IslamicFinance.de

Costs of issuing Islamic bonds in Asia are still significantly higher than the costs of issuing conventional bonds, a study by the Asian Development Bank found. In Indonesia, profit rates for sukuk issued by the government are on average 86 basis points higher than comparable conventional government bonds. In Malaysia profit rates for sukuk are on average 8 bps higher. However, lack of familiarity with complex sukuk structures can translate into higher advisory fees for prospective issuers, while investors demand higher yields because of limited trading activity in secondary markets for sukuk. The average gap between issuance costs for sukuk and conventional bonds in the Gulf is believed to be very small or non-existent - and in some cases, it has even proved cheaper to issue sukuk.

Dubai's Tecom Investments has sent a delegation from Dubai’s Knowledge Village and Dubai International Academic City to meet representatives from Islamic finance academic institutions in Malaysia in an effort to bring some them to the emirate. The delegation examined different Islamic economics courses related to Sharia-compliant funds, sukuk, murabaha and the regulatory frameworks related to Islamic finance. Dubai aims to bring two renowned Islamic finance universities to the city – the International Islamic University Malaysia and The Global University of Islamic Finance. It is also keen to bring in governmental professional development centres such as the Islamic Banking and Finance Institute Malaysia. The delegation also visited the Labuan International Business and Finance Centre, which has a research focus on Islamic wealth management.

Cagamas, the Malaysian mortgage corporation, has issued RM500 million three-month Islamic commercial papers (ICPs), its first ICP for the year. Proceeds from the murabahah ICPs will be used to fund the purchase of Islamic financing from the financial system. Investors' preference for high grade issues and short duration investment strategy results in strong demand for the company's three-month ICPs particularly from financial institutions with a bid to cover ratio of over 2.4 times and competitively priced at three-month KLIBOR. The ICPs, which will be redeemed at their full nominal value on maturity, will be listed and tradable under the Scripless Securities Trading System.

Several borrowers plan to offer sukuk such as the Saudi Electricity Co. which has already started to arrange investor meetings. The Malaysian construction company IJM Corp plans to sell up to 3 billion ringgit ($910 million) of Islamic bonds. Moreover, the Omani Bank Muscat plans to set up a 500-million rial ($1.3 billion) sukuk program and sell up to 1 billion rials of Shariah-compliant debt in Saudi Arabia. Besides, Malaysia’s Maybank Islamic has reportedly set up a 10 billion ringgit Basel III sukuk program. On the other hand, U.A.E.’s First Gulf Banks planned 3.5 billion ringgit sukuk program was assigned a AAA rating by RAM Rating Services. Furthermore, the governments of Oman and Pakistan are considering selling sukuk this year, among others.

Islamic banks are required to reclassify their deposits into Islamic deposits and investment accounts under the Islamic Financial Services Act 2013 (IFSA). To do so, they are given a two-year transition period until June 30, 2015. Bank Negara Malaysia (BNM) said Islamic banking institutions will engage with their customers in providing information and clarification on the differences between the Islamic deposit and investment account products as well as the options available to them to either retain their placements in Islamic deposit or migrate to investment accounts. During the transition period, all lslamic deposits accepted under IBA will continue to be protected by Perbadanan Insurans Deposit Malaysia while the Islamic banks will also ensure that the customers' rights are protected.

A two-day forum with the participation of over 470 businessmen, foreign investors, managers of international companies, federal and regional agencies representatives was held at the Kazan Ski Resort in the Republic of Tatarstan. «Invest in Tatarstan» was organized by Tatarstan Investment Development Agency with the participation of Tatarstan Development Corporation and Tatarstan Export Corporation. Discussions of region’s attractiveness for the foreign companies and business development in the first half of the day continued with several round tables, likec health care, real estate market, and halal industry. The forum not only demonstrates investment opportunities of the region, but also gives an opportunity to discuss specific issues directly with the leadership of the republic.

Japan’s three-biggest lenders have won licenses to offer Islamic banking services in Malaysia. Sumitomo Mitsui Banking Corp Malaysia Bhd obtained approval to operate in the Southeast Asian nation on February 10. The lender expects to provide foreign-currency financing to local companies in the form of Murabaha and commodity. Bank of Tokyo-Mitsubishi UFJ Malaysia Bhd offers Islamic loans and guarantees among its services after obtaining approval in 2008, while Mizuho Financial Group Inc provides Shariah trade financing since getting a license in 2012. Japanese entities have also chosen Malaysia as a place to raise funds via the Islamic debt market.

Dubai Islamic Bank plans to expand its operations into Asian and African countries as it emerges from a period of consolidation, the bank's chief executive Adnan Chilwan said. The lender, which currently makes some 95 percent of its revenue within the United Arab Emirates, says it is entering a growth phase domestically and internationally. It is exploring opportunities in Indonesia, Kenya and surrounding countries in Africa, the Indian subcontinent and the GCC. Expansion could be realized via acquisition, a Joint Venture, a finance company or a greenfield operation as long as DIB keeps management control and operates under its brand, Chilwan added. However, Chilwan said the bank also expected strong growth in its domestic market, so the balance between local and international business would not change radically.

Dubai Islamic Bank has revealed plans to expand its operations to Africa as well as Asia, as it seeks growth for its domestic and international business. According to DIB’s chief executive Adnan Chilwan, the bank is exploring opportunities in Indonesia, Kenya and surrounding countries in Africa, the Indian subcontinent and the GCC, with the hope of doing this via acquisition, Joint Venture, establishment of a finance company, or through a greenfield operation startup. Given a five-year scenario, the bank expects a decent franchise spread across these countries with stable and solid yields across all sectors. International business is estimated getting at best 10 to 15 percent of the overall group numbers in about six to eight years.

A cooperation agreement between the bourses of Malaysia and Saudi Arabia – the world's two largest Islamic financial services markets – stands to help the industry grow at a greater clip in both countries. The deal, signed on February 20, will see the exchanges in Kuala Lumpur and Riyadh share expertise and develop human resources jointly. It covers topics such as equities, mutual funds and sukuk. Combined, Malaysia and Saudi Arabia hold $682bn in Islamic banking assets. The Saudi exchange, Tadawul, lists the world’s biggest Islamic banks, while Bursa Malaysia hosts the largest and most liquid market for sukuk.

Malaysia’s Islamic banking assets are on track to make up 40% of the country’s total banking sector assets by 2020 from about 25% now, according to Wasim Saifi, Standard Chartered Saadiq Bhd chief executive officer and global head of Standard Chartered’s Islamic consumer banking. Islamic banking has grown twice as fast in Malaysia as its conventional counterpart at a compounded annual growth rate of 22%. Syariah-compliant solutions are currently offered at 10 Standard Chartered Saadiq branches, but will now also be available via the Islamic banking counters at Standard Chartered Bank Malaysia’s conventional branches. Standard Chartered Saadiq is also targeting to penetrate further into the SME market.

Indonesia’s central bank hopes to attract a local bank to sign up as primary dealer for short-term sukuk issued by the International Islamic Liquidity Management Corp (IILM). Bank Indonesia is one of 10 shareholders in the Malaysia-based institution, but it still lacks a local dealer bank for IILM sukuk. IILM sukuk just got issued recently, with limited outstanding, its illiquid and does not have secondary market. Hence, IILM sukuk is not yet well known by Indonesia-based primary dealers. A domestic primary dealer could help address this problem, even though other dealer banks have an indirect presence in the country, such as CIMB Islamic, Maybank Islamic and Standard Chartered Bank. Moreover, it could help the central bank justify its $5 million shareholding in the IILM.

Indonesia's finance ministry sold Rp 19.3 trillion ($1.7 billion) of the three-year Islamic bonds to households, exceeding its Rp 18.5 trillion goal. That came after two of its three Shariah-compliant debt auctions this year failed to meet their targets. The yield on the non-retail 10.25 percent sukuk due 2025 slid 29 basis points this week to 8.61 percent, the lowest since November. Indonesia is targeting Rp 57 trillion of Islamic bond sales this year and wants to sell most of that this half before a presidential vote in July. The next offer is scheduled for March 11.

Tan Sri Khalid Ibrahim has denied allegations of a link between his recent settlement with Bank Islam Malaysia Berhad (BIMB) over a RM66 million loan and a controversial water restructuring agreement between Selangor and Putrajaya. Last month, Khalid told The Malay Mail Online he had reached an out-of-court settlement with BIMB over a US$18.52 million (RM66.67 million) loan settlement suit, without compromising PKR or the PR coalition. He declined to give further details but it is understood that the settlement was for an amount much lower than RM66.67 million. The hastily signed MoU on the water restructuring plans between Selangor and Putrajaya has added to the intrigue surrounding the March 23 Kajang by-election, with some PKR leaders questioning the timing of the deal and Khalid’s suit settlement.

Bahrain-based Gulf Finance House (GFH) has announced the signing of two development agreements for real estate development in India. The flagship investment of GFH in India is the Energy City and Mumbai IT & Telecom City (India Project) developments in New Mumbai, the agreement of which was signed with Wadhwa Group. The second agreement was agreed with Adani Infrastructure & Developers , to explore development opportunities in relation to various infrastructure and real estate projects in India. Adani Infrastructure & Developers will be partnering with Asiastar City Holdings to develop the Phase 2 of GFH’s India Project.

Gulf Finance House (GFH) has announced the signing of two development agreements for real estate development in India. The flagship investment of GFH in India is the Energy City and Mumbai IT & Telecom City (India Project) developments in New Mumbai. The agreement was signed with Wadhwa Group. According to this agreement, GFH and Wadhwa have agreed to the appointment of Hafeez Contractor to be the master planner for the Phase 1 of the India Project, with an expected end sale value of USD 4 billion. The second agreement was agreed with Adani Infrastructure & Developers.They intend to work together to explore development opportunities in relation to various infrastructure and real estate projects in India. Adani Infrastructure & Developers will be partnering with Asiastar City Holdings to develop the Phase 2 of GFH's India Project.

Standalone Islamic bank versus Islamic window operations is the most prolific debates found in the Islamic finance industry today. The debate is healthy and worthwhile having, if it is done merely to determine how to best meet the various stakeholders’ expectations in a particular jurisdiction. However, it becomes totally time wasting if it is done on the basis of determining which one is more credible or “more Shariah-compliant”. Malaysia is pretty much the only country in the world that has comprehensively legislated and regulated how financial institution may provide Islamic banking products and services. In a jurisdiction, however, that does not have such a structured and established framework, banks must operate within the existing banking framework. Standalone Islamic bank or Islamic window, both are equally good and credible.

In 2007, Selangor Menteri Besar Khalid Ibrahim initiated a suit against Bank Islam seeking damages from the bank for alleged wrongful sale of his shares in Guthrie. Bank Islam then filed a counter suit to recover RM66.67 million claiming that Khalid’s failure to repay his loan. Twice the High Court ordered Khalid to pay the RM66.67 million in summary judgments obtained by Bank Islam. And then this year, Bank Islam withdrew its legal challenge to recover the RM66.67 million from Khalid to allow for an out of court settlement. Among the questions being raised is how Khalid has managed to get Bank Islam to agree to an out-of-court settlement. A point to note is that negotiations for the settlement are still in progress with a decision expected to be announced shortly.

AMMB Holdings has announced that its Islamic banking arm, AmIslamic Bank has on 28 February 2014 successfully issued its inaugural issuance of RM200.0 million Basel III-compliant Tier 2 Subordinated Sukuk Murabahah. The issuance is also Malaysia's first Basel III-compliant Tier 2 Subordinated Sukuk issuance and the world's first Basel III-compliant Tier 2 Subordinated Sukuk to be issued under the Shariah principle of Murabahah based on commodity trading (via a Tawarruq arrangement).

India's Ministry of Minority Affairs has enlisted a Kuala Lumpur-based body to help develop Islamic endowments, or awqaf, aiming to mobilise a large pool of assets in the country. India, with an estimated 177 million Muslims, has a large base of awqaf but many of their assets are far from being employed efficiently; their estimated annual income is just 1.63 billion rupees. Last month, Indian Prime Minister Manmohan Singh inaugurated the National Wakaf Development Corporation, to help management of the properties become more transparent. Efforts to strengthen India's awqaf could conceivably be a precursor to developing an Islamic banking sector in the country. However, its secular laws still largely forbid the selling of sharia-compliant banking.