IslamicFinance.de

Highlights and Performance
Bloomberg Malaysia Sukuk
Bloomberg Malaysia Sukuk Ex-MYR Total Return and Dow Jones Sukuk Total Return indices ended relatively flat at 103.9 (+0.02%) and 159.8 +0.01%) respectively, with yields tightened marginally by 0.6bps to 2.470%. Combined with the Fed‘s dovish meeting (June 15), uncertainty over the Brexit referendum jitters (June 23) and mixed signals from China over slowing economy bring the risk-adverse sentiment. The top performers over the week were INDOIS 3/26 and GS 9/19, which moved -11bps to -13bps; while the underperformers were dominated by banking papers — EIB 1/17, Noor Bank B3T1 and DIB B2T1 which widened 12bps each.
Bank Indonesia
Bank Indonesia cuts key policy rates by 25bps in a surprise move, with the BI rate, deposit facility rate and 7-day reverse repo rate now stand at 6.50%, 4.50% and 5.25% respectively. In addition to the rate cut, BI also raised the minimum threshold on loan-to-funding ratio to 80% from 78%. Indonesia risk premiums widened 1.5bps to 196.0bps.

A Riyal denominated Sukuk has been issued by the Saudi International Petrochemical Company. The company announced the successful completion of the issuance amounting to SAR 1.0 bn on June 16, 2016. The Sukuk was priced at 235 bps over six months SAIBOR for tenor of five years maturing on June 16, 2021. Riyadh Capital and NCB Capital helped to arrange the private issuance.
In the hard currency space, the Commercial Bank of Qatar issued a Eurobond which achieved the tightest spread for a MENA financial institution this year, conventional or Sukuk.
Whilst the issuance was not a Sukuk, demand for bond indicates strong investor appetite, a good sign of market demand which is likely to be tested with several large planned issuances post Ramadan. Most eagerly anticipated is a potential sovereign issuance by Saudi Arabia, as well as by Aramco, the Saudi national oil giant.

On Thursday, the Mo Ibrahim foundation announced that its prestigious Mo Ibrahim Prize for Outstanding African Leadership and Governance will have no winner for 2015. This makes it the fifth year this prize has gone unclaimed since its inception in 2006.
In a statement issued by the Chairman of the foundation, Mo Ibrahim, he agreed with this verdict. “When we launched the prize ten years ago, we deliberately set a very high bar.” The Sudanese-British mobile communications entrepreneur and billionaire founded the foundation with a clear objective: to encourage better governance in Africa based on the belief that governance lays at the heart of tangible and shared improvements in the equality of life of African citizens. However, this recent announcement means that a number of revered heads of states such as Emilio Guebuza (Mozambique) and Jakaya Kikwete of Tanzania, both widely credited with the sharp reduction of poverty in their respective states, and presiding over periods of notable economic success, have been overlooked for this year’s prize.
The Award has now been unclaimed more times than won

It would be interesting to see just how large the actual appetite is for the Employees Provident Fund’s new shariah-compliant fund, EPF-i, which does not have the minimum 2.5% annual return guarantee and is relying only on the EPF’s track record.
The demand factor from the 6.8 million active and contributing EPF members could well determine just how big a mover EPF-i will have on the local market, experts say. According to a recent survey by the EPF, 71% of members surveyed agreed there should be a shariah-compliant option for their retirement savings. And among the 71% who agree, 46.1% say they would choose to switch to a shariah fund if given the choice, 33.2% have yet to decide and the remaining 21.7% would not switch out of the conventional savings.
It is not known how much EPF savings the 46.1% have but at parity, their asset base would be about RM224 billion — double the intended initial fund size of EPF-i, which is slated to be launched in January next year. The other wild card for actual demand are the fence-sitters (see accompanying story).

RAM Ratings has collaborated with Saturna Sdn Bhd to examine the similarities and explore the potential convergence between Islamic finance and sustainable and responsible investing. SRI has become increasingly more important in line with rising awareness about the environment, social and governance issues among regulators and investors.
The growth of SRI assets has been gathering momentum, having expanded from $13.3 trillion in 2012 to $21.4 trillion in 2014 and outpacing the growth of global professionally managed assets with a record expansion of 61 per cent.
The embodiment of SRI with the principles of fairness, equality and ethics reflects the same philosophies as those of Islamic finance, said RAM Ratings. In fact, the overlapping core values between Islamic finance and SRI could offer a solution vis-a-vis penetrating the conventional market and providing the impetus to mainstream Islamic finance. Furthermore, linkages with the Sukuk market may effectively build up a sustainable sukuk supply base, which will have a tremendous multiplier effect on staging Islamic finance’s next phase of growth.

Saudi Arabia's Bank Al Bilad has received regulatory approval to issue a capital-boosting sukuk worth as much as 2 bn riyals ($533.3 m), it said in a bourse statement on Sunday.
The issue will enhance its Tier 2, or supplementary, capital and last for 10 years, although the bank has the option to redeem the sukuk after the fifth year, according to the filing.
Sources told Reuters last month that Bank Al Bilad, one of the smaller lenders in Saudi Arabia, had chosen HSBC's local unit to arrange the Islamic bond offering. ($1 = 3.7502 riyals)

In a statement to the Tadawul, Saudi International Petrochemical Company announced the successful completion of a Shari’ah-compliant Sukuk issuance amounting to SAR 1.0 bn on 16 June 2016.
The Sukuk was priced at 235 bps over six-month SAIBOR for a tenor of five years maturing on June 16, 2021.
Eng. Ahmad Al-Ohali, Chief Executive Officer of Sipchem, commented that the successful completion of its second Sukuk offering will provide funding for general corporate purposes (including, without limitation, the repayment of any financial obligations). He expressed his appreciation to all who participated in the success of the Sukuk offering especially Riyad Capital and NCB Capital for their efforts in successfully managing the private issuance.
In a separate statement to the Tadawul, Sipchem also reported that with reference to the announcement to the market dated 12 May 2016 regarding the company’s intention to exercise its right of early redemption of its Mudaraba Sukuk with an aggregate amount of SAR 1.8 billion maturing on 6 July 2016, Sipchem successfully completed the early redemption of the Sukuk in full on 15 June 2016.

The bidding process for Asya Katilim Bankasi A.S. - with a June 23 deadline - will end uncertainty over the future of the bank, but creditors face either its successful sale or its liquidation, says Moody's Investors Service in a report published today.
Bank Asya's creditors face two outcomes -- either a transfer of ownership to a successful bidder or the bank is liquidated and its banking license withdrawn," says Irakli Pipia, a VP - Senior Credit Officer at Moody's.
Moody's notes that the bidding process is nevertheless a positivedevelopment for creditors, as it provides a potential upside scenario.In the event of a winning bid by a new owner committed to recapitalizingthe bank, the rating agency would expect a rapid recovery in its credit profile.
"An acquisition of Bank Asya by a well-established player is likely to restore customer confidence in the bank and turn around the outflow of deposits," explains Mr. Pipia. "However, the likelihood of such an outcome is impossible to assess given the limited information about potential interest from bidders."

The country’s leading Sharia-compliant lender, Qatar Islamic Bank now controls more than 43.5% of the Islamic banking market share in Qatar and 11.5% of the overall market. The quality of its customer service, portfolio of products and services, solid financial performance and measured approach to growth have also contributed to it recently adding the ‘Best Bank in Qatar’ honor from Euromoney to its list of awards. Group CEO Bassel Gamal explains QIB’s winning formula, its dedicated support for SMEs, and the opportunities Islamic finance holds for clients and investors.
What are the main opportunities in Islamic finance in Qatar?
Islamic finance has recorded many significant achievements over the last few years as it continued to strengthen its capabilities and grow by providing the products and services, as well as the capacity, to structure and finance major infrastructure projects in Qatar, in line with the country’s National Vision 2030.

The important role of the Republic of Turkey in the global Islamic finance industry as well as its distinct standing both at the official and popular levels, the steady growth both of Islamic banks and financial institutions operating there, in addition to the parallel evolution of its regulatory and supervisory framework, the AAOIFI has been keen to strengthen professional and technical ties with this country. This was translated into an official visit by AAOIFI to a number of banking regulatory and supervisory bodies as well as a number of Islamic banks and financial institutions, professional entities and academic institutions.

On the demand side, the institutional demand for high quality liquid assets are expected to keep sukuk demand high. As we get closer to the deadline of Basel III implementation, the lack of liquidity management instruments in Islamic finance is pushing this issue to the forefront.
Among the global economic developments, one positive driver for sukuk issuance could be the European Central Bank’s quantitative easing that might prompt some European investors to take positions on higher-yielding but riskier emerging-markets assets such as sukuk. Negative interest rates in Europe and Japan also are likely to attract investor of Gulf sukuk issues.
In 2015, the market saw $11.3 bn (17% to the total) in sukuk issuance for liquidity management purposes. The International Islamic Liquidity Management Corp. alone issued $6.4 bn and is actively working on providing solutions to the market. Other stakeholders such as sovereign and central banks are now conscious of the role they have to play. In 2015, the market also saw another $4.9 bn issued in form of capital-boosting sukuk by financial institutions in the GCC and Malaysia.

From Canada, CI Financial, Manulife Financial, Royal Bank of Canada and Sun Life Financial are also included in the Hall of Shame. Jointly, these Canadian financial institutions invested US$565 million in cluster munitions producers between June 2012 and April 2016.

The report by Dutch peace organisation PAX was released today in Ottawa, together with the Cluster Munition Coalition and Mines Action Canada, to put pressure on Canada and other governments to put an end to these investments.

“It is an absolute outrage that financial institutions are investing billions into companies that produce weapons which are banned under international law”, says Suzanne Oosterwijk, author of the PAX report. “Canada has also banned these weapons. It is time for financial institutions to stop disregarding the international norm with these explosive investments into producers of illegal weapons that maim and kill civilians.”

Plans by the Philippines to sell Islamic bonds could open a new source of financing for the incoming government of Rodrigo Duterte. Governments across Asia are increasingly viewing sukuk as a viable funding option, with Hong Kong open to tap the market for a third time while Sri Lanka and the Maldives consider debuts. A sukuk from these debutante countries could widen the Asian market that is dominated by sovereign deals from Malaysia and Indonesia. The Duterte government would have to work on a legal framework to facilitate sukuk, which could prove difficult in a busy agenda. Ashraf Mohammed, Assistant General Counsel of Asian Development Bank, said despite the concerns, interest is growing in the region to use Sukuk for infrastructure financing.

Conyers advised DP World on the recent establishment of a sukuk program comprising up to US$3 billion of sukuk certificates to be listed on the Nasdaq Dubai, as well as the successful first drawdown of US$1.2 billion thereunder. Linklaters advised the joint lead managers and bookrunners, who included Citigroup, Dubai Islamic Bank, Deutsche Bank, HSBC, Barclays, Emirates NBD, First Gulf Bank, J.P. Morgan Securities, National Bank of Abu Dhabi and Société Générale. Fawaz Elmalki and Oliver J. Simpson of Conyers’ Dubai office advised on the matter.

The worst time for global markets may be the best time for Hong Kong’s government to carry out its planned third Islamic bond sale. Aberdeen Islamic Asset Management says the time is ripe for a sukuk. The yield on the city’s five-year Shariah-compliant bonds sold in September 2014 has fallen 32 basis points to 1.56% since February. Sales of dollar sukuk are at an all-time high for this time of year, suggesting there’s appetite for an issue by Hong Kong, rated AAA by S&P Global Ratings.

The Savings Deposit Insurance Fund (TMSF) decided to extend the deadline for the preliminary qualification to offer bids in the sale of Bank Asya. Al-Rajhi Bank, Bank Al-Jazeera (BAJ), Al-Bilad Bank and Alinma Bank are the possible banks that asked for the one-week extension of the deadline from June 10 to June 17 to prepare the documents. According to Moody's, in the case that Bank Asya is sold to a well-known bank and strengthens its financial strength, it will be in a better condition to pay its debts to its creditors.

Algeria is preparing to launch Islamic financial services as the OPEC member seeks new ways to raise money after a sharp fall in energy earnings. Algeria’s outdated financial system has been a barrier to investment as the government seeks to diversify its economy away from oil and gas, which account for 60 percent of the state budget. Boualem Djebbar, head of the state-run Banks and Financial Institutions Association, said a legal framework would need to be finalized before introducing Islamic financial services. Djebbar said developing the banking system had become inevitable, with a particular focus on electronic payment systems, which are still little used in Algeria.

Abu Dhabi's Al Hilal Bank acquired $225MM RegS floating rate note Sukuk at 3mL+160bps under its $2.5 billion existing Trust Certificate Issuance Program. This trade marks the return to senior unsecured dollar Sukuk market since 2013 by an Abu Dhabi financial institution. CEO of Al Hilal Bank, Khaled Abdulla Alkhoori, said this was the first Islamic private placement in the UAE. The bank aims to work towards raising funding for medium term to enhance its funding profile.

Dubai’s Meydan Group has obtained Dhs 1bn ($272m) of Islamic financing partly through an issue of Islamic bonds and partly from a term financing facility. The money will help to strengthen Meydan’s capital structure, diversify its investor base and support new projects. Despite the regional economic slowdown Dubai is continuing to invest heavily in its tourism and real estate industries. Abu Dhabi Islamic Bank coordinated and structured Meydan’s financing. Three other UAE banks – Al Hilal Bank, Sharjah Islamic Bank and Ajman Bank – were also involved.

Abu Dhabi government-owned Al Hilal Bank has raised $225 million by privately placing Islamic bonds. The issue, maturing in January 2019, was priced at the three-month London interbank offered rate plus 160 basis points. It was the first unsecured U.S. dollar sukuk issue by an Abu Dhabi bank since 2013. CEO Khaled Abdulla Alkhoori said the bank aims to work towards raising funding for the medium term to enhance their funding profile. The issue was the second tranche of the bank's $2.5 billion notes programme. In the first tranche, Al Hilal raised $500 million of five-year debt in 2013.