Debt issuance from the GCC is expected to surge in 2017 with sovereign issuers leading while conventional bonds outstripping sukuk both in terms of amounts raised and number of issues. The key drivers to bond issuances in the GCC during 2016, which more than doubled to $66.5 billion (Dh244.5 billion), was primarily the sovereign bond issuances by Saudi Arabia, UAE and Qatar. Saudi Arabia’s first international bond issuance valued at $17.5 billion in October last year was the biggest recorded emerging market bond. Saudi Arabia has indicated further bond issuances in the near term and the Kingdom has a target debt-to-GDP ratio of 30% by 2020 as compared to 13.2% for 2016. Banking sector contribution to bond issuance witnessed a steep decline from 22% in 2015 to 15% in 2016, although the size of the total offering increased by 36% $11.7 billion.
#Oman is preparing an international bond sale, as the country seeks to plug a budget deficit caused by low oil prices. The sultanate has sent invitations to banks to arrange the sale of a dollar or Islamic bond and responses are due this week. A fresh sale would be the latest in a series of issues by the oil-producing state. The sultanate sold US$2.5bn worth of bonds in June last year and tapped the bonds for an additional US$1.5bn in September. It was reported to have raised US$1bn from the international loan market last January and will get RO600mn from local debt in 2017. Oman is also seeking to reduce expenditure and from this month will impose new tariffs on its biggest electricity consumers. The state’s budget deficit is estimated by the International Monetary Fund to narrow to 10.3% of gross domestic product this year, from 13.5% in 2016.
Abu Dhabi Islamic Bank (ADIB) has acted as the sole bookrunner on a AED 1 billion Islamic financing facility for the Meydan business group. Dubai Islamic Bank and Al Hilal Bank were both mandated lead arrangers for the financing, which matures in December 2018. The deal was structured to meet Meydan’s financing objectives, on the back of its ongoing District One Project, a master-planned luxury residential neighbourhood in Mohammed Bin Rashid City in Dubai. Commenting on the transaction, ADIB's CEO Tirad Al Mahmoud said this deal demonstrates ADIB's ability to bring together diverse elements with a particular focus on high-growth companies and the real estate sector. Earlier this year, Meydan raised AED 1 billion Islamic financing through a dual tranche offering, comprising a AED 700 million Sukuk issue and a AED 300 million term facility, both maturing in 2024. ADIB acted as the sole coordinator of the transaction.
Dubai Islamic Bank (DIB) sold its stake in Jordan Dubai Islamic Bank. DIB held 20.8% in Jordan Dubai Islamic Bank through a 40% shareholding in MESC Investments. MESC Investments had completed the sale of its stake in Jordan Dubai Islamic Bank to Jordan-based Bank Al Etihad and Etihad Islamic Investment Company. The value of the sale was not disclosed.
ASMA Capital owned by the Islamic Development Bank (IDB), Saudi Arabia’s Public Investment Fund (PIF) and Public Pension Agency (PPA), Ministry of Finance of Bahrain and Ministry of Finance of Brunei has signed a deal with Utico for a significant minority stake. The deal with Utico for a stake in its water business is done through Asma Capital managed IDB Infrastructure Fund II. The deal is valued overall at $ 147 million in equity and project finance and will be completed in the first quarter of 2017. Ernst & Young, Hatch USA, ILFS, GU Advisory UAE, Latham and Watkins, Trowers and Hamlins and Taylor Wessing are advisers to the deal. Utico is making significant investments in the UAE and expanding its infrastructure assets in water, power, transmission and distribution, storage, billing and collection. Richard Menezes, Utico’s Managing Director stated that its model of development has saved the governments billions of dirhams in capital expenditure and subsidies.
Abu Dhabi Islamic Bank (ADIB) is leading a $272m Islamic financing facility for Meydan Group to fund its projects in Dubai. The deal was structured to meet Meydan’s financing objectives, on the back of its ongoing District One Project, a master-planned luxury residential neighborhood in Dubai’s Mohammed Bin Rashid City.
Dubai Islamic Bank and Al Hilal Bank were both mandated lead arrangers for the financing, which matures in December 2018. Tirad Al Mahmoud, CEO of ADIB, said: “[The deal] also evidences the results we are achieving through stepping up our corporate financing activity, with a particular focus on high-growth companies and the real estate sector.” The deal will help utilise financing for the group’s current and future projects including those along the Dubai Water Canal. The funding will also help finance continued investment across all Meydan areas.
The fintech event, held earlier this month, was organised by GlassQube and Startup Weekend, a global movement coordinated by TechStars and supported by Google for Entrepreneurs, with the support of Abu Dhabi Global Market, Abu Dhabi’s financial free zone and financial regulator, and Temenos, a global financial software vendor. It brought together more than 100 developers, designers and aspiring entrepreneurs – many of are at university and some still at school – and challenged them to build a functional minimum viable product.
"We took those products and judged them based on their technical aspects, their commercial viability, how thoughtful those teams were about what is the actual potential of these products and services to find a market," says Bernard Lee, GlassQube’s chief executive and a co-founder.
"What’s important here is that it’s not just an idea. It is how do we take this idea and how do we actually convert it into something that is real? Something that shows how a consumer base can potentially interact with this particular application."
The participants discussed the outcomes of a workshop held on 8 December outlining the strategic goals and future objectives for Islamic economy and also examined steps forward for the Centre and its partners in developing initiatives and programme implementation mechanisms.
His Excellency Sultan bin Saeed Al Mansoori emphasised that in order to realise the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, to position Dubai as the capital of Islamic economy, DIEDC needs to continually adapt its Islamic economy strategy to reflect emerging trends across the sector’s dynamic pillars.
The Emirates Islamic Bank recently organised an ‘Innovation Day’ where various internal teams shared and showcased their innovations with working prototypes, to the bank’s management.
Emirates Islamic staff across business units participated in the event, designed to ideate and showcase innovative solutions in banking and financial technology. Emirates Islamic’s Innovation Day was aligned with the National Innovation Strategy launched by His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President and Prime Minister and Ruler of Dubai as a primary tool to achieve UAE Vision 2021 in the finance and banking sector.
Commenting on the bank’s push toward innovation, Jamal Bin Ghalaita, CEO of Emirates Islamic said: “Banking today demands an innovative and fresh approach to keep pace with the evolving needs of our customers. Tapping into our internal talent pool for ideas allows us benefit from their varied skills and experience to create products that match customers’ expectations and needs.
The Islamic Corporation for the Development of the Private Sector (ICD), a development finance institution of the Saudi Arabia-based Islamic Development Bank (IDB), and Dragon Capital Partners, the venture capital and private equity arm of Ukraine-based Dragon Capital Group, recently announced the intention to develop the Silk-way Growth Fund, a Sharia-compliant investment fund benefitting “high growth” small and medium-sized enterprises (SMEs) involved in manufacturing in Kazakhstan. The fund is slated to address the “financing gap created due to difficulty of accessing capital at sustainable market rates and the banking sub-sector’s lack of confidence in SME entrepreneurs.” According to ICD, SMEs make up 96 percent of all businesses in Kazakhstan and 25 percent of the country’s GDP.
ICD will act as fund advisor to Silk-way as part of its SME Platform, an initiative aimed at building Sharia-compliant investment management capacities in ICD’s 52 member countries, and it will consider investing capital in the fund as plans for the fund are finalized.
The Central Bank of Bahrain (CBB) has announced plans to close down Future Bank, a joint venture between two Iranian lenders – Bank Saderat and Bank Melli – and Bahrain’s Ahli United Bank, said a report. The CBB said it intends to submit a petition to the competent court for compulsory liquidation of the Bahrain-based retail bank, reported the Gulf Daily News, our sister publication.
Saudi Arabia has met with banks to discuss the potential sale of Sharia-compliant bonds in the first quarter to help plug its budget deficit, according to five people familiar with the matter. The country is considering selling sukuk, or Islamic bonds, with different maturities to the five-, 10- and 30-year debt it sold in October, one of the people said, asking not to be identified as the information is private. This could include tenors of seven and 16 years, the person said. No final decisions on the size or timing have been made.
Kuwait's central bank has issued new governance rules for Islamic banks, including requirements for external sharia audits, as regulators seek more transparency and accountability in the sector. Regulatory scrutiny over Islamic banks has been building as they now hold around a quarter of total banking assets in the Gulf, while in Kuwait that figure stands at around 40 %. Kuwait's central bank said the rules published this week aim to increase customer confidence in Islamic banking by strengthening both internal and external oversight. This follows similar steps by Bahrain which proposed new requirements in September for its Islamic banks, including external sharia audits. The central bank directive, which must be fully implemented by January 2018, provides guidance covering independence of sharia boards as well as fit and proper criteria for scholars.
Financial technology widely referred to as FinTech has grown primarily in the last decade due to growing Internet access worldwide and the emergence of smartphones and apps. According to the Ericsson Mobility Report published last year, 70 %bof the world’s population is expected to be using smartphones by 2020.
As smart devices are increasingly becoming part of everyday life for most people in the digital age, it is essential for the banking sector to become more innovative to enhance its productivity. “We’re transitioning toward a situation where growth for companies and economies will have to depend more on productivity than before,” said Jarmo Kotilaine, chief economist at the Bahrain Economic Development Board (EDB).
“To achieve that, you will need better management, better innovations, new distribution channels and new capital.” Increasing the efficiency of digital banking will particularly serve customers in Saudi Arabia, where banks’ working hours overlap with those of most employees.
Emirates NBD has launched the new edutainment mobile simulation game Banki in its efforts to promote financial literacy in the #UAE. Banki will target the country’s youth to become economically aware at a young age and consider careers in the banking and financial services sector. Banki allows users to play five engaging games that help them understand the concept of savings, trading, simple financial transactions and digital banking. They can learn about the basics of banking products, financial services, stock markets, economics and additional topics aligned to the Ministry of Education’s curriculum. Husam Al Sayed, Chief Human Resource Officer at Emirates NBD said the launch of Banki aims to communicate the benefits of being financially literate to the next generation of customers. Available on both the Google Play and Apple stores, the edutainment game can be downloaded for free and can be used by registering with an email ID.
According to the chief economic adviser of the Qatar Financial Centre (QFC), Islamic finance will need to play a pivotal role in meeting the increasing demand for funds by the Gulf Cooperation Council (GCC). Dr Haitham al-Salama said oil prices are not likely to exceed $100 in the near future and are forecast to stay around the $55-$65 per barrel. Also, a spike in the shale oil production is expected, which will push the prices down. He added that this puts further emphasis on the economic diversification efforts of oil producing countries, particularly in the GCC. Qatar has already taken various measures to diversify the economy, which includes lowering the subsidies and cost optimisation apart from prioritising planned spending. Finance Minister HE Ali Sherif al-Emadi had recently said Qatar would be spending another QR46bn in 2017 to upgrade its infrastructure in the run up to 2022 FIFA World Cup.
Qatari banks Masraf Al Rayan, Barwa Bank and International Bank of Qatar have begun initial talks for a potential merger. This deal would create the Gulf state's second-largest bank and it would have assets worth more than 160 billion riyals ($44 billion). If the deal goes ahead, it would be a rare example of consolidation among banks in the Gulf, which have previously been reluctant to tie up. The previously lavish state spending is now being trimmed to adjust to lower oil prices and the argument for consolidation is now more compelling. Though negotiations have begun, there is no guarantee any agreement will be reached. The proposed merger of Rayan, Barwa and IBQ depends on financial and legal due diligence, as well as securing approvals from regulatory authorities and shareholders of all three banks.
According to Noor Bank's CEO Hussain Al Qemzi, Islamic banks need to understand that they need to provide efficient and transparent services to their clients. Just being Sharia compliant cannot make a product less transparent and more expensive to access. Technology remains an important driver for innovation. Islamic banks that only look at product development and not product delivery or customer acquisition, will risk being left behind. There is a need to continue product development. Variable return products need to be developed and propagated in the market. According to Al Qemzi, it is important to refute traditional sayings that Sharia compliance limits innovation. Sharia principles reject prohibited practices but do not reject innovation. Progressive Islamic education is a key area, the Islamic banking curricula have to be developed so that they combine financial sciences with other economic sciences.
According to Abdulla Mohammed Al Awar, CEO of Dubai Islamic Economy Development Centre (DIEDC), leveraging the opportunities that Islamic banking and finance instruments represent is now more critical than ever before. DIEDC has identified a five-pronged approach to achieve this. First, Islamic economy has to be treated as one organic ecosystem that transcends borders and special interests. Second, a partnership is needed between Islamic and traditional finance to develop real projects in which both can work as stakeholders. It is also important to look for new strategic partners, not excluding countries that are experiencing internal conflicts. Such partnerships should be a true reflection of mutual interests. Islamic financial institutions have to factor in inclusive development and social impact as key priorities.
Bahrain-based Bank Alkhair has obtained approval from the State Bank of Pakistan to sell its stake in Pakistan’s Burj Bank to Al Baraka Pakistan Limited (ABPL). This transaction follows the announcement on 5 September 2016 about the merger of Pakistan’s Burj Bank and ABPL, creating an institution with assets totaling more than $1.1 billion. Ayman Sejiny, Group CEO of Bank Alkhair said the bank was pleased to sell its stake in Pakistan’s Burj Bank to Al Baraka Pakistan Limited. Bank Alkhair has completed several landmark transactions since its inception, including the establishment of t’azur, a regional Takaful company and the acquisition of Bahrain Financing Company, the oldest foreign exchange and remittance houses in the GCC.