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ASIA WATCH  May 2010 |
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Sukuk to go global
Prime minister Najib Razak had also revealed the country is likely to offer a US dollar-denominated Sukuk. He believes that it would be good for the country to find a benchmark on how the markets rate its creditworthiness. The government has not sold foreign currency bonds since July 2002, when it raised US$600 million from the sale of a five-year Sukuk. The right choice
According to him, Islamic hedge funds were skirting the edge of development of the industry and many Islamic finance experts were hesitant to approve them. He also said hedge funds are generally invariably involved in some kind of short-selling which is against the principles of Shariah. On the other hand, Khan said, derivative products were a necessary development to help the industry handle risk, and could be used without engaging in any speculative dealings. First Malaysian Islamic securities launched
Sukuk financing
Further liberalized
According to a MAS spokesperson: “MAS will be issuing banking regulations to clarify that Istisnah financing is typically used for the financing of assets under construction, such as infrastructure development projects. In providing such financing for their customers’ specified made-to-order projects, banks must ensure that they manage their risks prudently and have in place effective risk mitigation measures. This change will enable the financial institutions offering Islamic finance to participate in a wider range of financing transactions.” Confidence in Sukuk
Improving liquidity
Raza said the bank’s immediate objective is to improve and diversify avenues for short-term liquidity management for the Islamic banking industry. He said Islamic banks in Pakistan can currently only place their Bank mulls Sukuk
Shariah risk management “The nature of the business is different; the treatments therefore should be different for Islamic banks,” he said. Plans abound
The research body of Bank Negara Malaysia is also working on an Islamic benchmark pricing rate based on indicators such as; property prices, the exchange rate, the stock market index, money supply and economic growth data. Recapitalization plan
Chief financial officer Steve Ridlington said the recapitalization process was introduced to achieve a stable long-term capital structure and anticipates addressing its debt maturities and raising new capital to support the execution of its business plan. Ridlington however did not make Cultivating interest
He felt that through equity-based financing, industry players could steer clear of mimicking conventional products, aside from injecting market discipline. He however warned that the shift from asset-based financing would not mean that Islamic banks would operate without any risks, as this depends on the business climate. Muhammad also said a shift from debt-based financing to an equity-based one could bring about Impressive feat BAHRAIN: The Central Bank of Bahrain’s (CBB) monthly issue of short-term Sukuk Ijarah has been oversubscribed by more than three times. It received BHD31 million (US$82 million) for the BHD10 million (US$27 million) issue with an expected return of 0.93% when it matures on the 21st October. This is CBB’s 56th issue of short-term Sukuk Ijarah on behalf of the Bahraini government. ‘Create friendly platform’ INDONESIA: The country needs to strive seriously to correct the perception among foreign practitioners that it doesn’t have an environment receptive to Islamic finance, despite being the most populous Muslim nation, said Bank Indonesia’s Shariah banking deputy director, Mulya Siregar. To help overcome this perception, he called for regulations to be realigned to facilitate the growth of Islamic banking; including more favorable tax treatment and other incentives for Islamic finance. Mulya felt that all stakeholders in Shariah businesses ought to collaborate to bring about an environment that promotes not only stable pricing but, also spawns more Islamic financial institutions. Doing it the wrong way?
Dr Ahamed Kameel Mydin Meera, an associate professor at the department of business administration, kulliyyah of economics and management sciences, said: “It’s not the problem of concepts like Bai Bithaman Ajil (BBA) but in the way they are implemented that makes them problematic. If you take Islamic financing, in the case of defaults, you will owe more.” He described the Islamic system as a safe contract, meaning that profit is capitalized upfront. Ahamed Kameel said that to make Islamic home financing attractive, it ought to be more equity-based. “The Musharakah Mutanaqisah is a very promising alternative but you have to make it exactly as it is, which means you use a rental rate rather than an interest rate. I believe this is the way to go.” Change of perception
Lee said such interest comes from businesses with global connections where familiarity with such products already exists. Trigger effect
Sukuk delay
Among their concerns are government guarantee and the cost involved with pricing the Sukuk.Earlier, it was reported that QIB, the country’s second-largest lender by market value, intended to issue the Sukuk to improve its debt-to-equity ratio to help it meet growth plans. Credit Suisse, HSBC Holding and QInvest, a Doha-based investment bank, were appointed as advisors on the deal. Time to pay back
Electricity Sukuk
The Sukuk issuance will be the firm’s third after it raised US$1.9 billion last year and a maiden issue for the same amount in 2007. Barrak does not expect the new Sukuk issuance to encounter any difficulties even if it is not guaranteed by the Saudi government, which directly controls 74.3% of the utility’s capitalization. “Saudi Electricity is different. Its Sukuk are for the financing of productive projects. Look at the power demand growth we have here. There is strong support by the government to the company but the government does not guarantee these Sukuk,” he said. Islamic Bank Prospectors
According to AUB, the buyers will make a decision in 60 days. Better safe than sorry UAE: Banks in the emirate are likely to be affected by the restructuring of Dubai World in the second quarter, after the central bank told banks in its circular that they are not required to book provisions until there is more clarity. This however did not stop some banks from booking provisions against Dubai World’s debt, to prepare for the worst in the second quarter. In fact, Abu Dhabi Islamic Bank had previously expressed a need to book further credit impairments this year, despite posting a 9.3% rise to reach AED293.3 million (US$79.9 million) in its first-quarter net profit. Another Sukuk default KUWAIT: International Investment Group, an Islamic financing company, is unable to make periodic payments on a US$200 million Sukuk, worth US$3.35 million triggering the second default of an Islamic bond in the country. International Investment Group has appointed a consulting firm to carry out a business review, preceding a detailed financial restructuring at a later date. The Investment Dar, the Kuwait-based owner of half of Aston Martin Lagonda, missed a payment on a US$100 million Sukuk in May last year, triggering concerns about restructuring laws for such securities. Real market still untapped
Malaysian Rating Corporation CEO Mohd Razlan Mohamed commented that if Danajamin manages to meet this target, it would inject momentum back into the bond market, which had been “rather lethargic” so far. However, RAM Rating Services CEO Liza Mohd Noor noted that some of the companies which are about to issue Danajamin-guaranteed bonds comprise highly-rated companies (AA on a stand-alone basis) and said: “If this trend to provide marginal credit enhancement to already strong credits persist, we believe it will further delay the timing for bond investors to return to the non-AAA-rated market.’’ Joint venture firm SAUDI ARABIA: Deutsche Bank together with the country’s investors has established Deutsche Gulf Finance, a Shariah compliant home financing company. The company, which has an initial capitalization of US$110 million, is 40% owned by Deutsche Bank’s branch in Riyadh, while the remaining 60% is owned by a group of prominent Saudi-based investors, led by Fahad Abdullah Abdulaziz Al Rajhi. The firm’s initial focus will be Saudi Arabia, after which it will expand its operations into Bahrain, Qatar and Kuwait. |
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MALAYSIA: The government is set to issue its second sovereign Sukuk in eight years by mid-year, Islamic Finance Asia has learnt. Barclays Bank, CIMB Islamic and HSBC Bank are set to act as managers for the sovereign issuance worth between US$1 billion and US$1.5 billion, while Bank Negara Malaysia will act as advisor to the deal, according to sources. A source at one of the banks believed to be involved in the deal declined to confirm or deny the news. Credit analysts have also not discounted the possibility of such an issuance due to the government’s positive credit ratings and desire to tap the international market. 
MALAYSIA: Malaysian Rating Corporation (MARC) told Islamic Finance Asia that it is expecting 60% or RM30 billion (US$9.2 billion) worth of Islamic bonds to be issued this year. “We are expecting RM50 billion (US$15.3 billion) worth of corporate bond issuances in the country this year,” said MARC CEO Mohd Razlan Mohamed. He attributed this development to the fact that the country has been spared the after-effects of the Dubai crisis, which in turn has boosted investor confidence.