court of First Instance has issued an injunction while it considers Dana Gas’s application. Dana Gas said it won’t pay its next two profit distributions on July 31 and Oct. 31, and that they will be accounted for as part of the new instrument.

IIRA maintains ratings of #Bahrain Islamic Bank

Islamic International Rating Agency (IIRA) has reaffirmed ratings of Bahrain Islamic Bank (BIsB) at BBB/A2 on the national scale and BBB-/A3 on the international scale. IIRA added that the bank’s rating outlook is constrained by the macroeconomic environment and tougher industry conditions for banks in the Gulf. Given the presence of external, regional concerns, the outlook on international scale ratings is assessed as Negative. Impairment in recent financings remains minimal, indicating improvement in the bank's business underwriting capability. However, overall asset quality concerns remain notable. IIRA has assigned BIsB a Fiduciary Score of 71-75, which signifies that the rights of various stakeholders are adequately protected.

#UAE's Dana Gas invites #sukuk holders to a call to discuss sukuk's "unlawfulness"

Abu Dhabi's Dana Gas has invited holders of its outstanding $700 million sukuk to discuss the planned sukuk restructuring. The energy company plans to provide background on its declaration of the current sukuk's "unlawfulness". Dana Gas announced last week that its sukuk were not sharia-compliant and were therefore unlawful in the UAE.

Islamic finance overcomes teething problems in #Oman

According to a recent report issued by the Central Bank of Oman (CBO), the Islamic banking industry is growing at a faster rate than conventional banking, with Islamic banking assets up more than 62% year on year. Total assets held by Islamic banks and Islamic banking windows in February 2017 amounted to 3.27 billion Omani riyals (Dh31.2 billion), compared to 2.43 billion riyals a year earlier. This took Islamic banking’s market share from 5.1% in 2015 to 10.8% by February 2017. Islamic banking has a sizeable market share of more than 25% in the GCC. Saudi Arabia dominates the region with an Islamic banking market share of 51.2% in terms of total banking assets, followed by Kuwait at 45.2%. In UAE, Qatar and Bahrain Islamic banks’ market share stood between 20-30% of gross assets. In Oman, within a span of four years from introduction, the Islamic banking segment has reached OMR 3.07 billion in gross assets with a market share of 10.8% as of February 2017. The two main players in Oman are Bank Nizwa (BKNZ) and Alizz Islamic Bank (BKIZ).

Mideast Debt: Islamic finance industry frets as Dana Gas deems its #sukuk invalid

The decision by Dana Gas to declare $700 million of its sukuk invalid has raised concern about the safety of sharia-compliant debt instruments in general. Dana Gas received advice that its sukuk were not compliant with the Islamic sharia code and had become unlawful in the United Arab Emirates. The firm said it would halt payments and proposed that creditors exchange the sukuk for new Islamic instruments. Dana has struggled to obtain payments from its production assets in Egypt and Iraq's Kurdistan. With a cash balance of just $298 million in March, it had been expected to have difficulty redeeming its sukuk in October. Mohammed Khnifer, a senior associate at the Islamic Development Bank, said this specific sharia compliance risk was unprecedented and this incident had startled the Islamic finance industry.

#Saudi Arabia's Sedco Capital launches #green #investment strategy

Saudi Arabia's Sedco Capital has launched an investment strategy combining environment-conscious and sharia-compliant principles. The move could help develop green investing in the Middle East and make Islamic finance appeal to a wider client base. Green finance is increasingly important for Islamic firms seeking to differentiate themselves from peers. Sedco said its new strategy, dubbed Prudent Ethical Investing, would focus on due diligence and transparency around investment structures, while integrating environmental, social and governance (ESG) criteria. The firm launched two ESG funds in 2012 and has published research which showed how a combined investment approach
can outperform conventional funds. According to its research, such a strategy can lead to investments with lower financial leverage and better cash conversion qualities, adding a prudential element to those portfolios.

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