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According to a new special report published by Moody's Investors Service, the Saudi sukuk market will continue to grow over the next 12-18 months. Strong sukuk issuance has continued in 2013, with SR 11.6 billion already issued during Q1, leading the rating agency to expect that 2013 sukuk issuance will surpass 2012 levels. With limited investment options available, IFIs tend to maintain higher levels of very low-yielding cash and Islamic interbank placements. A larger sukuk market would facilitate liquidity management through a pool of higher-yielding Shariah-compliant securities and offer a profitability boost to local IFIs. Moody's says that the record issuance is being driven by strong investor demand; increased financing opportunities to fund the country's large-scale infrastructure projects; and a developing yield curve following the sovereign-guaranteed benchmark sukuk issuance by the General Authority of Civil Aviation in early 2012.
Saudi Arabia’s General Authority of Civil Aviation hired three banks for a local-currency sukuk. The Saudi Arabian affiliate of HSBC Holdings Plc (HSBA), National Commercial Bank’s investment banking unit and Standard Chartered Plc will manage the sukuk sale. NCB Capital and Standard Chartered bid jointly for the mandate. It was not specified how much the authority sought to raise, neither was the timing of the sale. GACA said last year it plans to issue a second tranche of notes to fund an airport expansion in the Saudi capital, Riyadh. The company sold Islamic debt last year at 2.5 percent and used proceeds to finance an airport expansion in the Red Sea port city of Jeddah.
State-owned Islamic Bank of Thailand plans to increase its capital by 7.11 billion baht (US$234.9mil) and issue a 5 billion baht sukuk, the country's first-ever Islamic bond. The bank plans to issue the 5billion-baht subordinated sukuk to increase its capital ratio. Last year, bank officials said the sukuk would have a likely maturity of 5 years and the bank would appoint Malaysia's CIMB Bank to handle the deal, targeting domestic and institutional investors in Malaysia and Hong Kong. The bank expects to raise 927 million baht in capital this month and 6.2 billion baht in the fourth quarter. The bank, rated BBB by Fitch, also wants to seek investors to establish a presence in the Middle East in the next three years, while increasing its domestic network of branches to 130 from 106 now. It hopes this strategy will help it to return to profit this year and help the country's Islamic financial sector grow.
During the past year, there have been a number of cross-regional sukuk, mostly by Gulf issuers tapping Malaysia's highly liquid market. However, sukuk structures are not standardised, and some Gulf-based sharia scholars have objected to certain structures used in Asia, a region which has proven to be more flexible in its transactions. Sukuk issuance in the Middle East outside of the Gulf is also becoming more attractive, notably Turkey, which was recently elevated to investment grade credit status and is bidding to develop an Islamic finance industry. Growth in cross-border Islamic bond issues points to greater convergence in the industry, opening the door to a much wider pool of investors.
The International Islamic Financial Market (IIFM) has released its IIFM Sukuk Report (3rd Edition) which consists of A Comprehensive Study of the Global Sukuk Market. The research report sheds light on the growth and development of international and domestic Sukuk issuances from 2001 - Jan 2013. According to Mr. Ijlal Ahmed Alvi, Chief Executive Officer of IIFM, the last two years were record years of Sukuk issuances. This year has also started on a positive note and the growth trend is expected to continue in coming years, he added. The report also highlights the different Sukuk structures used by international Sukuk issuers as well as Sukuk structures used at domestic level by various jurisdictions active in issuing Sukuk. Moreover, it contains selected Sukuk case studies in the international Sukuk market and the clarification on the meaning and types of Sukuk Al Istithmar (Investment Sukuk).
Barwa Bank has acted as joint lead manager on Albaraka Turk Participation Bank's (ABT) $200m Tier 2 sukuk. This transaction represents the first Sukuk Murabaha transaction issued in the international capital markets from Turkey. Barwa Bank has been involved in almost all meaningful sukuk business over the last 12 months, guided by its strategy to become a key player in the Islamic debt capital markets. The ABT sukuk is another milestone for the bank, having been involved with several high profile issuers earlier this year as Co-Lead Manager, notably, the government of Dubai, Emirates Airlines and Dubai Islamic Bank.
This week saw a big surge of MENA bond and sukuk activity, with four dollar deals coming to market and two other issuers lining up roadshows. The wave breaks the recent regional lull and points to a further flurry in the coming weeks as borrowers try to seize a window before the Middle East summer kicks in.
Dar Al Arkan's $450m 5.75% five year sukuk bucked the recent trend by performing well in the secondary market after pricing on Tuesday. The paper traded up to 100.75 bid on Wednesday, having been priced at 99.47. And despite the general market sell-off on Thursday, the notes were still quoted at 100.25 by the close.
The State Bank of Pakistan (SBP) has issued a circular to all Islamic banking institutions about the Islamic Export Refinance Scheme (IERS) and eligibility of Ijara Sukuk, Islamic bonds to be included in the Musharaka pool. Every Islamic bank is obligated to create a Musharaka pool consisting of financing blue chip companies on Islamic modes. The Musharaka pool is supposed to have a minimum of ten companies with diversified lines of businesses to avoid concentration in sectors. The circular listed the conditions that will make the Government of Pakistan Ijara Sukuk eligible to be included in the pool, created under the IERS. The Islamic banking institutions are also required to maintain records of Sukuk issues and the amount it allocated to its respective Musharaka pool.
State Bank of Pakistan (SBP) has notified that now un-encumbered Government of Pakistan Ijara Sukuk may be included in the Musharaka Pool (MP), created under the Islamic Export Refinance Scheme (IERS). This inclusion will be subject to the several conditions. All Islamic Banking Institutions (IBIs) shall report Sukuk in MP under the sector heading of GoP Ijara Sukuk. IBIs shall maintain record of Sukuk issue included and the amount of that issue will be incorporated in the MP. The banks are advised to refer to SBP’s Islamic Export Refinance Scheme and other instructions issued from time to time. Other instructions on the subject remain unchanged,
Saudi developer Dar Al Arkan has lowered price guidance on its planned Islamic bond issue. The company, which is planning to raise at least $300 million from a five-year Islamic bond, revised its guidance lower to around 6 percent from initial yield guidance of 6.25 percent. An update from lead arrangers on Monday indicated that order books were over $500 million. Dar Al Arkan has picked Bahrain-based Bank Al Khair, Deutsche Bank, Emirates NBD, Goldman Sachs and Qatari pair Masraf Al Rayan and QInvest to arrange the potential sale.
Al Baraka Islamic Bank is raising $200 million through trust certificates in a Sukuk Al Wakala issue which will mature in 2015. The 18-month sukuk is aimed at raising cash to help increase the bank's exposure to Sharia-compliant trade finance. The issue is being promoted through a private placement with participants able to invest a minimum of $100,000. The purchase price for the certificates is 100 per cent of their face amount, plus an amount equal to 2pc of the face amount of the certificates for an agency. The certificates will not be listed or admitted to trading on any stock exchanges or markets. The bank expects a profit return on the certificates of 6pc over the 18- month period.
Earlier this year Standard & Poor’s (S&P) documented the global trend of last year, and predicted another strong few years, subject to the resolution of certain structural factors. Global issuance had grown for the fourth year running in 2012, by 64 per cent to about $138 billion. However, funding needs and infrastructural investments, combined with investor sentiment, are behind today’s momentum. Supportive GCC-Asian trade policies and the international search for yield will reinforce the attraction of GCC sukuk. Banks needing to refinance existing debt and match the needs of corporate clients, particularly in project finance, will provide a further boost regionally. Sovereign and sovereign-related issuance will continue to shape the sukuk market, which will also see increased participation from frontier markets, notably in Africa.
State investment company Khazanah Nasional Bhd is gearing for more innovative investment options to follow its landmark portfolios in the sukuk marketplace. It plans to publish a coffee table book to share its success stories thus far. In recent weeks, Khazanah was in the news when it selected three banks to help arrange a sale of US$1 billion (RM2.98 billion) of convertible Islamic bonds. The Shar iah- compl iant bonds, or sukuk, would be exchangeable into shares of companies controlled by Khazanah. The company has launched innovative sukuk across Asia including the first global sukuk in US dollars, in Singapore dollars and in the yuan exchange. A rough estimate shows that Khazanah has helped raise US$3.5 billion for companies based in Singapore, Malaysia and Hong Kong, among others.
The Malaysia-based International Islamic Liquidity Management Corp (IILM), backed by nine central banks and monetary agencies as well as the Jeddah-based Islamic Development Bank, has said it plans to issue up to $500mn of dollar-denominated sukuk in the second quarter of this year, and eventually expand the programme to as much as $3bn. However, the company faces a delicate task as it designs its maiden sukuk: it must make the issue attractive enough for investors to buy, but not so attractive that most of them buy to hold. The IILM’s mission is to create a highly liquid tool which Islamic banks will trade to manage their short-term funds. Whether it gets the balance right will affect the development of Islamic money market trading in the Gulf and Southeast Asia over the coming year.
Saudi Basic Industries Corp (SABIC), the world's biggest petrochemicals group, will issue a sukuk late this year or next year to fund coming projects. SABIC has 40 billion riyals ($10.7 billion) worth of projects over the next few years and the company prefers to fund these with sukuk. Its Chief Financial Officer Mutlaq al-Morished said the timing of the sukuk would depend upon both the development of the projects and conditions in financial markets. It is too early to give the size of the sukuk, he added.
PwC Luxembourg in association with the Luxembourg Stock exchange publishes a new brochure about Sukuk listing in the Grand Duchy. This document distributed on 6 May 2013 during the “Journée boursière” provides an overview of the Islamic Finance Market in Luxembourg and highlights the benefits of Sukuk Listing and Trading in Luxembourg. 16 Sukuk have been listed on the Luxembourg Stock exchange. With more than 3,127 listed issuers coming from 103 countries, the Luxembourg Stock Exchange meets capital market players’ needs. Luxembourg remains one of the most competitive, stable and secure environments in Europe to locate securitisation transactions. The development of Islamic Finance in Luxembourg has been set as priority by the Grand Duchy.
Telecom Malaysia (TM) has enough cash to redeem its RM2 billion sukuk that will mature on December 31, according to its senior officials. TM has RM3.7 billion in cash and bank balances as at end-2012, its chief financial officer Datuk Bazlan Osman said. Therefore, the group does not see any need to issue more bonds to raise funds for now, he added. TM’s healthy reserves were lifted by a year-on-year growth in net income of 6.1 per cent from RM1.19 billion in 2011 to RM1.26 billion last year. This was largely helped by a 9.2 per cent revenue growth from RM9.15 billion in 2011 to RM9.99 billion last year, which TM claimed is the highest in the industry.
A sukuk deal issued by Asya Sukuk Company Limited is the first Turkish bank sukuk internationally placed where the obligor is a company which is entirely Turkish owned. The sukuk certificates issued are unconditionally and irrevocably guaranteed by Bank Asya. The inaugural issuance is for $250,000,000 and will have an initial yield of 7.5% per annum. The sukuk will be issued in fixed rate resettable Tier 2 certificates which are due in 2023. BNY Mellon has been appointed delegate, principal paying agent, registrar, transfer agent and Irish listing agent on the deal. It will perform fiduciary duties and make profit and principal payments to investors on behalf of Asya Sukuk Company Limited. It will also handle administrative duties related to the issuance of the certificates.