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Bank Islam Brunei Darussalam has picked Malaysia as the destination for a planned initial public offering (IPO) that could raise as much as US$500mil. The IPO would be the first from a company based in Brunei, an oil-rich country without its own stock exchange. First-time share sales in Malaysia raised US$833mil so far this year, up from US$235mil during the same period last year. Shareholders of Bank Islam include the Brunei finance ministry, the Sultan Haji Hassanal Bolkiah Foundation, private equity firm Fajr Capital and about 6,000 Bruneian investors. The lender had 7.5 billion Brunei dollars (US$5.4bil) of total group assets at the end of 2015. Its Tier 1 capital adequacy ratio was 23.3%.

According to outgoing Bank Islam director Datuk Seri Zukri Samat, there are too many Islamic banks in Malaysia, which means that this segment of the local financial sector is ripe for mergers and acquisitions (M&A). Zukri is also advocating direct listings of such banks. There are 16 Islamic banks in Malaysia of which two are full-fledged banks, eight are subsidiaries of conventional banks and the remaining, foreign banks. Zukri hopes to see the creation of mega Islamic banks that can potentially become regional champions under the Asean banking integration framework. It is not yet known who will replace Zukri, but one name has already been submitted to Bank Negara for approval. Bank Islam’s parent company BIMB is at the same time contemplating a group-wide restructuring to fulfil regulatory compliance requirements.

As an exception to the banking sector single shareholder limit, the Central Bank has allowed one of the shareholders of Sri Lanka’s Amana Bank to own up to 30% of the issued shares of the bank. Currently IDB has 120.4 million shares or 9.62% stake in Amana Bank, Sri Lanka’s first non-interest based Islamic bank. In recent times, the Central Bank had allowed several banks to have their key shareholders own even beyond 70% such as in the case of Union Bank and Cargills Bank. But they must gradually bring those stakes down to the regulatory limits over time. Amana Bank is required to meet its minimum regulatory core capital of Rs.7.5 billion by June 30, 2017. Given the performance of the share price and the non-receipt of dividends, shareholders may not show appetite to contribute for any fresh capital calls by the bank.

The Islamic Development Bank will invest more cash in Sri Lanka's Amana Bank through an investment vehicle. Approval has been recently given for the investment group to go up to 29.9% of the stock by subscribing to a cash call. The investment vehicle IB Growth Fund (Labuan) will buy stock in in an upcoming rights issue. The investment deal was inked on May 18 in Jeddah, Saudi Arabia.

Dear Reader,

regular readers may remember my critic on bitcoin from an Islamic perspective missing intrinsic value. The former blog entry you find here: http://www.islamicfinance.de/?q=node/7840 - almost two years ago.

So far bitcoin just went up higher and higher, with wild fluctuations but nevertheless.

It reminds on how bubbles work, think about the tulip mania in 1637 a nice piece of economic history. A single tulip bulb was traded and bought on credit. Check the Wiki page on it:

https://en.wikipedia.org/wiki/Tulip_mania

As bitcoin has even less value than a tulip except for payment purposes, it is the payment functionality, which can lead to destruction. What happens if a new alternative currency is becoming en vogue, which has a better usability and faster transaction time? In my view this is most likely trigger to burst the bubble.

FT Alphaville covers now the difficulties coming up with bitcoin's increasing transaction numbers causing inconvenience in using the digital currency:

https://ftalphaville.ft.com/2017/05/17/2188961/the-currency-of-the-futur...

#Malaysian holding company Sime Darby has received approval from its bondholders to restructure US$800mil (RM3.46bil) worth of sukuk. Holders of the sukuk approved the company’s plan to buy back the papers or replace the borrower to Sime Darby Plantation from Sime Darby. The broader reorganisation of the group involves the proposed listing of Sime Darby Plantation and Sime Darby Property through share distributions. Sime Darby will remain listed, owning the automotive, industrial equipment and logistics businesses. The holding company plans to create three standalone businesses: plantation, property and trading, and logistics. Plantation and property would be listed on Bursa Malaysia, while trading and logistics would remain under Sime Darby.

The government of #Indonesia recently offered retail sukuk to the public to raise funds to help plug a gap in the state budget. From 2008 to 2017, the Indonesian government issued retail sukuk to tap into the country's growing middle class. In 2017, Indonesian retail sukuk became the highest sukuk issuance in the world, with a total value of Rp 31.5 billion (US $2.37 million). Despite its success, the total value of retail sukuk, corporate sukuk and conventional bonds is still considered small compared to the amount needed to finance priority infrastructure development projects. With the lack of a government budget, specified portfolios need to be explored. Green sukuk is a subset of sukuk that finances green assets. As green projects are relatively new in Indonesia, they need time to set up and engage with the nation's development plans.

China has become a major financier to the world. Last year its outward direct investment (ODI) totaled $170 billion and the overseas lending from its two policy banks added another $100 billion. One aspect of the overseas financing is China’s "One Belt, One Road" (OBOR) initiative. This is President Xi Jinping’s idea of supporting infrastructure development in countries west and south of China. Beijing is hosting a belt-and-road summit on May 14 and 15, which 28 heads of state will attend. There are two main types of capital outflow that are relevant for OBOR: ODI, and lending by China’s policy banks, China Development Bank (CDB) and the Export-Import Bank of China (EXIM). The top 10 destinations of ODI were: the Cayman Islands, the Virgin Islands, the United States, Singapore, Australia, the Netherlands, the United Kingdom, Russia, Canada, and Indonesia. Of these, only Russia and Indonesia are along the belt and road. China is a very significant funder of infrastructure in the developing world, but it is happening everywhere, not just along the belt and road.

According to RAM Ratings, global sukuk issuance reached US$22.2 billion (US$1=RM4.33) at the end of March, a marginal decrease from US$24.1bil recorded in the same period last year. Malaysia maintained its leadership by accounting for 38.5% of the total issuance. The ratings agency said Indonesia was next (24.7%) followed by Qatar (9.9%) and the United Arab Emirates (9%). The outstanding global sukuk summed up to US$346.7bil, as at end-March 2017, with Malaysia maintaining its leadership by commanding 48% of the amount. Ruslena Ramli, Head of Islamic Finance at RAM Ratings, said that other Gulf Cooperation Council nations are expected to include sukuk issuance as a debt management strategy. On the domestic front, outstanding Malaysian sukuk expanded 11.5%,year-on-year, to RM691.4bil, as at end-March 2017, from RM620.1bil recorded in the same period last year.

The listing of more Islamic financial institutions on Bursa Malaysia is needed to boost the Islamic fund and wealth management industry going forward. The Permodalan Nasional Bhd (PNB) group chairman Tan Sri Abdul Wahid Omar said this would also strengthen Malaysia's position as a global financial hub. He said that of the 672 syariah-compliant securities listed only two were from the finance sector, namely, BIMB Hodings and Syarikat Takaful Malaysia. Wahid said the shortage of listed Islamic finance institutions could pose big challenges to the industry, especially for the government-linked investment companies. He also suggested three possible ways to further grow the industry. The first is the formation of a second listed Islamic universal banking group, apart from BIMB Holdings. The listing of some of Islamic Development Finance Institutions such as Bank Simpanan Nasional and Bank Rakyat is a second option. The third approach is the creation of a separate listing among banking groups that have sizeable Islamic finance activities embedded within them, such as Maybank, CIMB and RHB.

The Islamic Research and Training Institute (IRTI) and the Islamic Development Bank (IDB) organized a regional consultation workshop on Sukuk Model Law project. The workshop was organized in partnership with the Monetary Authority of Brunei Darussalam and was held in Brunei capital. Participants included senior officials of financial authorities from the IDB member countries in the ASEAN region, namely Brunei, Indonesia, Malaysia, Bangladesh and Maldives, as well as from Hong Kong, South Korea, Singapore, Philippines, Sri Lanka and Cambodia. The project aims to create a model Sukuk law and guidelines that allow IDB member countries and other jurisdictions a basis for a legal framework for Sukuk issuance and regulation. This was the second of four regional consultations on the Sukuk law. The first consultation was held in Senegal, Africa, and other two are planned for Europe/Central Asia and the MENA regions.

In #Malaysia Islamic investment accounts (IA) have grown at a strong pace since they were introduced in 2015. Bank Negara’s latest monthly banking statistics show that IAs have since grown to RM74.2 billion as at February this year, accounting for 13% of total liabilities within the Islamic banking system. According to Simon Chen, senior analyst at Moody’s Investors Service, by 2020 IAs will probably account for some 16% of the Islamic banking system’s total liabilities. An important feature of IAs is the sharing of risk between the bank and the account holder. For an investor, IAs are attractive because they offer much higher returns than a deposit account. But, unlike a deposit account, the principal amount in an IA is not guaranteed by Perbadanan Insurans Deposit Malaysia. According to Chen, a key issue that remains is whether the loss-sharing mechanism in IAs will be honoured by banks in case of actual losses. A significant loss to test the resilience of this regime has yet to occur.

#Malaysian RHB Islamic Bank has issued RM250mil subordinated sukuk murabahah, the bank's first bond issuance in about three years. Parent company RHB Bank said the sukuk would mature in 10 years and could only be redeemed from the sixth year onwards. It has a fixed profit rate of 4.88% per annum, payable semi-annually in arrears throughout the entire tenure. RHB said proceeds raised from the sukuk issuance would be used for RHB Islamic’s syariah compliant working capital. In 2016, RHB Islamic turned in a profit after tax of RM324.8mil, a 27.4% increase against RM254.8mil in the preceding year.

Allianz Malaysia, a subsidiary of the German Allianz SE, has ended discussions to acquire HSBC Amanah Takaful. The company announced it has discontinued its negotiations with the shareholders of HSBC Amanah, namely HSBC Insurance (Asia-Pacific), JAB Capital and Employees Provident Fund (EPF). The life and general insurer did not give a reason why the talks failed. Allianz Malaysia CEO, Zakri Mohd Khir, previously said that he had been approached by takaful operators in the past, but the asking price was too high. Allianz Malaysia had been pursuing a bid for HSBC Amanah since October last year. Allianz Malaysia saw its net profit rise by a marginal 1.1% to RM312.13 million in the financial year 2016 (FY16) from RM308.87 million in FY15 due to higher gross earned premiums and investment income. Revenue also grew by 3.5% to RM4.68 billion from RM4.52 billion.

Japan continues foraying into the global Islamic finance sector in order to benefit from previously untapped opportunities. The Japanese Mizuho Bank through its Malaysian subsidiary became the next bank to enter an Islamic finance deal by signing a murabaha credit facility agreement. The deal is valued at $300mn and was signed by Mizuho Bank and the Islamic Corporation for the Development of the Private Sector (ICD). The two-year financing term will be used to fund projects undertaken by ICD in its member countries and is the first cross-border bilateral Islamic facility for Mizuho Bank. The agreement follows a similar deal between the ICD and Bank of Tokyo-Mitsubishi UFJ on a $100mn murabaha facility back in 2014. Japan’s capital market regulator Financial Services Agency supports Japanese banks to conduct Islamic finance business by allowing their foreign subsidiaries to take Islamic deposits. Currently, the sector is waiting for amended banking regulations to enable banks to provide Islamic banking products on the domestic market for the first time.

Malaysia's Public Sector Home Financing Board issued up to RM3.25 billion sukuk to finance housing loans to the public sector employees. The board is also known as Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA). The LPPSA said the RM3.25 billion sukuk notes formed a part of its RM25 billion Islamic commercial papers programme, which is guaranteed by the Malaysian Government. The sukuk was issued in tranches of five-year to 30-year and was priced at 4.17% to 5.225% per annum across tenures. Lead managers include Affin Hwang Investment Bank, AmInvestment Bank, Bank Islam Malaysia, CIMB Investment Bank, Maybank Investment Bank, OCBC Bank and RHB Investment Bank. CIMB is also the facility agent while RHB Islamic is the Shariah adviser.

On the 5th of January military intelligence operatives phoned the chairman, a vice-chairman and the managing director of Islami Bank Bangladesh and brought them to the agency’s headquarters in Dhaka. A few hours later the bank’s board selected their replacements. Islami Bank has been of interest to the government for its association with the Jamaat-e-Islami, Bangladesh’s biggest Islamist party. In recent months, companies with ties to S Alam Group have built stakes in the bank, although the group denies any role in this. The new chairman, Arastoo Khan, declined to comment on the changes at the bank. The shareholders from Saudi Arabia and Kuwait were kept in the dark about the boardroom coup and complained bitterly about it. The Islamic Development Bank (IDB) questioned the rationale behind the changes and pointed out that there was no proper recruitment process. The Bangladeshi government has assured foreign shareholders that it will not let politicians loot the bank.

Global sukuk market resumed positive strides in 2016 after three years of consecutive decline. The sukuk market also witnessed an important shift where corporate issuers dominated the market in 2016 with USD47.3 billion volume of issuance, representing a share of 63.2%. This is in contrast to historical trends where issuance was driven largely by sovereigns. Overall, sukuk issuer profile remained similar to historical trends. Malaysia continued to be the main driver for sukuk issuance, commanding a market share of 46.4% of total issuances, followed by Indonesia and the United Arab Emirates (UAE), accounting for 9.9% and 9.0% share. Elsewhere, Turkey recorded a notable rise in sukuk issuance at USD4.1 billion for the year, supported by a number sovereign issuances with maturity ranging from one to five years. The year 2016 also witnessed issuances from Senegal, Jordan, Ivory Coast and Kuwait.

Malaysia Venture Capital Management (MAVCAP) plans to announce a $50 million first close for two of its funds that will be launched this year, Asean Growth Fund and Global Islamic Economy Fund. The combined size of the two vehicles will be about $450 million. MAVCAP CEO Jamaludin Bujang said the Asean Growth Fund is $200 million vehicle, which is jointly launched with China-based Gobi Partners. This vehicle will be termed Meranti and will focus on later stage funding for technology related companies in Malaysia and Southeast Asia. In fact, MAVCAP is weighing options for the Islamic fund that is looking to invest in Shariah compliant and Halal sectors. Apart from the Asean Growth Fund and the Islamic fund, MAVCAP is also working on a clean-tech fund that will invest in companies that help reduce environmental stress. Bujang said the clean-tech fund could have a targeted corpus of anywhere between $50-$100 million.

Indonesian banks are expected to be cautious boosting credit disbursement because the non-performing loan (NPL) ratio is currently high with the gross NPL ratio hovering above 3% since mid-2016. Banks are now more selective in terms of credit disbursement, but this undermines the pace of the nation's macroeconomic growth. Although Indonesia managed to end the five-year economic slowdown in 2016, it is still far away from Indonesian President Joko Widodo's ambitious 7% GDP growth pledge. In fact, he revised his projection for Indonesia's 2018 GDP growth to 5.6% from a previous projection of a 5.4 - 6.1%. Thus, it should basically be impossible to see a 7% growth rate by 2017.