IslamicFinance.de

As Saudi Arabian authorities prepare to open the stock market to direct foreign investment this month, they're laying plans for a fresh set of reforms: measures to expand and energise the corporate debt market. The Capital Market Authority wants to change things under a five-year strategy that would encourage issuance of sukuk and conventional bonds as alternatives to bank loans, which currently dominate corporate fund-raising. This would spread corporate risk beyond the banking system, making the financial sector more healthy, and provide more channels for Saudi Arabia's growing investment industry. The CMA plans to introduce rules for credit rating agencies in September and is developing guidance for special purpose vehicles.

Turkish authorities said on Friday they had decided to take over Bank Asya. The move was announced by the banking watchdog BDDK just over a week ahead of a parliamentary election and on the same day that Erdogan launched the Islamic business of the state-owned Ziraat Bank. The BDDK statement said it acted as "problems experienced in the bank's activities with its financial structure, its partnership and management make-up presented a danger ... in terms of confidence and stability in the financial system." It handed over control of the bank to Turkey's Savings Deposit Insurance Fund (TMSF) which said that the bank's operating licence had not been cancelled at this stage.

Turkish President Tayyip Erdogan said the launch of Ziraat Bank's Islamic business should help to attract new funds to Turkey and urged other state lenders to help to triple Islamic banking's share of the market by 2023. Speaking at Friday's launch ceremony for Ziraat's new business, Erdogan said he also expects Ziraat to set up an Islamic insurance operation and called on other state lenders to introduce Islamic banking divisions soon. Turkey's other two state lenders, Vakifbank and Halkbank, have also been looking to set up Islamic banks as part of the government's efforts to develop the sector and tap a pool of cash-rich investors in the Gulf and southeast Asia.

Abu Dhabi Islamic Bank will ask shareholders for permission to expand its existing Tier 1 sukuk programme to $3 billion from $2 billion, it said in a bourse filing on Thursday. The increase is subject to regulatory approval, the Abu Dhabi lender said. It will also ask shareholders to vote to increase the bank's capital by 504 million dirhams ($137.2 million) through a rights issue.

Fitch Ratings has assigned Indonesia's proposed sovereign global certificates (sukuk) issued through Perusahaan Penerbit SBSN Indonesia III (PPSI-III) an expected 'BBB-(EXP)' rating. The expected rating is in line with Indonesia's Long-Term Foreign Currency Issuer Default Rating (IDR) of 'BBB-', which has a Stable Outlook. The rating reflects Fitch's view that cash flows supporting payment on the sukuk will constitute direct, unconditional, unsecured and general obligations of Indonesia, ranking equally with Indonesia's unsecured and unsubordinated marketable external debt. The rating will be sensitive to any changes in Indonesia's Long-Term Foreign Currency IDR.

Dubai Islamic Bank (DIB) has picked six banks to arrange fixed income investor meetings from Thursday for a potential benchmark size, U.S. dollar-denominated senior sukuk issue, a document from lead arrangers showed. DIB has mandated First Gulf Bank, HSBC, Maybank, National Bank of Abu Dhabi, Standard Chartered Bank and itself to arrange the meetings in Asia and Europe. Meetings will be held in Kuala Lumpur on Thursday and Singapore on Friday before concluding in London on Tuesday, the document showed. The offer will be under DIB's $2.5 billion sukuk programme, subject to market conditions.

Islamic mutual funds are growing again after a slump that lasted years, but the sector still falls short of meeting demand for sharia-compliant investment products, a study by Thomson Reuters and its subsidiary Lipper showed. Many firms pulled out of the sector around 2008 because of the global financial crisis and as sliding equity markets reduced investor interest. Islamic mutual funds globally now hold $53.2 billion of assets under management, recovering from a low of $25.7 billion in 2008, the study found. The total number of Islamic mutual funds reached 943 in 2014, up from 828 a year earlier. Further growth is expected, with the study projecting the funds will grow 8 percent annually to reach $76.7 billion by 2019.

The Jeddah-based Islamic Development Bank has no immediate plans to issue short-term sukuk (Islamic bonds), leaving it to domestic and regional issuers to meet growing demand for liquidity management tools in the sector. Last year, the IDB said it aimed to issue its first short-term sukuk in 2014, adding to wider efforts to develop high-quality liquid assets (HQLAs) for Islamic banks to use, but at this stage such a programme is not planned. In the meantime, domestic regulators including Bahrain and the United Arab Emirates have expanded their Islamic liquidity tools in recent months. But there are concerns that such tools could be insufficient in times of market stress, when they are needed most.

Kuwait Finance House (KFH), the Gulf nations' biggest Islamic lender, may sell some of its investments including KFH Malaysia and has picked Credit Suisse to advise it on the matter, KFH said on Wednesday. It did not provide any details such as a timeline or a potential sale price of the unit.

The make-up of Islamic banks' loan books is changing in Pakistan and Indonesia with the growing use of profit-sharing contracts that could help Islamic finance win more customers in the two largest Muslim-majority countries. Murabaha has been the workhorse of Islamic bank financing globally, but after years of dominance the structure is losing favour in some areas to profit-sharing contracts such as musharaka, istisna and salam, which are seen by many scholars as closer to the economic principles of Islam. In Indonesia, the change is more gradual as murabaha still represents over half of all financing by Islamic banks.

Turkish participation bank Kuveyt Turk has sold a debut deal of ringgit-denominated sukuk and has applied for a new 1 billion lira ($376 million) deal, as the lender looks to secure lower-cost financing. Kuveyt Turk, 62 percent owned by Kuwait Finance House , will sell the lira-denominated deal to qualified investors via its asset-leasing company, KT Kira Sertifikalari Varlik Kiralama. The ringgit five-year sukuk pays an annual yield of 5.8 percent, with the proceeds swapped into dollars to reduce the bank's funding costs to 4.4 percent. The 300 million ringgit sukuk is first issuance under a 2 billion ringgit programme.

London-based European Islamic Investment Bank said on Tuesday it plans to close a proposed 20 million pound ($30.5 million) tender offer for its own shares in May as it transitions into an asset management business model. In February, the sharia-compliant firm said it had received regulatory approval to relinquish its banking licence and is now an investment firm regulated by the Financial Conduct Authority. EIIB plans to invest $1 billion in a mix of property transactions over the next 24 months. It held $1.1 billion in assets under management as of December. The firm posted a pre-tax operating profit of $2.3 million in 2014 compared with $2.23 million profit a year earlier.

Banks are tightening lending conditions for small, private companies in the Gulf - a sign that the region's economies are not escaping damage from the plunge of oil prices. Heavy state spending is keeping economies growing strongly. Rather than borrow domestically or run down their deposits at local banks, governments of GCC countries such as Saudi Arabia are covering much of the budget deficits due to cheap oil by bringing home some funds stored abroad. So for many companies in the Gulf, it's still a borrowers' market for loans - credit is easily available at rock-bottom rates. The exception is small firms that do not have the advantage of shareholding links to governments.

Malaysia's Bank Islam issued its first sukuk tranche worth 300 million ringgit ($83.13 million) under its 1 billion ringgit sukuk murabahah programme, BIMB Holdings Bhd said on Wednesday. The tranche has a 10-year tenure and could only be redeemed after 5 years. Proceeds will be used to finance its banking activities and working capital, all of which would be sharia compliant.

Malaysia's $160 billion state pension fund will offer an Islamic investment option to its members by 2017 which would create the world's largest sharia-compliant fund of its kind, Prime Minister Najib Razak said. The move could funnel billions of dollars into sharia-compliant asset managers in Malaysia in a boon for the country's Islamic finance sector. Najib did not specify how big he thought the sharia-compliant standalone fund could be. The Employees Provident Fund (EPF) already invests about a third of its portfolio in stocks and bonds that comply with Islamic principles. Najib said the Securities Commission is also developing a blueprint for the country's Islamic fund and wealth management industry to help chart its strategic direction.

Three Malaysian banks are to provide property company Impian Bebas Sdn Bhd with a 15-year 1.08 billion ringgit ($298.34 million) syndicated Islamic financing, Maybank Investment Bank Bhd, one of the banks involved, said. Impian Bebas was created from a partnership between property and investmemt groups KLCC Holdings Sdn Bhd and Sapura Resources Berhad. It is to develop a plot of land in central Kuala Lumpur, close to the city's Petronas twin towers. Maybank IB was appointed as the joint lead arranger with Public Islamic Bank Bhd and RHB Islamic Bank Bhd , Maybank said in a statement.

The Kuala Lumpur-based Islamic Financial Services Board (IFSB) has released final guidance on liquidity risk management for Islamic banks, which may spur national authorities to issue more sukuk and establish sharia-compliant deposit insurance schemes. The guidance note, known as GN-6, clarifies the tools that Islamic banks can use to meet Basel III regulatory requirements, now being phased in for both conventional and sharia-compliant banks around the world. It defines the types of high-quality liquid assets (HQLA) that Islamic banks can hold and the weights that should be assigned to Islamic deposits.

The Government of Malaysia sold the world's first 30-year sovereign sukuk yesterday and, in the process, shrugged off domestic woes to establish a long-dated benchmark Islamic curve for other sovereigns to follow. The 30-year was part of a two-tranche offering of US$1.5bn in Islamic 144A/Reg S bonds to the international markets at a time when 1MDB's M$41.9bn debt woes threaten to derail the government's bid to rein in its fiscal and budget deficits. Malaysia stayed disciplined and kept to its initially targeted issue size of US$1.5bn split between the US$1bn 10-year note and the US$500m 30-year note. The 2025s, priced to yield 115bp over US Treasuries, rallied to 112bp/109bp and the 2045s, priced at 170bp, traded at 164bp/161bp.

Dubai's drive to develop its Islamic finance sector is fuelling growth of sharia-compliant banking but the benefits are unevenly distributed, with some lenders struggling to compete against burgeoning competition. Several initiatives announced by Dubai could have a big impact on the Islamic banking sector but have not yet materialised. One such initiative is a central sharia board of Islamic scholars that would oversee the sector. This could reduce costs for banks and increase the confidence of customers. Another project still in the planning stage is the world's first fully sharia-compliant export-import bank, which could spur the growth of Islamic trade financing.

The Government of Malaysia kicked off bookbuilding on its much-anticipated sukuk this morning, showing tenors of 10 and 30 years at guidance of around 135bp and 185bp over US Treasuries, respectively. The 144A/Reg S offering follows a week of roadshows that ended in New York yesterday evening. Based on guidance alone, the sovereign is providing a small pick-up, but, if demand proves robust, this is likely to be narrowed. Malaysia Sovereign Sukuk will be the issuer of the Islamic notes, and the Government of Malaysia, rated A3/A- (Moody's/ S&P), will be the obligor. Proceeds will be used for the government's general purposes, including the redemption of an existing US$1.25bn trust certificates due this year.