UK: Citicorp Trustee Company, the custodian for a US$650 million Sukuk sold by a unit of Saudi Arabia’s Saad Trading, Contracting and Financial Services Company, said investors have agreed to dissolve the Sukuk after the firm defaulted on the debt.

It had said in August last year that the Sukuk will be dissolved if its holders, who represent at least 25% of the aggregate value of debt outstanding, voted for it. A dissolution of the Islamic bond issued in May 2007 via Golden Belt 1 Sukuk Company — a special purpose vehicle registered in Bahrain — could allow bondholders to claim the assets which are used to back the Sukuk.

Saad Group, the business owned by Saudi billionaire Maan al-Sanea, said last June that it was restructuring debt after a “short-term liquidity squeeze” owing at least US$6.5 billion in syndicated loans to almost 60 banks. Saad sold the five-year Sukuk to help finance investments and property purchases in London
and Saudi Arabia.

Crisis on the horizon

GLOBAL: Having faced the recent financial crisis, the Dubai fiasco, and the ongoing turbulence in the European Union, Islamic banking and finance is predicted to survive the next crisis with little impact. Union of Arab Banks chairman and Al Baraka Banking Group CEO Adnan Yousif said that the next financial crisis is expected to originate from China or India within the next four years and will have little impact on Islamic banking and the Gulf region. “It will have a considerable impact on the US bond market. We should not underestimate the impact it would have on the conventional banking system. We should not be blind to the possible instability created by the unstable growth rates seen in China and India,” he said.

Huge jump

GLOBAL: Initial Public Offering (IPO) activity in the Middle East saw a five-fold increase in funds at US$420.5 million, in the first-quarter of 2010, according to Ernst & Young. Five IPOs in Saudi Arabia and one in Qatar made up the geographical composition of the regional IPO market for the first quarter.

Mazaya Qatar Real Estate Development Company, with an offer size of US$144.2million was the Middle East’s largest IPO, followed by Saudi Arabia’s Herfy Food Services (US$110.2 million) and Alsorayai Trading Industrial Group (US$64.8 million). Solidarity Saudi Takaful Company, Amana for Cooperative Insurance and Wataniya Cooperative Insurance Company were the other three with offer sizes of US$59.2 million, US$34.1 million and US$8 million respectively.

Islamic footprint

TANZANIA: The National Bank of Commerce (NBC), a subsidiary of Absa Bank, launched its Islamic banking services, as part of Absa Bank’s strategy to expand its presence in the African region. NBC’s managing director Christo De Vries said this new service is part of NBC’s business banking strategy, to provide innovative products to meet the needs of the market.

Narrow mindset

KENYA: Africa’s Islamic finance industry needs to overcome negative views among non-Muslims to successfully expand into predominantly Christian sub-Saharan Africa, according to an industry leader. Gulf African Bank chairman Suleiman Shahbal who acknowledged that Islamic finance is often seen as exclusive to Muslims said: “This is a business and frankly we are indifferent to whether you are Muslim, Christian, Hindu or a non-believer.” Northern Africa is predominantly a Muslim territory, where countries such as Egypt and Sudan have offered Islamic banking for decades. Now, some lenders are looking to expand into sub-Saharan nations, such as Uganda which is 80% Christian.

Breakthrough law

ALGERIA: Currency and Credit Council, the country’s monetary authority is amending its legislation to allow banks to combine Islamic and conventional finance by 2011, according to Banks and Financial Institutions Association general commissioner Adderrahmane Ben Khalfa. Under the new legislation, banks will be able to offer Islamic banking products and services to their customers. They can also establish Shariah supervisory boards to watch and approve financial and banking transactions.

System Core

GLOBAL: The basic principles of good relations with clients and Islamic values are being neglected in Islamic banking.

Asian Finance Bank CEO Mohamed Azahari Kamil has lamented that the technical and structural aspects of the system are being favored instead. He goes on to stress that the Islamic banking and finance model is not one based on profitability alone but one in which ethics and morals play a key and defining part.

Azahari stated: “The Islamic value system as a whole is at the heart of all our products and services, which goes hand in hand with, as well as assisting in establishing trust and belief in the Islamic banking model.”

Opening its doors

ALGERIA: Currency and Credit Council, the country’s monetary authority is amending its legislation to allow banks to combine Islamic and conventional finance by 2011, said Banks and Financial Institutions Association general commissioner Adderrahmane Ben Khalfa.Under the new legislation, banks will be able to offer Islamic banking products and services to their customers. They can also establish Shariah supervisory boards to watch and approve financial and banking transactions.

Morale booster

GLOBAL: In a bid to boost transparency in the Islamic finance industry, Standard & Poor’s Ratings Services (S&P) has assigned a ‘Aaf’/‘S1+’ fund credit and volatility rating to a Luxembourg-based, US dollar-dominated fund managed by European Finance House, a subsidiary of Qatar Islamic Bank. The Islamic finance industry came under scrutiny in the aftermath of Dubai World’s debt troubles and some high profile defaults from Middle Eastern issuers, causing investors to question the structure of such Islamic deals and the risks involved.

European hub in historic meet

LUXEMBOURG: The country will play host to the 8th Islamic Financial Services Board (IFSB) annual summit in 2011. This is the first time that an EU member country will host the IFSB meet. The move comes at a time when Luxembourg has been proactively promoting the Duchy as another EU hub for Islamic finance.

Luxembourg is already a key domicile for Sukuk listings and the registration of Islamic funds. Currently, there are 16 Sukuk listed on the Luxembourg Stock Exchange. With a combined value of EUR5.5 billion (US$6.8 billion), and over 45 Islamic investment funds, largely equity funds domiciled in the country.

Going against the grain

GLOBAL: Despite the belief of many industry experts that a standard set of rules and regulations will benefit the Islamic finance industry, Clifford Chance partner Debashis Dey has emphasized that standardizing the Islamic finance market will not benefit the industry. This, according to Dey, is due to the markets and legal jurisdictions which differ from country to country. Instead, he called on industry players to ignore the call for a standardized set of practices and allow the market to develop naturally.

Gaining momentum

GLOBAL: Global Sukuk issuances touched US$8.4 billion in 2009 with a further increase expected this year as Islamic bonds worth US$3 billion have already been issued across the GCC.
In view of this, HSBC Amanah director for capital markets Mohammed Dawood said the Sukuk markets will pick up in the coming months due to improving market conditions, as compared to the first half of the year when the mood was sluggish.

Going for more Sukuk

GLOBAL: Standard Chartered Bank plans to arrange more than US$4 billion worth of Islamic bonds globally this year, according to the Dubai-based Standard Chartered Saadiq head of Islamic origination Ahsan Ali. Ali stated that Sukuk issuers are expected to take advantage of better market conditions and levels of liquidity, as shown in the shift towards local currency syndication for corporate issuances or finances.

Positive prospects

GLOBAL: Sukuk offerings rose 24% to US$4.6 billion so far this year, the largest increase since a 50% jump in 2007, according to a report. This encouraging development, according to CIMB Islamic Bank CEO Badlisyah Abdul Ghani is due to government support and debt restructuring that has helped build market confidence.

Limiting mix

GLOBAL: Dubai Financial Services Authority (DFSA) Islamic finance head Peter Casey warned that treating Shariah financial services under the conventional model will hamper any potential growth in the fledgling industry. According to Casey, Islamic banking industry players are being pressured to apply standards generally, so the automatic response is to apply traditional ones, forcing the industry into a conventional banking role.

Sukuk framework

KENYA: The Central Bank of Kenya (CBK) is working on a framework that will lead to the flotation of Sukuk in the local money market. The move to entrench Sukuk in the law is seen as a push by CBK to tap the increasing amount of cash flowing into Africa from the Gulf region. Gulf African Bank and First Community Bank are the two local Shariah banks involved with the Sukuk.

Sukuk to balance budget

LUXEMBOURG: The country is considering issuing a sovereign Sukuk, to raise its profile for Islamic funds. Luxembourg is currently facing a budget deficit, which is expected to continue into 2011, prompting the need to borrow.

Pioneer Shariah mortgage

CANADA: Assiniboine Credit Union (ACU) has launched the country’s first Islamic mortgage. The new mortgage product is based on the Diminishing Musharakah principle (a declining balance partnership). ACU vice president of corporate social responsibility, Priscilla Boucher, said the product has been in the works for four years, since the company was approached by members of the Muslim community.

In the black

TURKEY: Bank Asya posted a 12% increase in its first-quarter profit to reach TRY59.2 million (US$37.7 million). Bank Asya is a member of the Participation Banks Association of Turkey, along with Albaraka Türk, Kuveyt Türk, and Türkiye Finans.