Sukuk

Global sukuk sales to hit $46bln in 2011

The global Islamic bond market could see issues of close to $46bn in 2011 as investor confidence returns and new issuers emerge in the growing Islamic finance industry.
With economies recovering from the financial crisis and the restructuring of state-owned entities like Dubai World gaining momentum, sukuk is once again going to emerge as the preferred way to raise money, Humayon Dar told Reuters on the sidelines of a conference in Dubai.

International Borrowers Take to Islamic Bond Market

Until recently the issuance of Islamic bonds, or sukuk, was confined to the Muslim world. But now a number of international borrowers are tapping the markets, including Nomura Holdings in Japan and Europe's first corporate borrower, International Innovative Technologies.
The ratings agencies Moody’s and Standard & Poor’s say they expect to see a rise in the number of sukuk issues by new players over the next 12 months, including issues by borrowers in Singapore, Australia, Luxembourg, Thailand, Hong Kong, France and Russia.
While the Islamic Financial Service Board and the accounting and auditing organization have defined standards for sukuk, defaults over the past year have shown that new guidelines must be set as problems arise, particularly as sukuk start to generate global attention.

Islamic banks plan ringgit sukuk index

Islamic banks in the country are developing a local currency sukuk index to serve as a benchmark for sharia-compliant fixed income securities.
The index will track highly liquid, high grade bonds, including on-the-run ringgit denominated sukuk, said the Association of Islamic Banking Institutions Malaysia, which includes the local units of Al Rajhi and Kuwait Finance House.
Malaysia has the world’s largest sukuk market

Sukuk Roadblocks May Rise With National Shariah Boards: Islamic Finance

The plan to create national Shariah boards to oversee sukuk sales is drawing criticism from bankers and lawyers who say the groups would increase bureaucracy in the $1 trillion Islamic finance industry.
The Accounting & Auditing Organization for Islamic Financial Institutions, a leading global regulator, is in the final stages of a plan recommending governments appoint panels of scholars and experts at the national level to rule whether products comply with the religion’s tenets, Mohamad Nedal Alchaar, secretary-general of the Manama, Bahrain-based body, said in an interview in Kuala Lumpur on Oct. 26. The proposal will be submitted early next year.
The regulator says such a system will help clarify standards and bolster investor confidence in an industry whose assets are forecast by the Kuala Lumpur-based Islamic Financial Services Board to almost triple to $2.8 trillion by 2015. The changes risk adding bureaucratic hurdles and slowing approvals at a time when sales are down 19 percent this year, according to CIMB-Principal Islamic Asset Management Sdn. and Atlanta-based law firm King & Spalding LLP.

HP issues maiden US$100m sukuk

HEWLETT-PACKARD (HP), the world's largest technology company, has issued its maiden US$100 million (RM310 million) sukuk to part- finance the development and construction of its multi-million-dollar next generation data centre (NGDC) in Cyberjaya.
The company, via its Malaysian subsidiary HP Multimedia Sdn Bhd, and CIMB Islamic Bank Bhd signed an agreement to formalise the Islamic term financing facility agreement in Kuala Lumpur yesterday.
At the signing, CIMB Islamic was represented by group chief executive officer Datuk Seri Nazir Razak, while HP was represented by HP Enterprise Services senior vice president for Asia Pacific and Japan, Kevin Jones.
The loan will help finance the development of HP's first phase NGDC project, with an option to be extended to subsequent phases in due course.
Upon completion in 2016, the campus will stand as one of HP's four global network centres, alongside India, Mexico and Costa Rica.

S. Korea to beef up Islamic finance sector

SOUTH Korea is keen to foster further cooperation with Malaysia to beef up its Islamic finance and services sector that is at its infancy stage.
Korea Investment and Securities head of Islamic finance Yul-Hee Lee said there has been many enquiries made by Korean companies on how it can raise funds using the sukuk.
Lee noted that the South Korean government is in the midst of fine-tuning laws on Islamic finance and introducing tax incentives but development is still at its early stage and will take time to be ready.
The South Korean government announced an Islamic financing tax regime for sukuk as early as August 2009.
South Korean firms have been using Islamic finance products for a couple of decades, but only in relation to their business activities in the Middle East.
Post-global economic crisis, Lee said the country is considering other options and diversifying its investments. Part of its plan is to tap into the Islamic finance market.

Abu Dhabi Islamic Bank to sell 5-year benchmark Sukuk this week

Abu Dhabi Islamic Bank, or ADIB, the emirate’s largest Islamic lender by market value, is planning to sell five-year benchmark Islamic bonds, or sukuks, this week, according to people familiar with the matter.
Company officials, who have been on a series of investor meetings in Asia, Europe and the Middle East since Oct. 20, end their roadshow Tuesday. Benchmark-sized bond deals are those worth at least $500 million. The securities are expected to price later this week.

Cagamas looks at up to RM2bil new Islamic notes

Cagamas Bhd, the national mortgage corporation, will look at issuing up to RM2bil in new Islamic medium term notes, said chief executive officer Steven Choy.
A business daily reported recently that Cagamas was expected to issue another landmark sukuk after the success of its benchmark Sukuk Al-Amanah Li Al-Istithmar (Sukuk ALIm) in July.
During the panel discussionon Islamic Finance Developments and Expansions in Asia, Choy said Cagamas experienced its fair share of challenges in the secondary market for its mortgage loan deals.
Islam Bank of Thailand president Dheerasak Suwannayos added that political will was needed to back the acceptance of Islamic finance in a country.
Businesses among the Muslim community were predominantly family-owned, hence the hesitation in letting strangers into the businesses.

Markaz Fixed Income Research examines changing trends of Kuwaiti bond and sukuk market

Kuwait Financial Centre (Markaz) in its recent research on the GCC Fixed Income Market has highlighted the trends in the Kuwaiti bonds and sukuk market during the period from 2003-2009.
CBK issued 1) Treasury Bills, which are debt obligations with maturities of less than one-year and no periodic interest payments, 2) Central Bank Bonds, which are debt obligations with maturities of less than one-year carrying a fixed coupon rate, and 3) Treasury Bonds which are debt obligations with maturities greater than one-year with a fixed coupon rate.

Malaysia Plans Sukuk for Public to Spur Trade: Islamic Finance

Malaysia plans to let issuers sell to individual investors sukuk that can be traded on the local stock exchange as the government seeks to reverse a 24 percent decline in sales in the world’s biggest market for Islamic bonds.
Bursa Malaysia Bhd., the exchange operator, is working with regulators on rules to enable companies to issue Islamic debt that would be affordable to the public, Chief Executive Officer Yusli Yusoff said last week. Issuance of the securities fell to 19.8 billion ringgit ($6.4 billion) this year from 26.2 billion ringgit in 2009, the steepest drop since 2003.
Bursa Malaysia is working on developing the sukuk for individual investors.

Islamic Bank of Thailand Delays Sukuk, Dheerasak Says

The state-run Islamic Bank of Thailand will delay the nation’s first sale of sukuk until early next year as it awaits new guidelines from the securities commission.
Thai Securities & Exchange Commission spokeswoman Charuphan Intararoong said in July that the guidelines would be published in the fourth quarter.
The Thai government is also considering selling 40 billion baht to 50 billion baht of Islamic bonds to fund infrastructure projects.
Prime Minister Abhisit Vejjajiva has advocated more development aid for the region, where separatists have fought for an independent state since Thailand formally annexed the autonomous Malay-Muslim sultanate in 1902.

Citigroup Sees Sukuk Demand Recovery in a Year: Islamic Finance

Demand for Islamic bonds from the Middle East will return to “pre-crisis” levels by the end of the third quarter as companies restructure debt and higher yields lure investors, according to Citigroup Inc.
Shariah-compliant bond sales from the Persian Gulf are rising after Dubai World, the state-owned holding company, reached an agreement with 99 percent of its creditors in September to change terms on $24.9 billion of debt. Economic growth in the Middle East and North Africa will accelerate to 5 percent in 2011 from 3.8 percent this year and 1.1 percent in 2009.

‘Write off Nakheel bonds’ ACE chief urges consultants

The chief executive of the Association of Consultancy and Engineering (ACE) has warned companies to write off “sukuk” bonds from indebted Dubai developer Nakheel.
Nakheel is finalising a plan to pay creditors 40% in cash up front, and 60% in sukuk bonds, which are redeemable in five years and pay a return of 10% a year.
Nakheel chief executive Chris O’Donnell told conference delegates, many of whom are still owed money, that the developer would reach an agreement on the plan with creditors before the end of the year, after which the sukuk would be issued.

Taylor Wessing's Islamic Finance team commended in FT Innovative Lawyers report

Taylor Wessing's Islamic Finance team has been commended in the Financial Services section of the 2010 FT Innovative Lawyers report for its development of a tax law to benefit Islamic finance. The team collaborated with Clifford Chance to lobby the UK government to ensure that the UK tax regime could operate as intended to keep London as the western centre of Islamic finance.
Tax Partner Peter Jackson and Corporate Partner Hamid Yunis led the Taylor Wessing team to resolve complicated tax issues surrounding a property financing transaction Sukuk al Ijara.

Australia Planning Tax Changes to Promote Sales of Sukuk: Islamic Finance

Australia plans to change laws to ensure Islamic finance products are taxed fairly as the government seeks to attract investors from the Middle East and Asia, paving the way for sukuk sales.
The national taxation board will hold talks next month in Sydney, Canberra and Melbourne on how to best ensure that Islamic finance transactions are treated the same as equivalent non-Islamic deals. The board noted this month that mortgages that comply with religious principles may lead to stamp duty being paid twice, as the financier buys the property and then sells it to his client. Under a conventional mortgage there is only one sale that attracts the duty.
Australia is looking to join countries from Egypt to South Korea in seeking to ease barriers to Shariah- compliant products and tap the industry’s $1 trillion in assets, which the Kuala Lumpur-based Islamic Financial Services Board predicts will reach $1.6 trillion by 2012.

Jordan sovereign sukuk law almost ready

Jordan's first ever law covering the issuance of sovereign Islamic sukuk has been finalised and bankers and officials hope it will let the kingdom tap the fast-growing Islamic banking industry's huge pool of liquidity.
Prominent Islamic bankers, along with members of a top-level ministerial committee mandated with drafting the sukuk law, said the legislation removes legal uncertainties and would be submitted to the cabinet in as little as two weeks.
It should be passed by year end, widening Jordan's borrowing options beyond conventional public debt instruments and helping finance a growing deficit, worsened by the global downturn and a fall in foreign aid that traditionally covers budget shortfalls.
Jordan has not had special laws relating to Islamic finance, but as Islamic financing expands pressure is mounting on the monetary authorities to apply sharia compliant legislation.
Assets of the three existing Islamic banks in Jordan alone amount to around 12 percent of the total banking system and their financing accounts for over 16 percent of total credit.

Indonesia Trailing Malaysia in Sukuk on Taxes: Islamic Finance

Indonesia is under pressure from banks to match tax breaks and product offerings announced by Malaysia last week to catch up in developing Islamic finance.
Malaysia has the largest market for sukuk and is a global hub for the Islamic finance industry that manages $1 trillion of assets. The government will cut taxes on Shariah-compliant transactions next year to promote “innovation in Islamic securities".
Indonesia failed to sell all of the government sukuk it offered in an auction on Oct. 5, even after suspending sales for two months because investors demanded higher yields than the government was willing to offer.
Malaysia in the past year has issued permits to global investors including Aberdeen Asset Management Plc and Franklin Templeton Investments to start Islamic fund management. The funds, which will invest in ringgit and non-ringgit denominated assets, will be exempt from paying taxes until 2016, according to the central bank.

Saudi sukuks seen doubling next year, says Saudi Hollandi

Saudi firms may launch 10 Islamic bonds, or sukuk, in 2011, more than double their number this year, but they will be dominated by private placements.
Key factors that will spur demand for Saudi sukuk issues will be a low interest rate environment in Saudi and Dubai World's restructuring accord with 99 percent of its bank lenders as well as Dubai's successful $1.25bn conventional bond issue in late September.
Saudi Arabia has had four sukuk issues this year so far, Nisar said, but declined to comment on the expected size of issues and only cited Jeddah-based Islamic Development Bank (IDB) and an Aramco-Total joint-venture as being among the prospective issuers.
The interest rate environment in Saudi Arabia -- the main repo interest rate stands at two percent -- might seem discouraging for prospective sukuk buyers.

Growth in Sukuk issuance offers Islamic funds an opportunity says S&P report

Standard & Poor's Ratings Services said that it believes that the sukuk market has grown large enough to support a transformation in the Islamic fund industry.
The report is titled "Sukuk Funds Poised To Grow As Sukuk Market Continues To Expand".
The sukuk market returned to growth in the first half of 2010. Global sukuk issuance topped US$13.7 billion during this period, nearly twice the US$7.1 billion recorded during the same period last year.

Strong H1 seen for Islamic issuance-Noor Islamic

Noor Islamic Bank expects to close a “healthy number” of Islamic syndicated loans and Islamic bonds in the first half of 2011, with Turkey emerging as an active market for Islamic finance.
Aamer Zaidi, head of corporate banking at Noor Islamic Bank, said on Wednesday that the company is involved in a few sukuk issuances in the Gulf region and is also working on syndicated loans within the UAE.
The Gulf sukuk market is poised for a revival as large corporate and supra-national issues come to market following Dubai World’s restructuring accord with 99 percent of its bank lenders as well as Dubai’s successful $1.25 billion conventional bond issue in late September.

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