IslamicFinance.de

Islamic bond programmes from a trio of big conventional banks are set to expand the boundaries of Islamic finance, helping open the market to first-time issuers while testing the banks' ability to win over industry purists. Since June, France's Societe Generale, Bank of Tokyo-Mitsubishi UFJ (BTMU) and Goldman Sachs have set up sukuk programmes, aiming to tap the pool of cash-rich Islamic investors. They are treading a fine line, having to reconcile the fact that their businesses mostly depend on conventional banking practices. If the three banks are successful and become regular sukuk issuers, they could help to widen Islamic finance beyond its core markets in the Middle East and southeast Asia.

Kuwait Finance House Investment Company (KFH-Investment) has participated in arranging USD 750 mln debut sukuk for the emirate of Sharjah. Emad Al Monayea, Board Director and Chief Executive Officer, KFH-Investment stated that the sukuk witnessed 10-time oversubscription where order book was about USD7.85 billion from 250 accounts. He added that the government plans to continue to use borrowing to fund priority capital investment. He explained that rating agencies Moody’s and S&Ps assigned sukuk A and A3 ratings supported by the stable future outlook. Talking about the allocation of the debut sukuk, he said that Middle East is 50 per cent, UK 20 per cent, rest of Europe 11 per cent, Asia 14 per cent and others five per cent.

The state-run Anadolu Agency cited last week an official from the Banking Regulation and Supervision Agency (BDDK) as saying the Islamic lender Bank Asya had been put under the scope of Article 70 of Turkey's Banking Law, a move that gives the BDDK the power to restrict or temporarily halt the bank's operations, as well as to merge it with another bank. Bank Asya reacted strongly to the report, saying the bank will file lawsuits against the BDDK and media outlets that spread the speculative news report. Market observers criticized the Anadolu Agency for sharing exclusive details - the authenticity of which cannot be verified - regarding a privately run financial institution, suggesting that such reports are in violation of laws regulating and protecting banks in Turkey.

Bahrain-based Ibdar Bank has announced the appointment of Mr. Basel Al-Haj-Issa as the Bank's new Chief Executive Officer, with effect from 1 September 2014. Mr. Al-haj-Issa is a senior banker with over 20 years of international exposure in Islamic Investment and Commercial Banking in the GCC and MENA, CIS and South East Asia. Prior to joining Ibdar Bank, he was the Chief Executive Officer of Saba Islamic Bank - Republic of Yemen. Prior to that, he was the Director of Financial Institutions Development Dept. at the ICD - managing a portfolio of 25 financial institutions in over 20 countries. Mr. Al-Haj-Issa holds a Master degree in Business Administration and Bachelor of Science (Mathematics) from Marshall University, USA.

SECP is striving to establish a comprehensive Islamic financial system to cater for the needs of people, which are not inclined to use conventional financial products. The decision of SECP to permit conventional insurance companies to launch Takaful operations will result in rapid development of this sector. However, the development of an Islamic financial system needs to include Islamic banking industry, Takaful industry and Islamic capital and money markets with strong linkages, interdependence and synergies. Although Takaful has been in the market for long, it has yet to make significant inroads as the concept is clouded by unfamiliar terms and principles for commoners resulting in hesitancy. In absence of a viable Islamic capital market the adequate supply of quality financial instruments could be a difficulty.

GCC’s gross takaful contribution is estimated to reach around $8.9 billion (Dh32.6 billion) in 2014 from an estimated $7.9 billion in 2013, according to the Ernst &Young report, Global Takaful Insights 2014. The report forecasts a continued double-digit growth momentum of the global takaful market of approximately 14 per cent from 2013 to 2016 and expects the industry to reach $20 billion by 2017. Saudi Arabia will likely remain the core market of Islamic insurance business. According to EY, among the GCC countries, competition, operational issues and the lack of qualified talent continue to be impediments. The industry needs to re-examine its strategies, operations and regulations in order to gear itself up for further growth and a sustainable ecosystem.

Banks with experience arranging Islamic bond sales may stand to benefit from the potential opening of Saudi Arabia’s debt market to foreign investors. There’ll be a lot of potential for non-Saudi banks to get involved on the advising and arranging side. Besides, they’re also some of the biggest sukuk buyers. Saudi Arabia is working on new rules aimed at promoting the local currency bond and sukuk market. The rules are expected to allow foreign investors to buy local currency bonds for the first time and could be published early next year. The new rules for the debt markets are also expected to stipulate that ratings companies will need to have a local presence to rate domestic securities. Saudi Arabia is de facto leader of OPEC and plans to remove some restrictions to lure capital to the $745 billion economy.

The International Finance Facility for Immunisation Co. (IFFI), for which the World Bank acts as treasury manager, has picked four banks for a potential U.S. dollar-denominated sukuk. Rated AA by Standard and Poor's and AA+ by Fitch, IFFI has mandated Qatar's Barwa Bank, National Bank of Abu Dhabi, and Standard Chartered to arrange investor meetings in the Middle East, Europe and Asia. A potential sukuk offer may follow the roadshows - for which a schedule has not been given - subject to market conditions before the end of the year.

Until recently, Islamic finance in Africa had held more promise than progress, but that is changing. African governments are looking to sharia-compliant financial markets to attract investment from the Middle East. The Senegalese government closed on a 100bn CFA franc ($208m) sukuk on 18 July, and South Africa plans to launch its first sovereign sukuk this year. It could be valued at up to $700m. Money from the Middle East is also coming in the form of development finance. The Islamic Development Bank said in June that it is devoting $180m to renewable energy projects in Africa and plans to provide $7bn in finance to African countries by 2019.

Egypt's President Abdel-Fatah Al-Sisi has ordered the formation of an independent Zakat House with the purpose of raising charity funds in accordance with Sharia. A presidential decree stipulated the formation of a charity fund called Zakat House, which will have a legal jurisdiction and will be financially and administratively independent, but will be overseen by the Grand Imam of Al-Azhar. The decree aims at receiving Zakat, alms, donations, and subventions from Muslim citizens to spend them on the development of the individual and society as stipulated by Sharia law. The board of trustees which will manage the fund will include a number of public figures with backgrounds in Sharia law, economics, finance and business.

Despite strong recent growth for Islamic financial products, there still is room for further expansion, both in relatively unbanked Muslim countries in the developing world and in the West. As the orders for Britain’s issue showed, demand for sovereign sukuk is strong. Hong Kong and South Africa are scheduled to issue dollar-denominated sukuk later this month. Luxembourg, Russia, Australia, the Philippines and South Korea have also shown interest. However, there are potential pitfalls. There are calls for greater international standardisation. But since Islam has no overarching authority that can approve its rulings, there will always be disputes.

Hong Kong sold US$1 billion (RM3.19 billion) of sovereign Islamic bonds in its first-ever issue of the securities, attracting orders for 4.7 times the amount on offer. The dollar-denominated five-year notes were priced at a 2.005 per cent profit rate. The United Kingdom, which along with Hong Kong is rated the highest investment grade, sold sukuk for the first time in June at a coupon of 2.036 per cent. Those notes yielded 1.76 per cent yesterday. The Hong Kong sukuk was priced at 23 basis points above similar-maturity US Treasuries, the narrowest spread ever achieved on a benchmark dollar issuance from an Asian government outside Japan. The city has changed its tax laws to help pave the way for sales of syariah-compliant debt.

The Bank of Tokyo-Mitsubishi UFJ (BTMU) hopes to expand its Islamic finance business across Asia and the Gulf, buoyed by a landmark multi-currency sukuk programme set up in Malaysia. BTMU, part of the Mitsubishi UFJ Financial Group, set up its sukuk programme in June. The programme will allow its wholly-owned Malaysian unit, BTMU Malaysia Berhard, to raise the equivalent of $500 million via sukuk with tenors of up to 10 years. It provides an alternative funding source for BTMU Malaysia to manage its liquidity to match increasing and growing exposures in multi-currency sharia-compliant financing. No timeframe was given for the first transaction, although the bank is increasingly active in the Islamic capital market.

Aktif Bank has received regulatory approval to issue 200 million lira ($91 million) in Islamic bonds. The lender will sell the sukuk to qualified investors through its asset leasing company, Aktif Bank Sukuk Varlk Kiralama. It gave no time frame for the deal. Last year, Aktif Bank helped raise a small one-year 100 million lira sukuk for construction-to-energy firm Agaoglu Group using a mudaraba structure. Besides, Turkish conglomerate Dogus Group received regulatory approval last month to raise $370 million via sukuk in what would be the first dollar-denominated corporate transaction of the kind in the country. The Capital Markets Board has outlined new regulations to allow a wider range of sukuk structures.

Standard & Poor's (S&P), one of the world's leading rating agencies, has reaffirmed the Islamic Development Bank 's ( IDB ) 'AAA' rating with a stable outlook. The first AAA rating report on IDB was issued in 2002. S&P recognized IDB as having an extremely strong financial profile underpinned by robust capitalization and high liquidity levels; as well as a very strong business profile emanating from the Bank's important policy role in promoting social and economic development across member countries and Muslim communities in non-member countries. The report emphasized the strong relationship, extraordinary support and preferred creditor treatment which IDB enjoys from its member countries.

Gulf emirate Sharjah launched its first sovereign sukuk on Wednesday, a 10-year, 750-million-US-dollar Islamic bond with a 3.764 percent yield. Following a press conference in Sharjah on Wednesday to announce the issue, the government said the bond had been more than 10 times oversubscribed, drawing in 7.85 billion dollars in orders from 250 investors. Regional investors accounted for 50 percent of these, with British investors accounting for 20 percent, other European investors 11 percent, and those from Asia 14 percent. The bond was originally priced at 100 basis points over midswaps, but this was later tightened to 120 points in response to the high demand, before the government finally decided on 110 points. The bond will now be traded on the Nasdaq Dubai exchange and the Irish Stock Exchange.

Kazakhstan is reviving plans to develop Islamic finance and is “fine-tuning” legislation for Shariah-compliant banking, central bank Chairman Kairat Kelimbetov said. Some lenders are seeking to convert into Islamic banks, he said. The drive by Kazakhstan comes two years after its debut sukuk, which was denominated in Malaysian ringgit. Abu Dhabi’s Al Hilal Bank opened a branch in Kazakhstan in 2010, and remains the only Islamic lender in the oil-rich nation. However, Al Hilal Islamic experienced difficulties in generating business because of a lack of understanding of Shariah-compliant products by customers. Moreover, Kazakhstan will face legislative hurdles as it seeks to promote the industry and the nation is experiencing the early stages of development.

Sharjah has announced initial price guidance of 120bp area over mid-swaps for a US dollar benchmark-sized 10-year sukuk. That follows initial price thoughts of low-mid 100s over mid-swaps, released earlier on Tuesday. Demand for the bond, which is expected to price on Wednesday, is more than US$4bn. HSBC, KFH Investment, National Bank of Abu Dhabi, Sharjah Islamic Bank and Standard Chartered are the lead managers on the Reg S sukuk.

Turkish authorities haven't responded to pleas by Bank Asya that they act to prevent what the bank has called unfair attacks on it, Chief Executive Officer Ahmet Beyaz said. The lack of action risks setting a dangerous precedent about the independence of regulatory agencies, he said. In his first interview since Thursday, when a spokesman for Turkey's Banking Regulation and Supervision Agency said that the bank had been put under review under a law that gives the regulator broad powers over the lender, Mr. Beyaz accused BRSA officials of improperly revealing that the bank was under review.

Twitter user @fuatavnifuat claimed in a series of tweets sent on Tuesday that Deputy Prime Minister Ali Babacan and the Banking Regulation and Supervision Agency (BDDK) are sabotaging the Turkish economy in order to sink Bank Asya. Avni - who claims to be one of President Recep Tayyip Erdo?an's advisors - said Babacan authorized the BDDK to put 10 Turkish banks under close monitoring in order to make it seem as if it was not attempting to target only the Islamic lender Bank Asya. The unidentified Twitter user correctly predicted the second wave of arrests of police officers allegedly close to the Fethullah Gülen-inspired Hizmet movement last month. Avni had tweeted on a Monday night that raids would be conducted against the officers early the next day in the morning. The raids took place accordingly.