IslamicFinance.de

Leading Islamic finance experts gathered at the London Stock Exchange for the Sukuk Summit organized by the Islamic Development Bank (IDB). IDB President Dr Bandar Hajjar highlighted the need for London to be at the heart of the "Islamic finance revolution" and for it to leverage its global marketplace. He highlighted the continued global growth of the Islamic finance market, in particular the growth within the UK. He also cited the financial inclusion and shared prosperity model which is at the heart of Islamic finance transactions. The London Stock Exchange is home to a number of sukuk listings, with 65 sukuk having been listed on the London Stock Exchange valued at $48 billion. John Glenn MP, Economic Secretary to the Treasury said the UK had supported market-driven innovations in the field of Islamic FinTech and the government was determined to ensure continuation.

Bandar Hajjar, president of the Islamic Development Bank (IDB), announced that the bank would soon issue its largest sized Sukuk for $2.5 billion. IDB is a regular issuer of Sukuk having last issued in September 2017 with a $1.25 billion issuance which was priced at 2.261%. The bank has recently partnered with China-led Asian Infrastructure Investment Bank (AIIB) and plans to co-finance many projects in Africa. Africa has witnessed a growing share of mostly sovereign Sukuk issuances. Sudan, Gambia, Senegal, South Africa have all issued sovereign sukuk, the latest issuer is Cote d’Ivoire with its inaugural debut in 2015 of USD 260 million.

The burden of financing Africa’s infrastructure projects is shifting away from banks towards the Sukuk market. To date, Africa has witnessed a growing share of sovereign Sukuk issuances. While states such as Sudan and Gambia have issued Sukuk in the past, it was in 2014 that Senegal debuted the region’s largest Sukuk issuance (USD 208 million). Soon South Africa and Cote d’Ivoire followed suit. In June 2016, Senegal launched its second Sukuk issuance, valued at USD 350 million. Togo issued its maiden Sukuk worth USD 277 million with a 10-year maturity and Cote d’Ivoire issued its second sovereign Sukuk valued at USD 263 million in August 2016. Several African countries are in the midst of preparing legislation to facilitate Sukuk issuances and facilitate Islamic finance in their respective financial market.

Boeing Capital is exploring opportunities for Islamic finance in the aviation sector and the possibility of including aircraft finance in the Islamic sukuk market. This way, an aircraft finance portfolio would be secured by an instrument known as the Enhanced Equipment Trust Certificate. Since 2006, Boeing Capital has hosted annual airline planning seminars for financiers in the Middle East. Emirates Airlines has issued sukuk most recently in 2015 compromising of a 10 year sukuk for the value of $913 million. Guaranteed by the UK Government, the sukuk was priced on 25 March at 2.471%. Emirates also issued in 2013 a $1 billion sukuk 10 year sukuk which was priced at 3.875%. Ethihad Airlines issued a sukuk in November 2016 for $1.5 billion which was priced at 3.86%.

With only roughly 20 million Muslims in #China, it is not surprising that Islamic finance has not taken off in China. However, some Chinese companies have expressed interest in tapping into offshore pools of Islamic funds. For example, HNA Group, the owner of Hainan airlines, is considering Islamic financing options for its proposed US$ 150 million acquisition of ships as well as a large offering of offshore Sukuk. Another example is that of Country Garden, which issued a Malaysian Ringgit 1.5 billion sukuk through its Malaysian subsidiary in December 2015. Chinese interest in Islamic finance can be motivated by the diversification of funding sources as much as financial diplomacy purposes. China’s growing geo-political clout via the Asian Infrastructure Investment Bank (AIIB) and the 'One Belt, One Road' initiative affords new incentives to facilitate the use of Islamic finance.

After a string of sukuk issued for purposes of liquidity, Senegal’s recent sukuk bought a welcome return to an Islamic finance transaction for the purposes of social good. Senegal closed its sukuk in late July, marking its second sovereign sukuk issuance. The West African nation will use the proceeds of the CFA 150 billion transaction to finance a drinking water supply program and an implementation program of road network and street lighting. The International Finance Facility for Immunisation (IFFIm) sells bonds on the capital markets to raise funds to save children’s lives. IFFIm has so far issued two sukuk with a December 2014 transaction for $500 million and a September 2015 transaction for $200 million. The International Finance Corporation (IFC) issued a five-year Sukuk in 2015 which was used to support IFC’s developmental financing activities in the Middle East and North Africa. Mahmoud Mohieldin of the World Bank Group said the group planned the issuance of an inaugural humanitarian sukuk program.

UK Trade & Investment (UKTI), a Government Department which helps UK-based companies succeed in the global economy, has released a brochure which contains Sharia compliant UK regeneration investment opportunities in the UK. The Regeneration Investment Organisation (RIO) has identified projects at a point of development where project and finance structure can be discussed with project promoters. These projects are listed in the brochure in their totality: some parts may not be Sharia-compliant. Meanwhile, Islamic finance investors are taking a keen interest in UK real estate by funding a number of high profile projects.

John Sandwick of Safa Invest discussed the opportunity of Islamic Asset Management seeing great potential and describing it as the new frontier for Islamic Banking. He stated the rise in oil prices which began their ascent in 2002 from $9 to $150 per barrel also witnessed a parallel growth in Islamic Banking, as the oil producing economies of the Gulf and South East Asia benefited from large inflows of capital some of which helped fund an emerging Islamic banking market. One sector which has failed to evolve as fast is Islamic Asset Management, an area which according to Mr Sandwick, Switzerland with its historical ties to the Asian and Gulf market it is primed to develop.

Maxim Tafintsev, President of the Arab European Lawyers Association, speaks on why Russia’s authorities this year are seriously going into the issue of opening the door to Islamic banking under Shariah Islamic law. For the past five years a certain practice has formed in the framework of the existing legislation, the practice, which allows using and employing certain products. Installment selling and leasing are allowed now, insurance products began to work as well. Specifically Russia needs to modify its banking laws to conduct credit and deposit policies. Particular changes in the tax legislation are required to help Islamic financial products be less costly. By the number of Muslim population in Russia, which is 20 million, their engagement in legal financial turnover may bring from shadow avalanchine sums of money.

Middle East buyers took up only 2% of the 30 year sovereign Sukuk issued by Malaysia (the 10 year issuance allocation consisted of 24% Middle East buyers). This low take up by Middle East can be read a few ways: 1. Sukuk primary subscribers remain hold to maturity investors, and a 30-year note was too long for Middle East buyers to commit to. 2. The drop in price of oil is hurting and Gulf investors are planning only up to a ten year horizon. 3. With the issuance being oversubscribed and attracting interest of over US$9 billion, Malaysia decided to be give Gulf investors only the shorter term ten year issuance. 3. CIMB and Standard Chartered did a great job of marketing to Asian buyers, whilst HSBC did a less stellar job in the Middle East market.