Bloomberg Businessweek

Oman Sees Islamic Banking Growth

Since regulations were finalised in late 2012, Oman's Islamic banks have been the most dynamic part of the banking sector and are expected to take an ever more significant share of the overall market in the next few years. Mik Kabeya, analyst in the financial institutions group of Moody’s Investors Service estimates that the asset base of Oman’s Islamic banking sector grew by 68 per cent in 2014, compared to growth of 11 per cent in the conventional banking arena. Islamic banks could account for around 10 per cent of the banking sector’s asset base within 2-3 years, compared to around 6 per cent at the moment. Earlier this year the Muscat government also said that it would issue its first sovereign sukuk.

The Rise of Affordable Housing in the Gulf

According to a 2011 report by Jones Lang LaSalle, the MENA and GCC region was in need of 3.5 million affordable homes. A 2015 update by JLL said that this shortage has in all likelihood increased since then. In Saudi Arabia, JLL estimated the shortage in 2011 to be around 400,000 homes, which has resulted from a rapidly growing population, a limited supply of completed developments and a lack of access to housing finance for middle-income earners, it said. For other Gulf markets, the roots of the problem are in the ground. Governments across the Gulf are being moved to take action.

Decade of Gulf Bond-Market Growth Fading as Borrowers Hold Back

Unless Gulf bond sales pick up in the fourth quarter, the market will shrink this year for the first time in a decade. The prospects aren’t looking good. Issuance from the six-nation Gulf Cooperation Council dropped 31 per cent to $20.4 billion this year through 30 September, while $23.5 billion of securities are due to mature in 2015. Redemptions haven’t exceeded sales since at least 2005. A contraction would cap a year in which GCC debt investors have been starved of options as borrowers turned to loans and markets whipsawed amid China’s faltering economic performance and speculation the Federal Reserve will raise interest rates.

Investment Corp. of Dubai Said to Seek $500 Million Loan

State-owned Investment Corp. of Dubai is reportedly raising a $500 million loan. The facility will be provided by Emirates NBD and Dubai Islamic Bank. The money will fund the expansion of its Atlantis, The Palm resort in Dubai. ICD and Kerzner International Holdings, a developer and operator of destination resorts and luxury hotels, plan to spend $1.4 billion to build The Royal Atlantis Resort and Residences. The development on Dubai’s man-made island will add nearly 800 guest rooms and 250 luxury residences. ICD acquired Atlantis, The Palm from Dubai World in December 2013.

Strong Year for Islamic Lending for Gulf Banks

Banks in the six-nation Gulf Cooperation Council can thank turbulence in the world’s bond markets for spurring Islamic lending to the highest in three years. Loans that comply with Islam’s ban on interest in the GCC have risen 22 per cent this year to $11.9 billion, the most since 2012. At the same time sales of sukuk dropped 41 per cent to $6.9 billion. The increase in lending will be welcome for banks in the region, where oil’s more than 50 per cent decline in the past 12 months threatens to curtail government spending and clip economic growth. Volatility in US Treasury yields is averaging the highest since 2011 after several global developments, including Greece and China.

Interview: Adbulbasit Ahmad Al-Shaibei CEO and director at Qatar International Islamic Bank

Fresh off the back of a strong first-half performance to the year, Qatar International Islamic Bank’s Chief Executive Officer and director Abdulbasit Ahmad Al-Shaibei is basking in a bumper era of growth. The bank has seen its profits grow by around 4-17 per cent every year since 2010 and, if the first six months of this year are any indication, 2015 should maintain the positive run. QIIB announced a net profit of 438 million riyals ($120.3 million) for the first half of the year, a 9 per cent increase compared to the same period in 2014. Al-Shaibei is seeing opportunity for further growth in some unconventional places.

GCC Banks Help China Break Into Islamic Finance

Qatar International Islamic Bank and QNB Capital signed an agreement in April with China-based Southwest Securities to develop Shariah-compliant finance products in the country. Seven months after Hong Kong sold its debut sukuk, China is exploring Islamic finance for projects from hospitals to metro stations, according to London-based Dome Advisory, which is working with a government-owned fund in Shanghai to finance five projects. Ningxia, an autonomous region in northwest China where a third of the 6.5 million population are Muslim, plans a $1.5 billion sukuk sale. However, country will need to make more regulatory changes to promote Islamic finance.

Gulf Islamic Bond Sales Disappoint

This year is shaping up to be a disappointing one for Islamic bond sales in the six-nation Gulf Cooperation Council. Sukuk issuance in the region has slumped by more than half in the year through 28 June. It’s a setback for the Shariah-compliant industry, where GCC sales accounted for 31 per cent of all global Islamic bonds in 2014. Islamic bond issuance from the GCC has plunged 53 per cent. Meanwhile, about 22 per cent more has been raised with Shariah- compliant loans from the GCC than in the same period a year ago. The worst-performing Islamic bond from a GCC borrower was a ringgit-denominated sukuk due 2022 from Abu Dhabi National Energy Company, known as Taqa, which has lost 8.2 per cent this year. Nevertheless, Islamic bonds returned an average 1.8 per cent, compared with 0.8 per cent for conventional bonds.

Where Did the Saudi Sukuk Go?

King Salman has reorganised his cabinet, removed princes from government roles, merged ministries and realigned succession since ascending to the throne in January. Half a year into his reign, Saudi companies have yet to market a single security in 2015, making it the country’s quietest start for Islamic sales in nine years. The inactivity in Saudi Arabia comes as more financial centres seek to compete in the sukuk market. Saudi Arabia is pursuing a $130 billion spending plan to diversify its economy away from oil, and has vowed to invest in major infrastructure projects. King Salman’s changes will impact many areas, especially financial markets. The country’s economy may expand 2.5 per cent this year, after growing at an average rate of 5.4 per cent in the previous four years.

Uncertain Future for Islamic Finance After Turkey Elections

President Recep Tayyip Erdogan’s plans to grow Islamic banking in Turkey may be facing an uncertain future. The ruling AK Party - formerly led by Erdogan - failed to win enough seats at the general election to form a single-party government. The result was a blow to the power of the man who has driven the industry in Turkey. The vote raises the possibility of a minority administration, a coalition government or another election in the $800 billion economy. Stocks, bonds and the lira plunged the day after the vote. Turkey’s cabinet appointed Mehmet Ali Akben to head the Banking Regulation and Supervision Agency in May. Akben is known to be strongly supportive of the government’s participation banking agenda. Still, political uncertainty could drag on.

Iranian Companies Plan Sukuk Sales

About 180 companies are considering Islamic bond sales in 2016 after a decade of international sanctions, according to Hossein Saeedi, a senior financial analyst at the corporate finance division of Tehran-based Amin Investment Bank. The companies have already started planning to design specific financial instruments to attract foreign investors to come to the Iranian market, Saeedi said. If the sanctions are lifted, they are looking for aggressive sukuk financing. Iran is home to the world’s biggest Islamic banking industry but market instability and currency fluctuation have been among the impediments to growth.

The Rise of Women Executives

Malaysia’s International Centre for Education in Islamic Finance (INCEIF), the only educational institute dedicated to Islamic finance, is seeing a surge in female students from around the world, helping fill a shortage of experts in a global industry set to double to $3.4 trillion by 2018. The industry will require one million professionals worldwide by 2020 to meet the shortage of experts to vet products for conformity with Shariah law and for innovation to spur growth. The institute is seeking sponsorships to increase the ratio of females to 50 per cent from 36 per cent. There are already a number of female Islamic bank executives.

Egypt Signals Sukuk Intent

Egypt's sukuk law is likely to be ready by the start of the new fiscal year in July, according to Finance Minister Hany Kadry Dimian, who told reporters in March the government will sell dollar-denominated Shariah-compliant notes once the rules are in place. Egypt also said in early March it’s preparing to issue its first conventional international bond since 2010. Egypt has hired banks including Morgan Stanley, BNP Paribas and Natixis for a $1.5 billion non-Shariah compliant bond sale, Dimian said in March. The cash raised will be partly used to pay dues to foreign oil companies. The sukuk sale will probably also be used to finance mega-projects that have been approved by the government during the investment conference.

UAE, Bahrain to Expand Islamic Cash Products

The only two central banks in the Gulf with products that allow Islamic lenders to make short-term investments are expanding their offerings as demand for cash-management tools rises. Bahrain’s central bank started a seven-day Islamic deposit facility last month, and the United Arab Emirates broadened the range of collateral Shariah-compliant lenders can use for overnight lending effective 1 April. Bahrain’s one-week facility is based on a wakalah contract, where the regulator invests cash on behalf of the lender. In the UAE, the central bank has expanded the list of eligible collateral for its Shariah-compliant overnight facility to include assets other than the regulator’s Islamic certificates of deposit.

Pakistan’s Dollar Sukuk Extend Losses; Yield Highest Since Sale

Pakistan’s dollar-denominated Islamic bonds fell for a ninth straight day, pushing the yield up 2 bps to 7.48 percent, highest since debt sold in November. Pakistan issued $1b of the 6.75% notes last month in its first dollar sukuk offering since 2005; the sale was 5 times oversubscribed.

Bahrain’s Arcapita Raises $100 Million After Exiting Chapter 11

Bahrain’s Arcapita Bank BSC has raised $100 million from shareholders to fund a return to dealmaking a year after it emerged from bankruptcy. The new equity will be used to fund Shariah compliant private equity and real-estate investments in Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Oman and Kuwait. Arcapita will also look at U.S., Asian and European investments at a later stage. Arcapita emerged from bankruptcy in September 2013 after securing a $350 million loan from Goldman Sachs Group. Under the terms of its debt restructuring, a new company called RA Holding Corp. was created to manage Arcapita’s $3 billion of assets. Arcapita earned $10.1 million in the fiscal year ended June, mostly from fees for managing RA on behalf of creditors.

Luxembourg Bond Plan to Test Islamic Shariah Cash Depth

Luxembourg is poised to test demand for Islamic bonds as the issuer of the lowest-yielding sovereign sukuk on record plans to become a regular borrower. The country has been “encouraged” by investor feedback and the market’s readiness and will begin working on its next sukuk, Finance Minister Pierre Gramegna said. Luxembourg sold 200 million euros ($254 million) of five-year Islamic bonds in September priced two basis points below midswaps. That compared with 10 basis points above the swaps for notes of similarly rated Islamic Development Bank. However, Luxembourg’s sukuk isn’t for everyone, least of all those looking for yields, an expert said. The reason why it’s so tight is because there are still Islamic investors that are looking for very conservative assets.

South Africa Sells Islamic Bonds at Record-Low Borrowing Cost

South Africa sold its first ever Shariah-compliant bonds at a record-low borrowing cost, opening the way for state-owned companies to tap a growing Muslim investor base. The $500 million of 5.75-year securities were priced with a coupon of 3.9 percent, at the bottom end of the range marketed to asset managers. Fifty-nine percent of investors participating in the deal were from the Middle East. The sale is likely to prompt more African nations and companies to follow. Eskom Holdings SOC Ltd., South Africa’s state-owned electricity company, and Transnet SOC Ltd., the ports and railways operator, have said they may tap the Islamic finance market. BNP Paribas SA, KFH Investment and Standard Bank Group Ltd. arranged the sale.

Goldman Learns From Debut Flop in Islamic Finance Market

Three years after its first foray into the Islamic capital markets ended without a sale, investors piled in to buy sukuk debt from Goldman Sachs Group Inc. (GS:US) yesterday. The New York-based lender attracted bids for three times the $500 million of sukuk it sold. The five-year sukuk was priced to yield 90 basis points, or 0.9 percentage point, over the benchmark midswap rate. After failing to sell sukuk bonds in 2011 amid criticism the deal didn’t ensure debt would be traded at par, as required by Islamic law, Goldman adjusted the structure this time in a bid to appeal to more investors. The new issue is a Sukuk al Wakala. Standard & Poor’s rated the issue A-, the seventh-highest investment grade.

Sukuk Rally Shows Strength in Indonesia Demand: Islamic Finance

An eight-month rally in Islamic bonds showed its resilience as an Indonesian sukuk drew record bids before debuts by Luxembourg, Hong Kong and South Africa. A Bloomberg index tracking dollar-denominated Shariah-compliant debt from 43 sovereign and corporate issuers rose to an all-time high this week, as supply was limited amid the worst quarter for new issuance since 2010. Luxembourg and Hong Kong have hired arrangers for their sales planned for September. South Africa has hired banks for its debut offering of Shariah-compliant notes, while Bangladesh and Tatarstan are also planning maiden sales. While the average yield on debt that complies with Muslim tenets has dropped to a three-month low, it’s almost twice that available on U.S. Treasuries.

Syndicate content