Posts Tagged ‘Sukuk’
Islamic Development Bank Plans to Issue Sukuk
Points of Essence:
- IDB will issue sukuk to source aid funds for crisis affected member countries. For this purpose, a team has been set up to address the impact of the global financial crisis and identify investment projects in Muslim countries. Another team was was also established led by the Malaysian former premier, Tun Dr Mahathir Muhammad to set the new vision for the IDB to better assist Muslim countries and coordinate the cooperation among them for their mutual benefits. Zawya has the report.
JEDDAH – The Islamic Development Bank (IDB) will issue Sukuk (Islamic bonds) in order to collect funds from the international market place so as to support member countries affected by the global financial crisis.
Singapore Develops Sukuk Issuance Facility To Promote Islamic Finance
Points of Essence:
- Singapore is set to provide a sukuk issuance facility to promote Islamic finance in the city-state. Financial institutions have already expressed interest and the first issuance is expected to be out early next year.
SINGAPORE, Nov 24 (Bernama) – Singapore is in the final stages of setting up a sukuk issuance facility to provide Syariah-compliant regulatory assets to financial institutions as part of its efforts to promote the growth of Islamic finance in the city-state.
West turning to sukuk as debt markets dry up
- Western companies had found relief in Sukuk being an alternative funding as the credit crunch left many established financial institutions in tatters. However, it may not provide panacea to the plight of those companies as the market for Islamic bonds is declining with the value of issuances shrunk nearly 40 % year-on-year in the first eight months of 2008.
Western companies unable to secure debt from conventional lending sources are turning to Islamic bonds, or sukuk, for alternative funding, the secretary general of the Association of Southeast Asian Nations (ASEAN) said on Wednesday.
Surin Pitsuwan, former Thai foreign minister, was speaking at a summit held by eight ASEAN finance ministers in Dubai, who were discussing the economic outlook for Southeast Asian countries.
“I think foreign companies realise there are alternatives and they will explore more, and look at new initiatives at Islamic banks to draw more capital and resources to service their clients. This is certainly growing,” Pitsuan told Arabian Business on the sidelines of the conference.
Unicorn Investment Bank buys Bahrain Financing Co
Points of Essence:
- Unicorn Investment Bank of Bahrain mulls acquiring conventional banks in Europe, Southeast Asia and the Gulf and converting them into Shariah compliant banks. Bahrain Financing Co was its first purchase apart from a subsidiary already established in Malaysia.
- Despite a gloomy financial setting around the globe, the Bank is ready to issue $1.5 billion worth of sukuk in the Gulf region by the end of this year.
by Jason Benham
Bahrain-based Unicorn Investment Bank said on Sunday it was looking to spend up to $2 billion to buy banks in Europe, Southeast Asia and the Gulf and plans to arrange $1.5 billion of Islamic bonds by year end.
Fred Stonehouse, head of strategic mergers and acquisitions at the Islamic bank, said it planned to convert any banks it acquires to comply with Islamic banking rules that ban interest.
“In the UK we see potential businesses (banks) we could acquire and Islamicise as appropriate,” he told Reuters.
Tamweel plans $544m Sukuk despite crunch
Points of Essence:
- Tamweel plans to launch up to Dh2 billion ($544.5 million) in Islamic bonds for local market consumption in the first quarter of 2009, asserting that the global liquidity squeeze had only affected certain companies in the financial sector.
Dubai-based Islamic mortgage lender Tamweel said on Monday it was planning to launch up to Dh2 billion ($544.5 million) in Islamic bonds in the first quarter of 2009 despite the global liquidity crunch.
“There are ideas to sell sukuk to the local market. They would be in the range of Dh1-2 billion,” Tamweel chairman Sheikh Khaled Al-Nahayan told Reuters on the sidelines of a property fair.
“Already there is a desire (for sukuk),” he said, adding that the liquidity squeeze had only affected certain companies in the financial sector.
Sukuk offerings witness 39% slowdown this year
Points of Essence:
- The global credit crunch has caused the demands for Sukuk issuance in 2008 to dwindle as the liquidity dried up, with a decline rate of more than 39% this year to rest at only $14 billion compared with $23 billion last year. The recent exposure by AAIOFI on questionable Shariah compliance issues affecting some sukuk issuance has certainly no bearing on this downfall.
Tight liquidity in the global and regional markets is responsible for the slowdown in the issuance of sukuk in 2008, which has seen a decline of more than 39 per cent in the first eight months of this year to $14 billion (Dh51.42bn), as opposed to $23bn registered in the same period last year.
Dubai Bank plans $5bn Islamic bond programme
Points of Essence:
- Dubai Bank plans to raise $500 million in Islamic bonds this year as part of a $5 billion notes programme to finance growth. Swiss investment bank, UBS and Standard Chartered have been appointed as lead arrangers. The bonds would be listed on the London Stock Exchange and the Dubai International Financial Exchange.
DUBAI INC.: Dubai Bank is a unit of Dubai Banking Group which is owned by Dubai Holding which is owned by Dubai's Ruler Sheikh Mohammed bin Rashid Al-Maktoum (pictured). (Getty Images)
Dubai Bank plans to sell about $500 million in Islamic bonds this year as part of a $5 billion notes programme to finance growth as it looks to become a global Islamic lender by 2013.
The unlisted bank, a unit of Dubai Banking Group (DBG), could sell its first tranche in the next “couple of months”, depending on market conditions, Chief Executive Officer Salaam Al-Shaksy told newswire Reuters on Wednesday.
The Islamic lender, which appointed Swiss investment bank UBS and Standard Chartered as lead arrangers, had received a good response from potential investors for the sukuk sale, Al-Shaksy said.
“We are talking about an Islamic bank sukuk, which has not been issued for quite some time,” Shaksy said when asked whether he was concerned about difficulties in the regional debt markets.
Saudi Binladin’s SR1b sukuk a big success
Points of Essence:
- The Saudi Binladin Group’s debut Sukuk issuance into the Saudi debt capital markets was successful in raising more than SR1 billion to finance its construction of an iconic hotel project in Mecca. With HSBC Saudi Arabia being the sole lead manager and bookrunner for the issuance, the privately placed securities has a 5-year maturity with semi-annual profit payments.
RIYADH: The Saudi Binladin Group successfully completed the issuance of a privately placed Saudi riyal sukuk of finance raising more than SR1 billion from the capital markets in Saudi Arabia. The Sukuk has a 5-year maturity with semi-annual profit payments.
This is The Saudi Binladin Group’s debut Sukuk issuance into the Saudi debt capital markets. HSBC Saudi Arabia was the sole lead manager and bookrunner for the issuance.
This innovative issuance has to its credit several firsts including the first unrated sukuk of its size to be successfully distributed entirely within the Kingdom and the first issued through an offshore special purpose vehicle, which is registered, cleared and settled through Tadawul.
The Sukuk proceeds are to be used for the construction of an iconic hotel project that Saudi Binladin Group is developing in Makkah.
Sukuk issuance to exceed US$20bil this year
Points of Essence:
- Sukuk market has continued to be on a strong footing where its issuance would reach USD20 billion this year, thanks to a large appetite from big country issuers. However, the figure would have been higher if not because of the dwindling greenback and the uncertainties surrounding the global credit market which suppressed the interest of issuers. The issuance of Sukuk until August this year was recorded at a low USD 14 billion compared to USD 23 billion during the same period in 2007.
- There were also concerns on the Shariah compliance issues with regard to the previous Sukuk issuance. This resulted in more than 50% of sukuk issued in the first half of 2008 were “ijara” (lease financing) based, being a less contentious Shariah principle.
KUALA LUMPUR: The sukuk market is picking up again and the issuance is expected to exceeed US$20bil this year, Standard & Poor’s Rating Services (S&P) said in a report.
The Sukuk Market Continues To Grow Despite Gloomy Global Market Conditions report said the appetite from issuers in a large number of countries was growing.
In a statement yesterday, S&P said entities in more than 15 countries, predominately non-Muslim, had expressed interest or announced their intention to issue sukuks.
S&P credit analyst Mohamed Damak said more than 50% of sukuk issued in the first half of 2008 were “ijara” (lease financing), most probably as a direct consequence of the debate among some syariah scholars regarding the syariah-compliance of most sukuks previously issued.
Govt launching Ijara Sukuk this week: Akhtar
Points of Essence:
- Pakistan Government has launched Ijara Sukuk to enhance its money market sector. This will help Islamic banks to be in parallel with their conventional counterparts in terms of the instruments availability for their liquidity management purpose.
Pakistan is working to launch the first Ijara Sukuk in the first week of Ramadan.
KARACHI: Dr Shamshad Akhtar, Governor State Bank of Pakistan, has said the government and the State Bank were working to launch the first government of Pakistan Ijara Sukuk in the first week of the Holy Month of Ramadan in order to support the efforts to diversify the borrowings mix.
“This will not only help deploy the liquidity available with Islamic banks but also help the government to diversify its debt,” she said in a press statement issued on Thursday.
She added that given the growth in the Islamic banking industry, Shariah-compliant government securities were imperative to bring the Islamic banks parallel to their conventional counterparts in terms of instruments available for liquidity management.
Islamic loans drop after sharia ruling
Points of Essence:
- Bahrain based prominent Shariah scholars have ruled unlawful Islamic bonds (sukuk) issued by some banks in the Middle East causing a severe dent by 50% in the sukuk demand from the region ever since.
- The scholars ruled that many sukuk are are unlawful as they do not involve a transfer of tangible assets. The Accounting & Auditing Organisation for Islamic Financial Institutions (AAIOFI) said only 85% of all Islamic bonds issued by global banks met their rigorous standards earlier this year.
- The ruling was a strong reminder for banks not to take the Shariah approval for granted.
By Rowena Mason
Last Updated: 8:06pm BST 03/09/2008
Islamic loans thought to be compliant with strict sharia law on investment have dropped by 50pc in the Middle East since some services offered by banks were ruled unlawful by experts.
The Accounting & Auditing Organisation for Islamic Financial Institutions said only 85pc of all Islamic bonds issued by global banks met their rigorous standards earlier this year.
Muslims are not allowed to earn interest on loans or profit from money invested in gambling, alcohol or guns.
Sukuk Market at a Crossroad
Points of Essence:
- Sukuk is said to have soured amid the global credit crisis and Shariah challenges.
- From Nov 2007-Feb 2008 no international, dollar-denominated, rated Sukuk came to the market.
- Two of the most common Sukuk types – Mudarabah (a form of trust financing) and Musharakah (joint partnership) allegedly do not conform to the Shariah. The argument being while the Mudarabah and Musharakah Sukuk are essentially equity-type instruments, the market uses certain techniques such as repurchase agreements (at maturity or specified default events) to guarantee the return of the Sukuk. This is at odds with the spirit of Islamic finance, where profits should be shared and interest is prohibited.
By Ali Ravalia
With global Sukuk issuance reaching US$100 billion in 2007 it was widely felt that the Sukuk market was coming of age. The volume and variety of deals together with the growing appetite for GCC (Gulf Cooperation Council) issuers to tap debt markets were all seen as factors underpinning the development of the Sukuk market. More recently, the sub-prime crisis and the so called ‘Shariah challenge’ (see below) have dampened the level of issuances coming to the market. Is this just a blip or is it reflective of something more fundamental occurring in this market?
The second annual London Sukuk Summit, held on the 25th and 26th June, attracted practitioners, issuers, regulators and others. Much of the discussions had focused on examining the implications of the credit crisis and the Shariah challenge. In November last year a prominent religious scholar active in the Islamic finance market issued a statement suggesting that two of the most common Sukuk types – Mudarabah (a form of trust financing) and Musharakah (joint partnership) – do not conform to the Shariah. Although Sukuk are widely seen as the Shariah compliant equivalent of conventional debt securities, Sukuk comes in a number of different guises with an array of different economic and risk characteristics.
The underlying reason for the scholar’s concern was that while the Mudarabah and Musharakah Sukuk are essentially equity-type instruments, the market uses certain techniques such as repurchase agreements (at maturity or specified default events) to guarantee the return of the Sukuk. This is at odds with the spirit of Islamic finance, where profits should be shared and interest is prohibited. This controversy is referred to as the ‘Shariah challenge’. It is estimated that over 80% of Sukuk are affected, but some Sukuk structures such as the Ijarah Sukuk (leasing) are not. In fact it is the Ijarah Sukuk which is the preferred structure for the UK government’s sterling sovereign Sukuk issuance.
The divergence in opinion between Islamic law scholars has caused concern in the market. In general though, the market has reacted positively to the Shariah challenge, considering the clarification as being helpful. Confusion, a lack of clearly defined parameters and divergences of opinion between scholars may yet damage the credibility of the market.
An example is the move by the Japan Bank for International Co-operation (JBIC) to issue a Sukuk. JBIC was preparing to issue its first Sukuk in May 2008 to fund its activities in promoting trade and international development projects. JBIC had selected Citibank of Dubai and CIMB of Malaysia to arrange the deal but the Shariah boards of the two banks disagreed on the whether it was Shariah compliant. The transaction will need to be restructured – from the original Murabahah structure to the Musharakah version – adding to cost, time and frustration for the issuer. Such an outcome cannot be beneficial to the market.
Although Sukuk are referred to as Islamic bonds, they often fall into one of two broad types; asset-based (where the credit risk of the bond is linked to the issuer) or asset-backed (the credit risk is linked to the underlying asset). The latter is similar to conventional asset- backed securities (ABS) which have risen in prominence in recent years. It was envisaged that the Shariah challenge may lead to a shift away from asset-based to asset-backed structures.
However, Geert Bossuyt, managing director and regional head of Middle East structuring at Deutsche Bank, indicates that this shift will probably not materialize for a number of reasons. Firstly there is a dearth of suitable underlying assets for issuers to use in asset-backed transactions (although in a few instances third parties are leasing assets to issuers for this purpose).
Secondly, many markets especially those in the GCC do not currently have a legal structure that can support the securitization market. Property rights; trust law; insolvency law etc. are often rudimentary or non-existent. Related to this, the enforceability of contracts in these and other emerging markets maybe uncertain and untested. He also indicated that even if these issues are resolved there are more fundamental issues to consider. Essentially, issuers demand products that mirror conventional debt in terms of risk and economic substance. ABS Sukuk simply does not fulfill these requirements.
Mutlaq Al-Morished, vice president of corporate finance at Saudi Basic Industries Corporation, one of the largest Sukuk issuers in the world, echoed these sentiments, adding that issuers will use Sukuk only if it makes economic sense.
The market is at an important juncture: it is clear that there is a desire among scholars and certain practitioners to focus on more ‘authentic’ asset-backed structures. Yet it was clear at the Summit that issuers are fundamentally driven by cost and there is preference for instruments which closely resemble conventional debt. At first glance this may seem an insurmountable gap. However, the market seems to have an infinite capacity to innovate within the guidelines laid by the scholars.
Recent evidence suggests that a new round of innovation could yet boost the fledgling market. For example, Shaikha Al-Sudairy, manager at HSBC Amanah in Riyadh, talked about two recent deals pioneered by her bank – the SABIC-Iand SABIC-II Sukuk and the Saudi Electricity Company (SEC) Sukuk -which use innovative new asset classes such as pools of petrochemical marketing contracts and electricity meters and the tariffs due on them, which were then securitized.
These examples demonstrate that there is a wider range of assets that are acceptable from the perspective of Islamic law. This will be beneficial to the market as previously only tangible fixed assets such as aircraft, shipping or real estate were considered as being acceptable.
From November 2007 till February 2008 the Sukuk market suffered; in this period no international, dollar-denominated, rated Sukuk came to the market. The impact of the recent credit crisis and the Shariah challenge inflicted a deep wound. Innovative deals like SABIC and SEC Sukuk indicate that human ingenuity and imagination may yet help this market flourish.
DIB investment banking arm arranges more than AED 20 billion in sukuk and syndication transactions in first half of 2008
Points of Essence:
- Dubai Islamic Bank has arranged in excess of AED 20 billion of sukuk and syndication transactions
- DIB acted as lead manager, arranger and book runner on over 90 per cent of all sukuk transactions as well as over 60 per cent of Islamic syndication transactions
- DIB had pioneered various sukuk in the region such as sukuk with equity warrants, convertible sukuk, musharaka sukuk, sukuk under the EMTN program and dirham-denominated sukuk.
Dubai, June 24, 2008: Dubai Islamic Bank’s (DIB) wholly-owned investment banking arm, Millennium Capital Limited, announced today that it has arranged in excess of AED 20 billion of sukuk and syndication transactions since the beginning of this year. DIB has risen to second place in the GCC Islamic Bonds League Tables, up from sixth place in 2007, according to the Bloomberg Underwriter Rankings published in June 2008.
The largest GCC-based banks such as DIB, the world’s first Islamic bank, have seen increasing competition from the leading global investment banking firms for a share in this fast-growing Sharia-compliant market space. Despite the stiff competition, DIB has successfully managed to further strengthen its leadership position in this sector.
Khaled Kamda, Group Managing Director & CEO, Dubai Islamic Bank, said: “UAE issuers such as DIB, continue to receive a strong response from the markets. Since the successful AED 7.5 billion closure of the first rated sukuk for the Jebel Ali Free Zone in Dubai in November 2007, DIB has continued to play the lead role in channeling the vast liquidity of the region into the sukuk and syndication market. This channeling has improved asset allocation and provided scale and depth to the domestic capital markets in a very meaningful way.”
Since the beginning of the year, within the UAE, DIB has acted as lead manager, arranger and book runner on over 90 per cent of all sukuk transactions within the market, as well as over 60 per cent of Islamic syndication transactions.
“In addition, DIB is currently executing several significant transactions and expects to successfully conclude these transactions shortly,” said Saad Zaman, Deputy CEO of Millennium Capital Limited. “The success of DIB’s investment banking business is predicated on strong origination, structuring and a distribution track record that has served it well in deepening its already close customer relationships.”
DIB has had many firsts in the sukuk industry, such as the first sukuk with equity warrants, the first convertible sukuk, the first musharaka sukuk, the first sukuk under the EMTN program and the first dirham-denominated sukuk.
The overall suite of investment banking products continues to see strong demand from DIB’s client base, according to Zaman. Increases in outbound cross-border activity have provided DIB with significant business opportunities, focusing in areas such as infrastructure, financial services and real estate. Building on its asset management platform and the success of its asset-backed funds, DIB plans to continue rolling out new funds. The Sharia-compliant funds are based in several regions and cover several asset classes, including aviation, shipping and real estate.
Private equity is another area where DIB is keen to expand and create new successes within its investment banking platform. Recently, DIB and Millennium Capital partnered with Global Investment House of Kuwait to launch a US$ 500 million Islamic buyout fund.
Zaman concluded: “This is the first of an expected series of future private equity funds that will target different asset types and regions to provide investors with a wide range of private equity investment options.”
