Sukuk

#Senegal #sukuk leads #IvoryCoast and #Togo deals

Senegal raised FCFA200bn (around $341m) from a sukuk that raised FCFA50bn more than originally planned. Sukuk Etat du Senegal offers 6% a year profit margin, paid half yearly with a two-year grace period. The asset is backed by shares in the Léopold Sedar Senghor international airport. Senegal was the first country in the West African Economic and Monetary Union’s (WAEMU) to issue sukuk, with a debt deal worth FCFA100bn back in June 2014. Ivory Coast aims to raise FCFA150bn as part of a two tranche FCFA300bn sukuk program set up last year. The transaction is expected to deliver a yield of 6.5% and have a tenor of seven years. Meantime, Togo also aims to raise FCFA150bn through a 10-year sukuk offering a 6.5% yield.

Why commodity-linked #sukuks should be introduced

A sukuk is a sharia-based hybrid instrument that can have the features of both a conventional debt instrument and of equity. Sharia requires all financial contracts to be rooted in real sector activities. Sukuk has coupons paid at prefixed times in the future. However, the quantum of the coupon is not prefixed, but depends on the performance of the sukuk-issuing enterprise. This ensures that the sukuk holders partake in the risk of the enterprise. A sukuk can be issued for any commodity. The commodity-linked sukuk would not only be a win-win instrument for both investors and issuers, it would also be beneficial to society.

CORRECTED-African sovereign trio add to growing appeal for #sukuk

#Senegal has upsized its second sale of sovereign sukuk, with #Ivory Coast and #Togo expected to close their own deals in coming days. Senegal issued a debut sukuk in 2014 and returned to the market in July with a 10-year deal paying a 6% profit rate backed by assets from Dakar's international airport. Senegal's sukuk raised a total of 200 billion CFA francs ($341.5 million) from an initial plan for 150 billion CFA francs. Ivory Coast is completing a sale of 150 billion CFA franc worth of 7-year sukuk, while Togo aims to raise 150 billion CFA francs from its debut sukuk, which has a 10-year maturity and 6.5% yield. Niger has also signed up for a sukuk programme to raise 150 billion CFA francs in two phases, although a timing has yet to be determined.

Moody's assigns (P)B3 to #Pakistan's sovereign #sukuk

Moody's Investors Service has today assigned a provisional (P)B3 rating to the proposed US dollar Trust Certificates to be issued by The Third Pakistan International Sukuk Company. The (P)B3 rating reflects Moody's view that the sukuk certificate holders will effectively be exposed to the sovereign credit risk incorporated in the government's issuer rating. Payment obligations represented by the securities are ranked pari passu with other senior, unsecured debt issuances of the Government of Pakistan. The rating for the Government of Pakistan captures moderate economic strength, structurally large fiscal imbalances, a high government debt burden and high susceptibility to political event risks.

Fitch Rates #Bahrain's Upcoming USD #Sukuk and Bonds 'BB+(EXP)'

Fitch Ratings has assigned Bahrain's proposed US dollar-denominated sovereign global sukuk trust certificates, to be issued by CBB International Sukuk Company 5 (CBB5), an expected 'BB+(EXP)' rating. Fitch has also assigned Bahrain's proposed US dollar-denominated bonds an expected 'BB+(EXP)' rating. The expected ratings are in line with Bahrain's Long-Term Foreign Currency Issuer Default Rating (IDR), which was downgraded to 'BB+' with a Stable Outlook in June 2016. Certain aspects of the sukuk transaction will be governed by English law while others will be governed by laws of Bahrain. Fitch's rating on the certificates reflects the agency's belief that the Bahraini government would stand behind its obligations.

RAM Ratings reaffirms Litrak’s RM1.45b #Sukuk

RAM Ratings has reaffirmed the AA2/Stable ratings of Lingkaran Trans Kota’s (Litrak) Sukuk Musharakah IMTN I and II Programmes (2008/2023) with a combined value of up to RM1.45bil. The ratings reflect Lebuhraya Damansara-Puchong’s (LDP) robust traffic profile, underscored by its strategic alignment through major townships, which supports its strong debt-servicing capability. According to RAM Ratings, Litrak will preserve its strong cashflow-generating ability, with an average projected annual pre-financing cashflow of about RM215mil throughout the Sukuk’s tenure. This translates into solid debt coverage, enabling the company to maintain a strong finance service coverage ratio of at least two times over the same period.

#Sukuk adoption hurdles decrypted

The central benefit of sukuk is that they give issuers access to a far broader range of investors than a conventional bond can. Their reliance on real, tangible assets and their principle of sharing risk makes them valuable for any smart risk management investment portfolio. While there exists thriving markets for them in the Middle East and southeast Asian Muslim countries, an absence of Western governments is marked. Aside from a few symbolic issues by governments in the UK, South Africa, Hong Kong and Luxembourg, domestic markets have been slow to develop.

ECC waives 10 types of taxes on Islamic bonds

The #Pakistani government waived 10 taxes on the upcoming international Sukuk bond issue, which is expected to raise at least $750 million. The government is going to tap the international debt market next month to borrow $750 million to $1 billion by pledging the Islamabad-Lahore Motorway. Headed by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the cabinet granted tax exemptions on the Islamic bonds. This decision violated the Supreme Court judgment that barred the ECC from taking decision on fiscal matters without prior approval of the federal cabinet. The ECC also approved to reduce prices of imported urea fertiliser from Rs1,310 per bag to Rs1,200 per bag, giving Rs30.4 million subsidy.

Govt to raise up to $1bn through #sukuk issue in #US

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.

#Malaysia’s transport binge to spur #sukuk sales

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.

Moody’s: Prospects remain robust for Islamic finance despite subdued #sukuk issuance

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 Affirms JANY #Sukuk Company Limited's Senior Debt at 'A'

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.

Gulf sukuk issuance forecast to remain stagnant for months

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: Islamic banks' strong liquidity profiles driven by retail strengths and government sukuk availability

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.

Islamic financing alternative funding for infrastructure: Maybank

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 %.

MARC affirms ‘AAA’ rating for Aman Sukuk’s RM10b IMTN

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).

Govt gears efforts to test international appetite for Shariah-compliant papers

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.

Finance islamique : l’ICD accompagne le #Maroc pour émettre ses premiers #Sukuk

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 and Kuwait’s Burgan Bank raise $1.25b as Gulf bond sales soar

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.

Africa holds huge growth potential

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.

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