The #Singapore Kilobar Gold Contract of Singapore Exchange (SGX) has become the world's first Shariah-compliant gold futures contract. SGX said this endorsement by Islamic scholars on its physically settled futures contract unlocks a new investment and risk management option. The Singapore Kilobar Gold Contract seeks to serve as a transparent and centralised Asian price-discovery platform for the gold market. William Chin, head of metals and bulk commodities at SGX, said the move strengthens Singapore's position as an international centre for Islamic finance. Albert Cheng, CEO of the Singapore Bullion Market Association, said the Shariah-compliant SGX contract will be attractive to new customers in the region, particularly Indonesia and Malaysia.
The race to tap an US$11.5 trillion pool of wealth held by Muslim individuals, institutions and governments is intensifying. The asset management units of Malaysia's RHB Bank and Indonesia's PT Bank Mandiri plan new Islamic funds. RHB Group Asset, which oversees 54 billion ringgit ($13.5 billion), will offer new Islamic funds in Malaysia and may make some of them available in Brunei, Indonesia, Singapore and the Middle East. The Indonesian Mandiri Manajemen’s plan for more Shariah investment vehicles comes after the company’s global Islamic stock fund drew $10 million from institutional investors when it was set up on Aug. 4. According to Malaysia International Islamic Financial Centre, the global Islamic asset management industry is forecast to grow to $77 billion by 2019 from $58 billion at the end of 2015.
Indonesia completed its largest-ever global sukuk sale, selling US$2 billion of Islamic bonds at the lowest yield in three years. The Finance Ministry issued the notes at 4.325 per cent, lower than the initial 4.55 per cent indicated, Robert Pakpahan, director general at the budget financing and risk management office, said in a text message on Friday. That compares with the 4.35 per cent rate paid on similar Shariah-compliant debt sold last year and the record-low 3.3 per cent on 10-year sukuk issued in 2012.
Demand for Malaysian Islamic real-estate investment trusts may withstand a sluggish property market as their steady rental income is popular with pension funds amid a shortage of Shariah-compliant assets. Johor Corp plans to list the RM900 million (S$333 million) Al-Salam REIT, Kamaruzzaman Abu Kassim, the company's president said. The prospectus will be registered by July and the trust expects to deliver returns of around 6.3 per cent in 2016, he said. Al-'Aqar Healthcare REIT, majority owned by Johor Corp, returned 11.7 sen a unit to shareholders. That worked out to a dividend yield of 8.4 per cent based on its year-end closing price.
The Islamic Corporation for the Development of the Private Sector (ICD), the IDB's private sector arm, will cooperate with ICBC Financial Leasing, a wholly owned subsidiary of ICBC, China's biggest lender by assets. China's population of Muslims is estimated at over 20 million but there is very little if any Islamic finance activity inside the country, and it is not clear whether the industry will develop the legal and regulatory backing to develop there. However, some Chinese companies see Islamic finance as a way to expand their trade and investment in fast-growing Muslim majority markets such as the Gulf and southeast Asia, and to access pools of capital there.
Sukuk sales by Malaysian lenders seeking to comply with Basel III rules are drawing strong demand, prompting arrangers to predict a rush of offers. CIMB Islamic Bank Bhd has reportedly submitted a proposal to the Securities Commission for a RM5 billion (S$1.9 billion) programme. Moreover, Public Islamic Bank Bhd received approval for a similar-sized programme, an April 23 stock exchange filing shows. AmIslamic Bank Bhd, Maybank Islamic Bank Bhd and RHB Islamic Bank Bhd have sold a combined RM2.2 billion of Basel III sukuk since late February.
Saudi Arabia-based Islamic Development Bank is seeking to boost trading in Shariah-compliant products by opening an office in Malaysia. The Islamic Cooperation for the Development of the Private Sector, a unit of IDB, got a license in February from the Southeast Asian nation’s central bank to start offering Islamic investment products in Kuala Lumpur. It will focus on money- market instruments, foreign exchange and sukuk, chief executive officer Khaled Mohamed Al-Aboodi said. It has hired two traders and will also act as an intermediary for business between Asia and the Middle East, he said. Islamic Cooperation plans to increase the team in Kuala Lumpur as and when needed, said Al- Aboodi. The recruits are now working on developing the infrastructure and building relationships with other banks in the region.
Bank Islam Malaysia (Bank Islam) plans to open 141 branches nationwide by year-end. Managing director Datuk Seri Zukri Samat said the new branches will be opened at Jalan Chan Sow Lin in Kuala Lumpur; Bandar Enstek in Negeri Sembilan, Bukit Ibai in Trengganu, Sri Damansara, Puchong and in Johor. Nine more branches are planned for 2015. In addition to the bank's branch expansion, Zukri said Bank Islam has also enhanced its distribution channels by establishing five urban business centres, improve on internet banking and mobile banking services as well as provide more than 1,200 self-service terminals nationwide. Due to the new set of terms and conditions introduced by Bank Negara on loans, the bank suffered a 10 per cent decline in assets and loan performance.
US-based Islamic stock fund manager Saturna Capital Corp is selling its first plan in Malaysia, betting that Southeast Asian equities will weather a global emerging-market rout. The company, which has US$4.1 billion (RM13.6 billion) of assets under management globally, wants to raise RM100 million in the Malaysian fund's first year. The vehicle will invest in syariah-compliant companies in the region, focusing on building-material, healthcare and consumer stocks. The new ringgit-denominated fund will target local and overseas high net worth individuals and institutional investors. The outlook for Islamic fund management in Malaysia is still good, after a constant growth at an average rate of 25 per cent a year since 2009.
Malaysia Building Society Bhd. (MBSB) will sell the nation’s first covered Islamic bonds to be backed by receivables, offering RM495 million of the debt next month. The sale will be the first portion of a RM3 billion programme announced last month and will be issued by Jana Kapital Sdn, a special-purpose company. The securities have been assigned an AA1 ranking by RAM Rating Services Bhd in Kuala Lumpur. The offer is part of the company’s strategy to expand its business and to cut costs to sustain earnings growth. The company will report record profits this year as its nine-month net income of RM464 million has already surpassed 2012’s full-year total of RM446.7 million.
Maybank Islamic is confident of continuing its growth trajectory this year. Chief executive officer Muzaffar Hisham said the bank is looking at a pre-tax profit and zakat growth of between 10 and 15 per cent, after a 25 per cent growth to RM1.19 billion last year. The bank's growth will be led by an increase in cross-border transactions, which he said are on a steady rise. Indonesia and Singapore are the next key growth areas for Maybank Islamic. Muzaffar said he wants to grow the bank's cross-border investments via its treasury services window at Maybank Hong Kong. The bank has a strong retail banking presence in Singapore and has issued one sukuk in the island state. In Indonesia, its Islamic banking reach is through Maybank Group's subsidiary, Bank Internasional Indonesia. He added that the bank is also targeting to attract corporations from the United Kingdom wanting to expand in Asia.
Waqf (Wakaf) is the missing piece in Malaysia's Islamic financial system despite the country being the market leader with various sophisticated products and services. According to CIMB Islamic Bank chief executive officer Badlisyah Abd Ghani, waqf in a commercial manner is missing in the market today. Badlisyah said to have waqf in the financial market, there is a need for a conducive legal framework that will allow it for its incorporation in an effective manner.
The Islamic Development Bank (IDB) will boost its sukuk programme by more than 50 per cent by year-end as demand for financing from member countries, including Turkey and Morocco, grows. IDB aims to raise its medium-term note programme to US$10 billion (RM33 billion) from US$6.5 billion, so that it is ready to tap the market at any time. The increase will be the largest by value since the programme was started in 2005 by the almost 40-year-old bank.
The global sukuk market is poised for a record-breaking year, according to Standard Chartered Saadiq's chief executive officer Wasim Saufi. Standard Chartered expects demand for Islamic bonds to help push sales to levels unseen before this year although Islamic bond sales fell by as much as 11 per cent for the first six months of the year. Wasim said several issuances are in the pipeline, including a few being evaluated for dollar sukuk to be issued by Malaysian companies. One that is in the pipeline is Khazanah Nasional’s sale of US$1 billion of convertible Islamic bonds. Ernst & Young LLP in a December 2012 report predicted that the global demand for sukuk will reach US$950 billion by 2017. According to Bloomberg-compiled data, global sukuk sales hit US$18.8 billion in the first half of the year.
Franklin Templeton Investments and ECM Libra Financial Group Bhd say they are favouring Malaysian corporate sukuk, which has outperformed as the Federal Reserve considers ending stimulus. Corporate sukuk benefits from a higher degree of scarcity than for government debt. Sales of Malaysian-currency Islamic bonds fell 63 per cent to RM19.9 billion in 2013 from the year-earlier period, worsening the lack of supply. Company bond offers in the Southeast Asian nation, including sukuk and non-Islamic notes, will total RM70 billion to RM85 billion in 2013. However, corporate bond market issuance is expected to remain relatively strong in the second half as the yield curve will likely steepen beyond 2013. Malaysian corporate sukuk are considered less volatile and they provide some yield pick-up over government bonds.
Investors in Islamic bonds are losing money for the first time in more than three years in the second quarter as concern that the US Federal Reserve will withdraw monetary stimulus upended a rally that returned 33 per cent. Redemptions from emerging-market bond funds hit a 90-week high in the week ending June 19. Sukuk had benefited from a boom in Islamic finance, with Ernst & Young forecasting a surge in the industry's assets to US$1.8 trillion this year from US$1.3 billion in 2011. In January, syariah- compliant yields fell to a record low before a 57 per cent jump to date, linked largely to speculation that the Fed will scale back its bond buying as the US economy improves.
Syarikat Takaful Malaysia Bhd will offer an additional 15 per cent no claim rebate to all its participants in the general and selected family takaful products. Moreover, the company will increase its value added service delivery amidst tougher competition. It was reported that Takaful Malaysia is confident of disbursing about RM35 million in no claim rebate this year to its customers given the positive growth in its General Takaful portfolio. Group managing director Datuk Mohamed Hassan Kamil said last year, Takaful Malaysia paid out a record RM31 million in no claim rebate to its customers, adding it is optimistic on capturing a more than 50 per cent market share from the current 40 per cent.
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.
Prime Minister David Cameron is looking to Southeast Asia to boost the UK’s role in Islamic finance. It’s the Bank of England he needs to convince first, say Shariah-compliant lenders based in Britain. Central bank rules require lenders to hold easy-to-sell assets as protection against short-term funding shocks. Most are off-limits for Islamic banks because they pay interest. Cameron visited Malaysia last year to build on a pact to promote bilateral engagement in the industry and created an Islamic Finance Task Force in March. Britain’s six Shariah-compliant lenders will struggle to grow unless regulators adapt bank liquidity rules or highly rated borrowers issue sukuk in pounds.
Indonesian syariah lender PT Bank Muamalat Indonesia Syariah aims to raise up to US$300 million (RM912 million) through an initial public offering of at least 20 per cent of its capital. The IPO, subject to approval by the market regulator, is expected by the second quarter of this year and will make Muamalat the first syariah bank to list on the Indonesian stock exchange. Bank Muamalat has 2.5 million customers. Indonesia is expected to host several IPOs this year as companies look to tap excess liquidity in the stock market, which reached an all-time high this week.