In #Pakistan the Economic Coordination Committee (ECC) of the Cabinet finalised plans for immediate launch of $500 million to $1 billion sukuk in the US capital market. Presided over by Finance Minister Ishaq Dar, the ECC decided to start process for the launch of sukuk in Washington on Tuesday and wind up the transaction by Oct 5, 2016. The government has already hired a consortium of five banks – Citibank, Standard Chartered, Deutsche Bank, Dubai Islamic and Noor Islamic – as financial advisers to complete the sukuk transaction. Being Islamic mode, the bond is being raised against Lahore-Islamabad Motorway as collateral that should keep pricing slightly lower than conventional bonds. The government would decide about the exact size of the bond on the basis of investor response and pricing but would remain within $500m-$1bn band.
Malaysian corporate sukuk sales are rebounding from a four-year low. RHB Investment Bank sees issuance rising 7% to RM60.2bil in 2016, encouraged by Bank Negara’s monetary easing in July. AmInvestment Bank forecasts as much as RM70bil. Sukuk sales have picked up after Najib kicked off US$16bil of road and subway projects this year in partnership with the private sector. This month the Public Sector Home Financing Board sold RM3.4bil of Government-guaranteed Islamic notes, while Lebuhraya Duke Fasa 3 Sdn. offered RM3.64bil of syariah debt to finance a highway in Kuala Lumpur. Fundraising is needed for construction of 1,800km of roads being built in Sabah and Sarawak. Other potential issuers include Prasarana Malaysia, which is financing a RM10bil extension of Kuala Lumpur’s light-rail network.
According to Moody’s, the growth prospects for the Islamic finance sector are still strong despite new sukuk issuance remaining subdued this year. Moody’s global head of Islamic finance Khalid Howladar said growth in the Islamic banking sector continues to broadly outpace that of conventional banks in most systems in which Islamic banks have been established. The sector also has potential for further growth, especially in countries in which the penetration of Islamic banking assets remains relatively low, at between 5%-10% of Islamic financing assets. New sukuk issuance volumes in 2016 are expected to remain flat, at around US$70bil. Growth in the Takaful sector is also slowing, but the rating agency expects it to remain at double digit levels into 2017 and for gross contributions to reach US$20bil by next year.
Fitch Ratings has affirmed the rating of The Goldman Sachs Group's JANY Sukuk Company guaranteed trust certificate issuance programme at 'A'. The equalization of the certificate programme's rating is due to the Sukuk's structure. Upon a trust dissolution event, J. Aron will be obliged under the Murabaha Agreement to acquire, or arrange for a third-party purchaser to acquire JANY's beneficial interest in the commodities in the Wakala portfolio. Goldman will unconditionally and irrevocably guarantee the payment obligations of J. Aron under the Murabaha contract. The Sukuk program does not benefit from a cross-default provision within the guarantee documents.
Corporate and infrastructure sukuk issuance in the Gulf region and Malaysia has continued to stagnate so far this year and this may carry over to the coming quarters, according to S&P Global Ratings. Despite the slump, essential infrastructure funding requirements, low interest rates, and investors' appetite for Islamic assets in their portfolios continue to be supportive for the world's core corporate sukuk markets.
In the GCC, corporate and infrastructure sukuk issuance totalled $2.5 billion in the first eight months of 2016, compared with $2.3 billion for the preceding eight months. Versus the same periods in 2013 and 2014, issues are down sharply from $5 and $6.5 billion, respectively, S&P said.
"Further out, we see possible brighter prospects for issuing corporate and infrastructure sukuk over the medium to long term. We estimate that Gulf government spending on projects alone - including infrastructure contracts awarded over 2016-2019 - could be about $330 billion," said S&P Global Ratings analyst Karim Nassif.
Moody's Investors Service says that the liquidity coverage ratios of Islamic banks in key Asian and GCC countries highlight sound liquidity profiles and broad compliance with Basel III regulatory requirements.
"In the report, we highlight that a key driver of LCR performance is the funding profile of banks and, in this context, over-reliance on corporate deposits and unsecured wholesale funding means higher potential liquidity pressures," says Simon Chen, a Moody's Vice President and Senior Analyst. "However, banks with a greater proportion of retail deposits that are considered more 'sticky', typically display stronger LCRs," adds Chen.
Lender Maybank Indonesia has called on the Indonesian government to promote Islamic financing as an alternative funding to boost infrastructure projects in the country. Its president director Taswin Zakaria said infrastructure projects covered tangible assets such as land and equipment that could be securitized for Islamic financing such as sukuk.
"We view Islamic financing as an alternative, not a substitute, that can be used simultaneously with conventional financing […] We’re looking to finance more government projects using Islamic loans," he said during Maybank's Invest ASEAN 2016 event on Wednesday in Jakarta. Islamic financing, he further said, would attract money from the Islamic world, such as from Middle Eastern investors in Indonesia as the infrastructure projects were mostly supported by the government.
Maybank's sharia unit, Maybank Syariah, disbursed 80 % of its Rp 10.8 trillion (US$ 817.25 million) loans in the first half of 2016 to the infrastructure sector. However, it is currently struggling with unsafe gross non-performing financing (NPF) of 5.58 %.
The Malaysian Rating Corp Bhd (MARC) has affirmed its ‘AAA’ rating on special purpose vehicle Aman Sukuk Bhd’s (Aman) Islamic medium-term notes (IMTN) programme of up to RM10 billion with a stable outlook. MARC said the rating reflects the credit strength of the government as the sole paymaster of the sublease rental payments that are sufficient to meet the principal and profit payments under the IMTN programme.
In the statement the rating agency added the stable outlook reflects its expectations that the sublease rental stream backing the transaction will continue to be supported by timely receipt of payments from the government.
Aman is a wholly owned funding vehicle of Pembinaan BLT Sdn Bhd (PBLT), the developer of 74 projects comprising quarters and facilities for the Polis DiRaja Malaysia. The projects, which are located throughout the country, were developed under a build, lease and transfer (BLT) project model. As at end of August 2016, PBLT has fully completed the construction of the 74 projects with a value of RM7.5 billion, of which 73 projects have been awarded with certificates of completion and compliance (CCC).
The Pakistani government plans to tap international investors’ appetite by offering sukuk worth as much as $750 million for sale. The finance ministry said the structure of the sukuk will be flexible and the issue will have a maturity of at least five years. According to former finance minister Salman Shah the completion of the IMF (International Monetary Fund) programme and reclassification of Pakistan Stock Exchange to MSCI emerging market index would send a positive signal to the investors. Analysts said improved macroeconomic indicators and China-Pakistan Economic Corridor related activities are attracting positive credit ratings.
Le Maroc a choisi la Société islamique pour le développement du secteur privé – SID (Islamic Corporation for the Development of the Private Sector – ICD) comme arrangeur pour l’émission de ses premiers Sukuk. ICD conseille et accompagne les pays membres pour développer leur marché de capitaux islamiques, à travers l’émission de Sukuk à court, moyen et long terme, permettant aux Etats de diversifier leurs sources de financement. Les premières émissions de Sukuk au Maroc devraient intervenir au cours des prochains mois.
Emaar Properties and Kuwait’s Burgan Bank raised $1.25 billion (Dh4.59 billion) from bond sales. Emaar sold $750 million of 10-year Islamic securities, pricing them at 225 basis points over the benchmark midswap rate. Burgan Bank raised $500 million from a sale of five-year dollar securities that will carry a spread of 215 basis points over midswaps. Corporate bond sales are picking up amid a rush of sovereign issuance in the oil-exporting region. Saudi Arabia is expected to raise at least $10 billion in October from its first offering of international securities.
According to Standard & Poor’s Africa’s extensive infrastructure development needs to create a fertile environment for the growth of sukuk issuance over the next decade. S&P analyst Samira Mensah said African sukuk could provide diversification benefits for Islamic investors as well as additional financing opportunities. So far the African market comprises only $2 billion (Dh7.35 billion) of sukuk from a handful of issuers. By contrast, 17 Sub-Saharan African (SSA) governments issued $46 billion of conventional debt in 2015 alone. Despite sukuk’s appeal, analysts expect that only a few African countries will tap the sukuk market over the next 12 months. There is a general lack of clear legal regimes and in many cases the complexity of structuring sukuk could deter issuance. Multilateral institutions could be the key to unlock the full potential of Africa's sukuk market.
Emaar Properties has mandated Standard Chartered Bank as Sole Global Coordinator of its new US dollar Sukuk. Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, First Gulf Bank, Mashreq, National Bank of Aub Dhabi, Noor Bank, Standard Chartered Bank and Union National Bank are mandated as Joint Lead Managers to arrange investor meetings in Asia, the Middle East and Europe commencing on 4 September 2016. USD 2 billion Trust Certificate Issuance Programme may follow subject to market conditions. FCA/ICMA stabilization applies.
Dubai-based Emirates Islamic Bank has priced a $250 million tap of an existing Islamic bond issued in May. The tap was priced at 170 basis points over midswaps, the order book was worth $706 million. The 'new' deal is a copy of an existing bond with the same terms and conditions. Emirates Islamic's tap came off a $750 million five-year sukuk issued on May 23. That deal was priced at 220 bps over midswaps and carried a coupon of 3.542 percent. Chief Executive Jamal bin Ghalaita said the cash would support the bank's long-term growth and development plans. The new offering was arranged by Bank ABC, Dubai Islamic Bank, EMCAP and Standard Chartered.
Saudi Arabia's Bank Al Bilad priced an Islamic bond issue worth 2 billion riyals ($533 million) at 200 basis points above the three-month Saudi interbank offered rate. The sukuk have a tenor of 10 years, with the bank having the right to call the bond at the end of the fifth year. They were sold through a private placement. Bank Al Bilad said the raised funds would support its capital base in line with Basel III standards.
Following are major Islamic bond issues in the global pipeline. Pakistan plans an international issue of sukuk and is asking banks for expressions of interest in managing the sale. Sharjah Islamic Bank said it would begin investor meetings on Aug. 29 for a potential benchmark U.S. dollar-denominated sukuk issue. Ahli United Bank Kuwait has obtained approval from Kuwait's central bank to issue capital-boosting sukuk worth up to $200 million. Ivory Coast plans to complete a sale of 150 billion CFA francs ($263 million) worth of seven-year sukuk on Aug. 31.
JP Morgan's plans to include sukuk in its major bond indices from October will be a boon for the market. Sukuk is commonplace in the Middle East and Southeast Asia. But only a handful of western governments have issued one, with the UK in particular making headlines in 2014. This month's poll is asking readers exactly what's holding back the global sukuk market.
Sharjah Islamic Bank will begin investor meetings on Aug. 29 for a potential benchmark U.S. dollar-denominated sukuk issue. The meetings will be held in Asia and Europe and the issue would be subject to market conditions. Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, HSBC, KFH Capital, Maybank, Noor Bank, QNB Capital and Standard Chartered will arrange the meetings.
According to Fitch Ratings the inclusion of sukuk in major bond indexes would be a significant boost for the product, but initiatives to harmonise standards and improve transparency remain key to its long-term development. Reuters reported that JP Morgan would include eight sovereign and corporate sukuk in various bond indexes from 31 October. This may encourage issuers to supply index-eligible sukuk and support secondary market liquidity. However, Fitch Ratings believes the sukuk market's growth rate will be determined by two factors. Firstly, product-specific initiatives around regulation of sukuk issuance, which have been noteable in some jurisdictions, but have not always been harmonised across jurisdictions. Secondly, the broader attempts to deepen the investor base and improve transparency in the relevant capital markets. Sukuk issuance from key markets in 1H16 rose 11% from a year earlier to USD21.74bn, representing 30% of total issuance. Overall, Fitch expects this year's sukuk issuance to at least match 2015 issuance of around USD32bn.
After a string of sukuk issued for purposes of liquidity, Senegal’s recent sukuk bought a welcome return to an Islamic finance transaction for the purposes of social good. Senegal closed its sukuk in late July, marking its second sovereign sukuk issuance. The West African nation will use the proceeds of the CFA 150 billion transaction to finance a drinking water supply program and an implementation program of road network and street lighting. The International Finance Facility for Immunisation (IFFIm) sells bonds on the capital markets to raise funds to save children’s lives. IFFIm has so far issued two sukuk with a December 2014 transaction for $500 million and a September 2015 transaction for $200 million. The International Finance Corporation (IFC) issued a five-year Sukuk in 2015 which was used to support IFC’s developmental financing activities in the Middle East and North Africa. Mahmoud Mohieldin of the World Bank Group said the group planned the issuance of an inaugural humanitarian sukuk program.