Saudi Arabia has included a disclosure on credit risk retention requirements in the prospectus of a debut dollar sukuk which is expected to issue this week and could total $10 billion. The disclosure to comply with the US Dodd-Frank Act has not been made for other sovereign sukuk issues. The US retention rule was set to align the interests of issuers of asset backed securities (ABS) with those of ABS investors by asking the sponsor of an ABS securitisation. Sukuk are generally asset-based, but in order to comply with the rules, Saudi Arabia will purchase at least 5% of the aggregate principal amount of each tranche it issues. Saudi Arabia began meeting investors on Sunday ahead of the deal, the second debt sale by the kingdom, which made its debut in the international debt markets last year with a record $17.5 billion bond.
Towards the end of this month Bank Muscat is expected to raise OMR23-30 million, which is the first tranche of Meethaq’s OMR100 million-sukuk programme. Meethaq is Bank Muscat’s pioneer Islamic banking window in Oman. The bank has already received an initial approval from stock market regulator Capital Market Authority (CMA). Bank Muscat's Deputy CEO Sulaiman Al Harthy said the sukuk programme starts with a small amount, maybe OMR25-30 million to test the market and see the market appetite. Al Harthy also noted that this year, Islamic financial institutions are expected to grow at a similar rate as seen last year. Meethaq Islamic financing receivables rose to OMR855 million by end-December 2016, compared to OMR635 million in the same period in 2015.
According to Standard & Poor’s (S&P), global sukuk issuance fell short of market expectations last year, although it was higher than in 2015. The sukuk market will remain subdued in 2017, since the issuance process is still quite complex. S&P Global Ratings' Global Head of Islamic Finance Dr. Mohamed Damak said the sukuk market did not play a countercyclical role in core Islamic finance markets in 2016 and a stabilisation of total issuance in 2017 is forecasted at around $60 billion-$65 billion. Standard & Poor’s do not foresee a substantial increase in sukuk issuance in the GCC this year. The rating agency thinks that some member countries might take the Islamic finance route alongside a conventional one. Bahrain will most likely remain a prominent player after issuing $3.2 billion of sukuk in 2016. Other GCC members will probably tap the market in 2017.
Financing portfolio of Alizz Islamic Bank (AIB) reached OMR275.9 million in the third quarter of 2016, registering a growth of 62.4%, compared to the same period last year. Deposits grew by OMR123.4 million from the same period last year representing a growth of 84.7% and net operating income grew by 57.2% from the same period last year to reach OMR6.7million. Due to the increase in income, cost controls and monitoring of financing quality, the net loss of the bank reduced by 19.1% to reach OMR3.4 million. According to CEO Salaam Al Shaksy, the bank achieved stable growth, while maintaining a strong asset quality. Alizz Islamic Bank is one of the first specialised Islamic banks in Oman, that has consolidated its presence within a short period of time.
Islamic financial institutions in Oman are expected to achieve a healthy growth in the banking sector in the near future, said Dr Jamil El Jaroudi, chief executive officer of Bank Nizwa. He also said that Bank Nizwa will open new branches in the Sultanate by the end of the year. The bank was able to reach breakeven in December after three years of operations. In order to reach more potential clients, a mobile branch will travel all-around the Sultanate offering a host of products, services and also make the people aware on the benefits of Islamic banking. The truck’s journey will start from the governorate of Muscat, moving on to Dakhiliyah, Al Sharqiya, Dhofar, Al Batinah and Al Buraimi.
Islamic bond sales are off to a racing start this year as Malaysia plans to tap the market following Indonesia’s $2.5 billion issue, which was more than three times oversubscribed. Global sukuk offerings of $11.3 billion are already 30 per cent more than the first quarter of last year and are approaching the $12 billion for the same period of 2014. Malaysia reportedly selected JPMorgan Chase, CIMB Group, Malayan Banking and HSBC to arrange investor meetings for as early as the end of next week. In a sign of the demand that Malaysia’s government debt is attracting, a 4 billion ringgit ($998 million) sale of 10-year local-currency Islamic notes on Wednesday garnered a bid-to- cover ratio of 3.2 times.
Oman’s Islamic financial institutions are showing robust growth with the value of gross assets touching OMR2.25 billion by the end of 2015, accounting for a 7.45 per cent market share of the total banking industry, said Hamoud Sangour Al Zadjali, executive president of the Central Bank of Oman (CBO). Islamic banks and window operations are expected to ramp up this market share to 10 per cent of the entire banking industry by 2018. The CBO chief said gross finance had also grown to touch OMR1.78 billion by 2015-end, indicating a market share of 8.86 per cent. All these achievements were reported within a short span of about three years, despite teething problems faced by these institutions.
Several companies in Oman, including a real estate developer, are planning to issue sukuk or Islamic debt instrument. A real estate company has already approached the market regulator Capital Market Authority for floating a sukuk issue for its second phase development, said Abdullah Salim Al Salmi, executive president of the Capital Market Authority (CMA). However, he declined to name the real estate company that is trying to raise funds by way of a sukuk issue. Al Salmi said that the banks may face liquidity problem and the financial institutions have to issue either sukuk or bond for raising funds to avoid an asset-liability mismatch.
Book-building process for the Omantel sukuk via private placement is currently being done. The proposed OMR50 million issuance is the country’s first multi-denominated sukuk, offered in both Omani rials and US dollars. The bankers have been holding one-on-one meetings with key investors, and said that the issuance is gathering pace amongst both Omani and international investors. The sukuk will have a tenor of 5 years and mature in 2021. The minimum subscription amount for the sukuk is OMR100,000 or $260,000. The profit rate on the sukuk will be set through a uniform price auction and will be finalised upon closing of the subscription period. Interested investors can get further information on the sukuk from the Investment Banking Division of National Bank of Oman who are acting as the issue manager and collecting bank. Subscription closes on January 26.
China’s foreign-exchange reserves fell by a record in the third quarter as the central bank sold dollars to support the yuan after a surprise August 11 devaluation sparked the currency’s steepest slide in two decades. The stockpile plunged by $180 billion in the three months through September to $3.51 trillion. The hoard shrank $43.3 billion in September, less than the $57 billion predicted in a survey, suggesting the pace of central bank intervention has eased. The central bank has this year lowered the proportion of deposits that lenders must lock away in an effort to offset capital outflows and intervention to support the yuan.
The agreement Iran has reached regarding its nuclear programme could bring about its eventual economic rebound, and help boost Islamic finance, according to a report published by Standard & Poor's Ratings Services titled ‘Lifting sanctions augurs well for Iran's economy and the growth of Islamic finance’. Iran agreed the joint comprehensive plan of action with the P5+1 (China, France, Russia, the UK and the US plus Germany) in July. If the agreement is approved and Iran meets all deliverables, sanctions may start to lift in the first half of 2016. The World Bank estimates this would help Iran's oil exports rebound to pre-2012 sanction levels within 8-12 months. Sanctions lifting could also restore Iran's access to the global financial markets.
More full-fledged Islamic banks are needed and the Islamic banking services of conventional banks should be converted into full subsidiaries if Oman were to fully embrace the Islamic finance concept in its entirety, says Dr Jamil El Jaroudi, CEO at Bank Nizwa. It would also eliminate potential regulatory arbitrage between conventional banking and Islamic banking that could harm or raise doubt on the Sharia aspects, he added. The Islamic windows' cost of doing business and relying on their parent banks’ infrastructure resulted in a disadvantage for the business of fully-fledged banks. Nonetheless, the windows have yet to reach their critical sizes to be able to justify conversion into standalone banks.
Bank Sohar has appointed Salim Khamis Al Maskari, the former senior assistant general manager of branches, as the head of Sohar Islamic, Bank Sohar’s Islamic banking window. Prior to joining Bank Sohar in 2007, Salim Al Maskari had worked as the district manager of the Sharquiyah region for Oman International Bank and later moved to Bank Muscat as the regional manager of the north capital region. He has more than 29 years of experience in the banking sector in Oman and holds a Master of Business Administration from the University of Hull, UK. He also completed his Certification in Islamic Banking and Takaful Products (CIMA) examinations in 2015.
Banks in Oman believe that ease of access to financing and a wider range of options have enhanced the experience of customers but also hold the opinion that excessive consumerism should be avoided through educating the society. Yousuf Al Rawahi, deputy general manager - head of branches, retail and private banking at Ahlibank, says that with the ease of available credit, any society will have consumerism, which has to be managed accordingly. However, he says more efforts are required to promote the culture of saving in Oman. Asad Batla, head of consumer banking at Bank Nizwa, believes that the rate of consumption in Oman has witnessed ‘exponential’ growth. He added that Bank Nizwa encourages its customers to have discipline in their financial decisions, while constantly focusing on helping them lead financially-secure lifestyles.
A final approval for the draft takaful or Islamic insurance regulation, which was cleared by the State Council in February, is expected soon. The draft Takaful Insurance Law, which was prepared by the insurance regulator, Capital Market Authority (CMA), is expected to give the much-needed impetus to the development of the Islamic financial sector. The law, which was drafted with the assistance of a consultant in line with the principles of the Islamic Financial services Board, was circulated among all related parties, especially insurance firms for their feedback, before seeking approval from various entities like the Ministerial Council and the Ministry of Legal Affairs.
Al Hilal MENA Fund (AHMF); Sharia Compliant, open-ended fund, managed by ahlibank asset management has posted commendable returns of 12 per cent year to date, as on April 30, 2015. Al Hilal MENA Fund is the first and only Sharia Compliant fund sponsored and managed by a bank in Oman. The fund invests across listed equities and sukuks issued and tradable within the GCC region. The current investments represent geographical coverage spanning Oman, Qatar, United Arab Emirates (UAE) and Saudi Arabia. The diversified sector exposure constitutes investments into petrochemicals, fertilizer producers, industrial chemicals, oil and gas exploration, Islamic banking, takaful, real estate, telecom, consumer discretionary and industrial manufacturing.
Oman government on Sunday officially announced the much-awaited maiden sovereign Sukuk issue of OMR200 million. The sovereign Sukuk issue will be through a private placement and will open for subscription soon. It will be marketed primarily to Islamic financial institutions, and sophisticated investors with a minimum subscription amount of OMR500,000, said Tahir Salim Al Amry, who heads the Sukuk committee. The sovereign Sukuk is primarily aimed at addressing the need of the nascent but fast growing Islamic financial sector in Oman. The Sukuk will serve as a domestic investment and liquidity management instrument to Islamic financial institutions in the country, he added.
Islamic bonds from the Gulf Cooperation Council (GCC) are heading for the worst month in more than a year after oil prices plunged to the lowest since 2009. Sukuk in the six-nation bloc, home to about a third of the world's proven oil reserves, lost investors 0.7 per cent so far this month, poised for the worst performance since August 2013. Middle East sukuk also underperformed non-Shariah compliant debt from the region last week. However, even after this month's drop, GCC sukuk have returned an average 5.8 percent to investors this year. Nevertheless, a prolonged period of oil price weakness will inevitably impact liquidity and credit risks in the GCC region.
The Capital Market Authority (CMA), represented by the Oman Centre for Corporate Governance and Sustainability, in cooperation with the Pearl Initiative, organised a seminar on 'Governance of Family Businesses and the Separation of Ownership from Management and Succession Planning'. The seminar was aimed at airing the views of those present and fostering dialogue among the representatives of the family businesses, business experts and specialists in this regard. Speakers underlined the importance of accountability and transparency in the family and state-owned companies that seek to successfully achieve permanence and continuity.
FlyDubai's debut Islamic bonds are signalling growing appetite for sukuk from aviation companies in the Gulf as they spend on airports and fleet expansion. The budget carrier raised $500 million this month in the first sale of the debt by a regional airline after Emirates. The issue received bids for more than six times the amount offered. Boeing forecasts Middle East airlines will need more than 2,600 new aircraft over the next 20 years, worth $550 billion. Sukuk is exptected to be part of the financing mix. FlyDubai's five-year sukuk pays a profit rate of 3.776 per cent, or 200 basis points above the five-year mid swap rate.