IslamicFinance.de

US President Donald Trump has been accused of courting international trade friction and a new international debt crisis. There were already signs given the huge debt built up over a decade of record low interest rates, and that rates had begun rising. The next international debt crisis could well be in the emerging market corporate sector. Global debt has reached US$217 trillion, equal to a record 325% of global gross domestic product. Investors in Brazil, South Korea, Thailand, Chile, Czech and Malaysia especially have been big borrowers. While most of this has been in local currencies, corporates in India, Saudi Arabia, Turkey and Russia as well as Hong Kong and Singapore have borrowed heavily in foreign currency. This creates a currency mismatch situation.

Dear Reader,

Two obstacles blocking the substance of Islamic finance and destabilsing the economy, one is the risk weighting of Basle regulation discouraging banks from giving equity finance, the other the interest deductibility as cost factor discouraging corporates from taking equity finance.

At least the latter may slowly be resolved, reports FT Alphaville:

"US tax reform now contemplates ending the tax “subsidy” for interest. Ultimately, we concluded that the favoured tax treatment for debt and interest was unjustified, a position that inspired the primary private equity lobbying group to issue a 2,422 word press release assailing the FT piece."

https://ftalphaville.ft.com/2017/02/06/2183520/what-lbo-modeling-suggest...

It is worth reading completely; and I still wonder why Muslim majority countries are so slow to show any action to this adverse piece of damaging taxation.

Best regards,

Michael Gassner
www.islamicfinance.de

Sukuk Analysis: Dissecting Risks & Recourse - CFA Continuing Education

Asset based Sukuk (Islamic bonds) are the most popular Sukuk in the market. In terms of recourse,
these are unsecured Sukuk. Covered and asset backed Sukuk are less widely used.

In this course, we will analyze the risks of different sukuk structures. The cases guide the delegates to clauses in Sukuk documentation that explain the recourse in deals.

At the end of the course, the delegates will be able to:

• Evaluate how sukuk are distinct from traditional fixed income.
• Analyze credit, legal, and Shariah issues in different types of Sukuk.
• Compare the recourse in asset based, covered and asset backed Sukuk.

Session 1: Sukuk Anatomy and Risk Issues for Asset Based Sukuk: 1 hour. This session
will analyze how regulation, credit and Shariah drive Sukuk structuring.

Case Studies:

• Government of Dubai - This transaction demonstrates how unsecured recourse is
achieved in one of the most common Sukuk structures - Ijarah or lease based. What are
the governing laws for the different documents, and what drives their application?

Middle Eastern syndicate and real estate asset management platforms are emerging as major and increasing sources of outbound capital from the region with new figures showing an increase in volumes.
“Typically, they exist to pool equity from multiple private and medium-size institutional investors to real estate assets on a deal-by-deal basis,” said Fadi Moussalli head of JLL’s International Capital Group, MENA. “In the first three quarters of 2016 the volume has already reached $5.1bn and we expect the end-year figure to reach around 7bn.”

An unknown group of people have purposefully leaked new allegations surrounding the Turkey-based bank Kuveyt-Turk. A press release published on Nov. 19 claimed that US Senator Dick Durbin would hold hearings to investigate two key banking institutions in Kuwait and whether they helped fund terrorism. The press release read that Durbin would target Kuwait Finance House and its subsidiary in Turkey, the Kuveyt-Turk participation bank. A spokesman at Senator Durbin's office flatly denied the report and said it was completely false. The fake report has surfaced amidst an ongoing court case in California against the two banks on the terror funding charges. Kuveyt-Turk's lawyers dismissed the charges by saying the allegations have no merit because banks are not responsible for the allegations. President Recep Tayyip Erdogan said the allegations over Kuveyt-Turk and Kuwait Finance House were proof of Western double standards.

Members of the Interfaith Center on Corporate Responsibility (ICCR) are asking 17 American drug companies to be more transparent about when and why they raise prices. The investors say rising costs are putting prescription drugs out of reach for many patients. The ICCR hopes the proposals are listed in company proxy statements and put to shareholder votes at annual meetings in spring 2017. Some state legislatures have already introduced bills requiring companies to justify price increases. ICCR member Catherine Rowan hopes they get enough votes to prod companies to adopt pricing-transparency policies. She added that congressional committees have called some pharmaceutical chief executives to testify and the legislative pressures are going to persist.

Bahrain-based Ibdar Bank has announced the acquisition of a $78-million multi-family housing property at Montgomery county in Maryland, USA. The area boasts the third-largest commercial downtown in the USA, being home to the headquarters of the White House, World Bank, and the International Monetary Fund. Ahmed Al Rayes, acting chief executive of Ibdar Bank, said the acquisition was the Bank's first successful foray into the USA and was aligned with the Bank’s strategy to diversify its international real estate portfolio. Bassam Kameshki, the director of Real Estate at Ibdar, said the Bank has selected a straight forward asset class in a strategic location. The investment holding period will be up to 5 years. Besides real estate, Ibdar Bank is also engaged in private equity, capital markets and investment advisory activities.

More than 100 participants participated in the World Bank-Islamic Financial Services Board (IFSB) High-Level Seminar on Islamic Finance and the Sustainable Development Goals (SDGs) on October 6. The Seminar was highlighted by a keynote address by his Royal Highness Muhammadu Sanusi II, the Emir of Kano and former Governor of the Central Bank of Nigeria. The Emir stressed the potential of Islamic finance to mobilise much needed capital to achieve the SDGs. Ms. Arunma Oteh, the Vice President and Treasurer of the World Bank, similarly stressed the importance of Islamic finance as an agent for financial inclusion and for mobilising private investment in infrastructure. The panel discussion examined how countries are increasingly using Islamic finance to support developmental goals, and innovative sukuk structures supporting both physical and social infrastructure.

A group of nuns and other religiously-affiliated investors have lost faith in Wells Fargo and filed a shareholder resolution calling on the bank to report on a fake accounts scandal that led to a $190 million settlement. The bank employees opened as many as 2 million checking, savings and credit card accounts without the customers' permission in order to meet sales quotas. The San Francisco-based bank said it would provide more specifics on areas like its risk controls, but that did not happen. Wells Fargo's board has taken some steps since the settlement to address concerns, but the religious shareholders now say they need more changes. For instance another resolution filed by the Unitarian Universalist Association calls on Wells Fargo's board to study how to connect executive pay with ethical conduct.

The United States needs to shift its spending from war to education, from CIA-backed regime change to a new Global Fund for Education (GFE). The current imbalance in US spending on global education and military-related programs is staggering: $1 billion per year on the former, and roughly $900 billion on the latter. Several recent international reports show that annual global development assistance for primary and secondary education needs to rise from around $4 billion to around $40 billion. Only this ten-fold increase can enable poor countries to achieve universal primary and secondary education (as called for by Goal Four of the new Sustainable Development Goals).

Elizabeth Warren wants the FBI and Justice Department to explain why no bankers were prosecuted for the 2008 financial crisis. She wants the agencies to explain why they didn't act on the recommendations from the Financial Crisis Inquiry Commission to prosecute top Wall Street executives. The commission was charged with investigating the cause of the 2008 financial meltdown. Warren said the commission recommended actions against 14 Wall Street firms including Citi, Fannie, Merrill and AIG, as well as Freddie Mac, Goldman Sachs, JPMorgan, Credit Suisse, UBS, Societe General, PriceWaterhouseCoopers, Moody's, Washington Mutual and Lehman Brothers. Some of those firms reached civil settlements with authorities, but none faced criminal charges.

In the New York Times Deal Book, Professor Steven Davidoff Solomon writes about new steps to disapprove merchant banking by the FED to reduce risk but at high cost. From an Islamic point of view, it just looks like another door for equity investments by the banking sector is about to be shut down, while the contrary makes sense in times of an ongoing debt crisis.

Professor Solomon defines Merchant Banking as ""simply the practice of buying operating companies. The risk to a bank holding company is twofold. First, the bank could lose its money — as with any investment. Or second, it could be held liable for the debts of that company." Already he outlines that "banks are penalized for these investments by having a charge applied to their allowable capital. Second, the bank must sell the investment within 10 years, a period that can be extended by application to 15 years. These investments are monitored heavily these days to ensure they are not unduly risky."

Guidance Residential announced that it has reached the $4 Billion milestone in home financing. This $4 Billion threshold is more than the cumulative production of all other providers in the market. Guidance Residential has helped approximately eighteen thousand families to date, buy or refinance their homes. The company has grown into the largest Islamic finance employer in the United States. The workforce is diverse, 20% of the employees are Muslim Americans. Guidance Residential offers home financing products and services for Muslim Americans through their Shariah-compliant, Declining Balance Co-ownership Program.

Baker & McKenzie advised Mohammed I. Alsubeaei & Sons Investment Company a leading private equity investment company based in Saudi Arabia in a $219 mn dollar Murabaha facility to develop a luxury condominium development. MASIC provided the mezzanine financing for the development project, 45 Park Place, located in New York's TriBeCa neighborhood. The deal highlights the expansion of Islamic financing into the US real estate market.
MASIC partnered with other financial institutions and Soho Properties on the downtown condo project, which is scheduled for completion in 2018. Financiers for the project include Malayan Banking Berhad, London Branch; Intesa Sanpaolo S.p.A.; Warba Bank K.S.C.P.; and MASIC.
Baker & McKenzie partner Mona Dajani said, “This successful financing by MASIC is a milestone transaction in the United States using tiered Shari’ah-compliant facilities for commercial transactions. This transaction aptly demonstrates the increased activity in Islamic financings in the United States which has emerged over the past year.”
The Baker & McKenzie team, led by Ms. Dajani, included partner, Pat McDonald and associates Michael Reed, and Maher Haddad.

Abstract:

As healthcare insurance in the US has skyrocketed, despite passage of President Obama’s Affordable Care Act in 2010, many Americans are turning to a new/old solution: mutualized self-help. Many Christian groups in the US are forming their own unregulated insurance pools to pay the medical bills of their members. This trend raises some fascinating questions about state/corporate bureaucracies vs. social commons. Religious faith is a big part of these expense-sharing plans. The plans themselves often reflect religious moral judgments: no medical payments for injuries caused by driving drunk, for example, or for sexually transmitted diseases contracted via an extramarital affair. Such conditions make these expense-sharing plans unacceptable to most secular consumers.

A consortium of Bahrain-based lenders Venture Capital Bank (VC Bank) and Seera Investment Bank has acquired a major real estate portfolio consisting of two multifamily residential assets in Atlanta (US) comprising 866 units. This marks the consortium’s first investment in the US multifamily sector and has been in co-operation with a local partner that has experience in the management and operation of multifamily residential assets. Atlanta remains a hot favourite among global investors, thanks to the large number of Fortune 500 companies that are headquartered there. It is also the fourth biggest city with headquartered Fortune 500 companies after New York City, Houston, and Dallas.

Azzad Asset Management today announced that it has further magnified the social impact of its flagship mutual fund by adding investments in ethical trade finance deals. These investments may provide returns for investors while helping underserved populations in Asia and Africa obtain reasonable financing to grow businesses and cooperatives. The Azzad Wise Capital Fund (WISEX) invests primarily in sukuk and community development banks. Through WISEX, the Virginia-based investment firm is participating in a group of syndicated ethical trade finance deals arranged by the International Islamic Trade Finance Corporation (ITFC). The ITFC is charged with advancing trade and improving the economic conditions of people around the world.

Since reaching the nuclear agreement that lifted economic sanctions on Iran, President Barack Obama has pledged to continue to punish foreign companies that do business with the regime’s powerful Islamic Revolutionary Guards Corps. In theory, this will chill European investment in Iran because the IRGC, along with its front businesses, controls major portions of Iran’s economy in vital sectors such as oil, construction and banking. But despite recent reports of billions of dollars worth of new European investment in Iran, the US Treasury Department has seen no evidence that European companies are conducting transactions with the IRGC. Many sanctions experts question whether this is really possible.

Arcapita has partnered with Morningstar Senior Living for senior living communities based in Colorado worth $85 million. The current portfolio for Arcapita consists of three projects for assisted living and care communities and provides a total of 196 units and 243 licensed beds in the Denver and Colorado Springs, Colorado. The focus on the state is to attract customers who are in the company’s target age demographic. The target age group for senior living facilities in Colorado is projected to grow by almost twice the national average over the next five years, stated Martin Tan, Arcapita’s chief investment officer.