Investor roadshows pave way for Hong Kong’s first sukuk issue

The HKMA said HSBC and Standard Chartered Bank have been mandated as joint global coordinators, lead managers and bookrunners of the proposed dollar-denominated sukuk offering. HKMA said other joint bookrunners include Asia-Pacific investment bank CIMB and the National Bank of Abu Dhabi.

The banks will arrange a series of “roadshows” in Asia, the Middle East, Europe and the US starting in September for the 144A/Reg S-registered Islamic bond.

‘Hong Kong Sukuk 2014’, a special purpose vehicle fully owned by the government and established for issuing shariah-compliant securities in international markets is set to raise the debut note.

The HKMA said in its annual report for 2013 (18-page / 1.56 MB PDF) that the development of the sukuk market in the territory “forged ahead” with the enactment of legislation in 2013. HKMA said amending Hong Kong’s tax laws was necessary to provide “a comparable tax framework for common types of sukuk, vis-a-vis conventional bonds”.

The HKMA said it also “took another important step in promoting the development of Islamic finance in Hong Kong by collaborating with Bank Negara Malaysia to set up a private sector-led Joint Forum on Islamic Finance to strengthen collaboration between market participants in Hong Kong and Malaysia.”

Hong Kong’s fund management industry grew 27.2% year-on-year to a record high of 16 trillion Hong Kong dollars (HKD) ($2.06tn) at the end of 2013, according to figures released earlier this year by the territory’s Securities and Futures Commission (SFC).

The survey said other private banking business increased by 2.7% to HKD 2.75tn ($387bn) in 2013 while fund advisory business grew by 11.6% to HKD 1.67tn ($250bn). The market capitalisation of SFC-authorised REITs (real estate investment trust) increased by about 1.7% to HKD 177bn ($23bn).

(Out-Law.Com / 30 August 2014)

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Sukuk Drought Poised to End on First-Time Sales: Islamic Finance

First-time sellers of bonds that adhere to Islam’s ban on interest are poised to revive an industry suffering its worst quarter in more than four years.

Luxembourg and Hong Kong aim to market debut offerings of sukuk next month, while Kenya, South Africa,Bangladesh and Tatarstan have announced plans for maiden issues. Islamic bond sales have fallen 82 percent to $2.6 billion this quarter compared with the previous three months, their lowest level since the first three months of 2010, according to data compiled by Bloomberg.

“All are seeking their share of fast-growing Islamic financial services activity,” Khalid Howladar, global head of Shariah-compliant finance at Moody’s Investors Service in Dubai, said in an Aug. 26 e-mail interview. “Initial sovereign issuances test and sometimes force the development of a legal environment conducive to Islamic finance.”

Offerings of Shariah-compliant bonds may top last year’s $43.1 billion and challenge the unprecedented $46.5 billion sold in the previous 12 months, according to CIMB Group Holdings Bhd., as an increasing number of non-Muslim countries tap the market. The U.K. sold its first sukuk in June, drawing bids for more than 10 times the 200 million pounds ($332 million) on offer.

Forcing Development

Islamic bond offerings were subdued in August due to the summer holidays and the month-long Muslim fasting period of Ramadan. At $828 million, it was the worst month in a year. Sales so far in 2014 gained 27.6 percent to $27.7 billion.

Issuance will start to pick up, said Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Group.

Luxembourg is planning to raise 200 million euros ($264 million) by the end of September, according to an Aug. 11 e-mailed statement from the finance ministry. The Hong Kong government will meet investors from Asia, the U.S., Europe and the Middle East from Sept. 1 for as much as $1 billion of Shariah-compliant securities, the central bank said in a statement today.

“Sukuk has gained in popularity as an alternative funding tool,” Angus Salim Amran, the Kuala Lumpur-based head of financial markets at RHB Investment Bank Bhd., a unit of RHB Capital Bhd., said in an e-mail interview yesterday. “The growing pool of Shariah-compliant liquidity available to the global market is the impetus for these issuers.”

‘Main Challenge’

Pakistan is seeking to sell its first dollar-denominated Islamic bonds since 2005 in September. The federal republic of Tatarstan, located 800 kilometers (500 miles) east of Moscow, is aiming to debut $200 million in an unspecified timeframe. That sale was originally targeted for 2013.

While sales of Islamic bonds have increased about five-fold in the last decade, they are still a fraction of Shariah-compliant assets worldwide that Ernst & Young LLP forecasts will double to $3.4 trillion by 2018.

“People now see the timing as more conducive for sukuk issuance,” CIMB’s Badlisyah said in an Aug. 26 phone interview from Kuala Lumpur. “The main challenge remains the same, which is the lack of an enabling framework in many jurisdictions.”

South Korea’s plan to introduce tax laws for Islamic bonds met with opposition from Christian groups, while an initiative by Australia has stalled. Thailand, France and Ireland have introduced legislation though none has issued sukuk.

Attractive Yields

The Philippine government is reviving its ambitions to sell Islamic bonds after trying for more than 40 years. Egypt’s regulator proposed new rules this month.

Borrowing costs are falling. Average global sukuk yields declined 61 basis points, or 0.61 percentage point, this year to 2.81 percent, according to an index from Deutsche Bank AG. They reached a one-year low of 2.78 percent in May, below the five-year average of 3.42 percent.

“The fact that governments and corporates can issue at such low yield levels at the moment has made sukuk particularly attractive,” Thomas Christie, head of fixed income at Prometheus Capital Finance Ltd., said in an Aug. 25 phone interview from Dubai. 

(Bloomberg / 28 August 2014)

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UPDATE 1-South Africa's debut sukuk to be at least $500 million

JOHANNESBURGAug 28 (Reuters) - The South African government plans to raise at least $500 million in its first issue of Islamic bonds, a Treasury official indicated on Thursday.

"South Africa is looking to issue a benchmark-size sukuk and the tenor will be in line with other sukuk transactions in the market," Tshepiso Moahloli, director of debt issuance and management, told Reuters.

Traditionally, benchmark size is understood to mean at least $500 million. Five years is the most popular tenor for major international sukuk issues, and South African officials said last year that the country was leaning towards that tenor for its U.S. dollar-denominated sale.

The government has said it was issuing a sukuk in order to diversify its fund-raising. It has hired BNP Paribas, Standard Bank, and KFH Investment, a unit of Kuwait Finance House, to handle investment meetings in Europe, Asia and the Middle East starting on Sept. 8, Moahloli said.

"A sukuk issue may follow but the timing will depend on market conditions."

Ratings agency Moody's issued a provisional Baa1 rating to the expected bond on Thursday, the same level as South Africa's sovereign rating, saying the two were expected to move in tandem.

"Higher domestic savings and investment rates would support South Africa's rating, and, in turn, the sukuk rating," Moody's said, adding that stronger economic growth, less debt accumulation and maintaining sound economic policies were other factors that would be supportive.

Putting the ratings at risk is the possibility of a deterioration in South Africa's debt profile, however the ratings agency expects the government debt to GDP ratio to stabilise within the next two years.

Moody's said the proceeds of the sukuk would be used to buy interest in a portfolio of South African properties.

Sukuk transactions in Africa have been few and infrequent, but governments see an opportunity to tap cash-rich Islamic investors from the Gulf and southeast Asia.

Gambia has long been selling small amounts of sukuk for the domestic market, while last year, Nigeria's Osun State sold a local currency sukuk worth $62 million. Senegal raised 100 billion CFA francs ($208 million) via its first sukuk in June.

Egypt and Tunisia have also considered sukuk but those plans have not yet materialised. Outside Africa, governments looking to tap the sukuk market for the first time include Hong Kong and Luxembourg, both of which have hired banks to arrange investor meetings in September. 

(Reuters / 28 August 2014)

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Book Review - The history and future of Islamic finance

Even those who assume to know something about sharia - Islamic law - are reticent to make claims about Islamic finance, so complex is this area of law. So when the phrase "sharia-compliant" first emerged in Western financial sectors in the early nineties, it was seen as little more than an ethical-religious system on the fringes of mainstream markets with one main message: the prohibition on charging interest. 

Yet today Islamic finance is a trillion-dollar industry with many financial institutions, corporations and governments keen to embrace it as a profit-making alternative to mainstream financial dealings.

Harris Irfan is an insider on two fronts. He is a Muslim and also an expert in finance and commerce. He has worked as an investment banker in Europe and the Middle East and been head of Islamic finance at Barclays; he also founded Cordoba Capital, an Islamic finance advisory firm.

Mr Irfan is a man with a mission: to show that Islamic finance might be able to make a real contribution to our economic woes. He asks the reader to consider whether the Islamic world can "bring something of benefit to the Western world, and vice versa".

This is no mean task, but Mr Irfan uses his own professional and personal experiences to weave together an accessible and interesting story.

We get an insight into the birth of the Islamic finance system in the fifties, to the establishment of the first Muslim banks in Saudi Arabia and the Gulf States and the gradual recognition by Western banks of the enormous profit potential in structuring products on a sharia-compliant basis.

Traditional clerics were flattered with the attention and remuneration offered by the giants of the banking industry in exchange for their expertise.

While this book isn't full of jargon, it helps to know something about how the investment industry works. You also need to have some sense of Islamic history and religious concepts. But the religious commentary does not overcomplicate the narrative. Anecdotes about the life of the eighth-century Muslim legal scholar Abu Hanifa, the financial workings of the Ottoman Empire and the modern controversial Pakistani scholar Taqi Usmani all add weight.

The last chapter ponders the future of Islamic banking after some sharia-compliant finances were unfairly equated with funding terrorism, Worth reading.

(Entertainment Book Review / 28 August 2014)

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Islamic bank BLME eyes first dividend in 2016

(Reuters) - Bank of London and The Middle East (BLME) , Britain's largest stand-alone Islamic bank, aims to pay its first dividend in early 2016 as the lender diversifies its revenue and funding streams, its chief executive said on Wednesday.

Founded in 2006 by Kuwait's Boubyan Bank , BLME has not paid a dividend, but its net distributable reserves are expected to reach a sufficient level in 2015, chief executive Humphrey Percy said in a conference call.

“We have been constrained from having net distributable reserves...We expect this to change...not in 2014, but only in 2015,” he said.

Asked whether a dividend would be paid in 2016, Percy replied: “Absolutely, based on current forecasts...This is what we anticipate.”

London-based BLME, which provides corporate banking and wealth management services, posted a net profit of 4.0 million pounds in the first half of 2014, up from 1.0 million pounds during the same period last year.

This was aided by diversification of revenue streams, with the corporate banking division seeing its total operating income grow 32.5 percent from a year earlier.

The Dubai-listed bank has reduced its reliance on short-term funding sources: deposits with maturities of more than one year now account for 34 percent of total deposits, up from 20 percent a year earlier.

BLME had total assets worth 1.3 billion pounds as of June, a 13 percent rise year-on-year.

The bank opened a Dubai representative office in the third quarter of last year and listed its shares on Nasdaq Dubai in October, becoming the first new equity listing in Dubai for over four years.

(Yahoo News / 28 August 2014)

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Prospects of promoting Islamic Finance in Cyprus

ISLAMIC Finance is traditionally a very important sector in the Islamic financial world, providing finance to significant projects for economic development, as well as alternative options and tools for investments.

Islamic Finance can take various forms, both in terms of bonds, as well as in terms of Funds, and be listed on the Securities Exchanges.

The Cyprus Stock Exchange is currently intensifying its efforts for promoting new initiatives and plans in this direction in order to help our country overcome the present difficult and challenging economic situation,thus contributing to the rebuilding of Cyprus’ economy.

As it was noted recently, one of the industries that the Cyprus Stock Exchange has focused its efforts on, and was included in its  strategic plans, is the development of the Funds sector,  in order to extend the range of products offered to investors and consequently facilitate the further development of the financial market in Cyprus.

Very recently, within this general direction, the Cyprus Stock Exchange has started examining, along with other interested authorities and market participants, the possible development of the Islamic Financial Instruments.

Everybody considers this sector as extremely important and see the efforts being undertaken favourably with the aim of promoting Cyprus as an effective jurisdiction for Islamic Finance and for promoting their listing on the Cyprus Stock Exchange.

Islamic Finance are considered internationally as a credible  alternative source of funds in light of the credit crunch worldwide that has contributed significantly to the economic growth throughout the Muslim world.   For this sector, a growing demand was exhibited during the last years for securing finance, in regards to a number of projects, supporting many industrial sectors.

Islamic Finance products, should always comply with Shariah Law, which sets the framework regarding the permitable investments in various assets.  Among them, we mention the restriction about charging of interest, about uncertainty (there must always be full disclosure), the excessive speculation or gambling, as well as the avoidance of unethical investment, given the fact that Islam is intolerant of certain products. Therefore such investments should in advance receive relevant licensing, while they are constantly monitored by independent bodies of internationally recognised experts, namely a Shariah Scholars Boards, who verify the compliance with Islamic Law.

A number of financial products that come under the Shariah compliant entities, invest in a wide range of sectors, such as equities, real estate, infrastructure for development, private equity etc.

Sukuk is one of the commonly used Islamic Structures in project finance, classified in various forms such as, among others, istisna’a ijara, wakala ijaras etc  Other forms of Islamic Funds include Parallel Islamic Funds, Equity Investment Funds, Real-Estate Funds (REITs), etc. Sukuks are certificates representing ownership of an underlying pool of assets and most of them are asset-based.  Sukuks are used for developing new big projects.

Therefore, given all the above as presented in brief, it is obvious that there is potential for Cyprus with regards to Islamic Finance products.  Cyprus’ projects can be wholly or partly financed by Islamic funds.  Sukuk listings for various projects including the shipping industry, present a clear opportunity for the Cyprus Stock Exchange.

The Cyprus Stock Exchange, in case there is interest from Cyprus or abroad could facilitate the listing of Islamic Finance products, sukuks as follows:

Through the facility of listing of such products on the Cyprus Stock Exchange, that have been established/issued by other sovereigns or organisations; through the listing of Cyprus sovereign or other organisations’ sukuks.  This initiative could take place within the framework of accomplishing big projects for economic development, which could be financed via such Cyprus schemes.

In order for Cyprus to be advanced as an Islamic Fund domicile worldwide, it should be competitive in terms of listing procedures, backed by the authorities and the private sector, as well as to provide an efficient and speedy listing process – as a listing destination.  Cyprus’ law should be fully compatible with Shariah principles and Cyprus should always be a cost-effective, low tax jurisdiction and listing centre.

A range of vehicles available to address the specific needs of investors and promoters should also be provided. As regards the Cyprus Stock Exchange, it should be noted that it adequately provides all these credentials, in relation to its listing process, as well as for the cost and speedy process factors.

It is believed that the development and promotion of CSE’s initiatives, such as the Funds Industry, New Markets.  Islamic Finance projects, Bonds, etc, could bring significant benefits to the Cyprus economy, as well as to the Cyprus Stock Exchange.

They can also contribute to a significant extent to the process of securing the required fundraising for major projects for development, the creation of new jobs and the expansion of partnerships with various professional investment groups.  Such initiatives should therefore contribute to the efforts of attracting further investment in Cyprus.

Last but not least, it should be underlined and stressed that the CSE is ready to discuss listings of Islamic financial investment with interested parties.

We very much welcome such initiatives and we are here to work with anybody interested to see them materialise, as fast as possible.

(Cyprus Mail / 27 August 2014)

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CIMB Islamic to raise RM5 billion with Basel III, Tier 2 sukuk programme

CIMB Islamic, the shariah-compliant unit of Malaysia's second largest bank, is preparing an Islamic bond programme to raise up to RM5 billion ($1.58 billion), according to ratings agency MARC.

The Basel III compliant sukuk programme, assigned a preliminary rating of AA+ by MARC, will go towards replacing an existing RM2 billion Tier-2 sukuk and to fund working capital, the agency said on Monday.

The securities commission is still finalising approval and CIMB is not expected to issue sukuk from the programme any time soon, an official with MARC said. The company did not specify the range of maturities or sizes for sukuk under the programme.

CIMB is currently in talks with two smaller banks to create a mega-Islamic bank. The deal would make CIMB the country's biggest bank by assets, ahead of Malayan Banking Bhd (Maybank).

Maybank last week said it won regulatory approval to raise RM10 billion by issuing capital securities, with funds going towards working capital, general corporate purposes and the refinancing of existing debt. – Reuters, August 26, 2014.

(The Malaysian Insider / 26 August 2014)

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Malaysia-based Islamic finance body IILM lengthens Sukuk tenors

DUBAI: The Malaysia-based International Islamic Liquidity Management Corp (IILM) lengthened maturities in its Islamic bond programme on Monday by auctioning $400 million of six-month sukuk, its first sale of that tenor.

The IILM, a consortium of central banks from Asia, the Middle East and Africa, began the programme last year to address a shortage of instruments Islamic banks can use to manage short-term liquidity. Previously, it had only issued three-month paper.

The IILM sold the six-month sukuk at a profit rate of 0.729 percent, attracting $652 million of bids, the Malaysian central bank's website showed. It also sold $390 million of three-month sukuk at 0.525 percent, attracting $523 million of bids.

The issues were bought by primary dealers at nine banks across the Islamic world, increasing IILM's outstanding sukuk to $1.65 billion from $1.35 billion, the group said in a statement.

It has said it may eventually expand issuance to $2 billion or more; the programme permits maturities of up to one year.

(The Star Online / 26 August 2014)

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Pakistan: Govt taking steps to promote Islamic banking

The government is taking meaningful steps to promote Islamic finance which will soon transform Pakistan as a world leader in this sector, an industry expert said on Sunday.

Currently, Pakistan ranks ninth globally in terms of development of the Islamic financial services industry but some recent purposeful steps would prove to be a game changer, said Mian Shahid, Chairman United International Group (UIG).

Now, the conventional insurance companies in Pakistan are set to make major inroads into the Islamic insurance business with the active support of regulators, he added.

Mian Shahid said the size of the global Islamic financial industry has been estimated to touch mark of $1.8 trillion soon while Pakistan will become an important player in it due to the largest Islamic market in the world outside Indonesia.

Takaful in most markets is still in its infancy and its potential to supersede conventional insurance in Muslim world is still largely unexploited, he said, adding its premiums that exceeded $4 billion in 2007 is expected to reach $20 billion by 2017.

Saudi Arabia, UAE and Malaysia enjoy the lion’s share on account of their advanced Islamic finance sector while Pakistan would need more simplified regulatory frameworks to propel the industry’s expansion, the insurance veteran observed.

He said that United Insurance Company (UIC) had become first company to operate Takaful (Islamic Insurance) in Pakistan which had pushed us to look aggressively beyond the borders. Financial performance and proper handling of key strategic issues remained challenging for Takaful operators, he noted.

(Pakistan Today / 25 August 2014)

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Malaysia: Sunway gets approval for RM2b sukuk programme

KUALA LUMPUR, Aug 22 — Sunway Treasury Sukuk Sdn Bhd has received authorisation from the Securities Commission Malaysia (SC) to establish an Islamic commercial paper/medium term note (MTN) programme of up to RM2 billion. 

Sunway Treasury Sukuk, a special purpose vehicle, is wholly-owned by Sunway Treasury Sdn Bhd, which in turn is wholly-owned by Sunway Bhd.

Pursuant to the sukuk programme, Sunway Treasury could issue Islamic commercial papers and/or Islamic MTN under the Shariah principle of Mudharabah.

“The sukuk programme shall have a tenure of up to seven years from the date of the first issuance and proceeds shall be utilised to finance investment activities, capital expenditure, working capital requirements and repay future borrowings,” Sunway said in a filing to Bursa Malaysia.

The company would also utilise RM30,000 to fund the Trustee’s Reimbursement Account as required under the SC’s Trust Deed Guidelines.

(Malay mail Online / 22 August 2014)

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Pakistan: UIC permitted to launch Takaful operations

ISLAMABAD: 

The Securities and Exchange Commission of Pakistan (SECP) has allowed United Insurance Company (UIC) to launch Takaful operations.

The notification issued by SECP in this regard said that UIC has been granted permission to launch Window Takaful operations in respect of general Takaful products, according to a statement issued by UIC here Tuesday.

Takaful is a type of insurance system devised to comply with the Shariah laws, in which money is pooled and invested. Commenting on this development, United International Group Chairman Mian Shahid – of which UIC is a member company – lauded SECP for permitting conventional insurance companies to launch Takaful which is the Islamic alternative to mainstream insurance products.

“This decision of the government will help broaden the insurance base as the public concern on the insurance being incompatible with Shariah was barring growth of this sector,” he added.

Shahid informed that after official authorisation UIC will venture into untapped areas and increase insurance penetration which is less than one percent of GDP.

Takaful has emerged as a Shariah-compliant tool for satisfying risk mitigation needs of the tens of millions of Muslims across the world. The western financial crises have developed interest of the masses in the non-Muslim nations to study and subscribe to Islamic financial products.

Earlier, only dedicated Takaful companies were allowed to underwrite Takaful products but now the conventional companies can begin to underwrite Takaful products after obtaining authorisation as “Window Takaful Operator” under the Takaful Rules 2012.

(The Express Tribune / 20 August 2014)

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Malaysia: Islamic finance needs more talent, says DPM

THE growing number of local public and private universities offering Islamic finance and muamalat programmes is an encouraging sign as the rapid growth of the industry can only be sustained with a continuous supply of talents.

Deputy Prime Minister Tan Sri Muhyiddin Yassin said with student enrolment in Islamic finance programmes rising each year, there is a growing need to recruit highly qualified lecturers and trainers to develop talents at universities and colleges as they will lay the foundation of Islamic finance education.

“This will ensure a brighter future for our financial industry, as it will be the main beneficiaries of well-trained graduates,” said Muhyiddin, who is also the education minister, when launching the International Council of Islamic Finance Educators (ICIFE), here, yesterday.

He credited Bank Negara Malaysia, Securities Commission Malaysia, syariah scholars and 

the Islamic financial industry for elevating the country’s Islamic finance marketplace to the current level of sophistication.

He pointed out that the Malaysian Islamic banking sector has continued to outperform the conventional banking sector with average annual asset growth rate of 18.6 per cent from 2008 to 2012, against 9.3 per cent growth in the same period for the conventional banking segment.

On a global level, Malaysian Islamic banking assets, including development finance institutions (DFIs), has a 13 per cent share of the total global Islamic banking assets, behind Iran and Saudi Arabia.

Regionally, Malaysian Islamic banking assets make up more than 85 per cent of total in Southeast Asia’s Islamic banking industry, Muhyiddin said.

He said Malaysia also remains at the forefront in sukuk bonds, also known as Islamic debt issuance.

Sukuk has been the preferred financing structure for infrastructure projects and investments in key sectors such as utilities, healthcare, transportation and education, both locally and abroad.

He said it is a fact that one of the challenges faced by Islamic finance worldwide is the inadequate supply of talents and professionals who are equipped with both syariah and product knowledge.

“In this respect, we acknowledge the role played by Bank Negara Malaysia in setting up institutions such as Islamic Banking and Finance Institute Malaysia (IBFIM), The Global University of Islamic Finance (INCEIF), Asian Institute of Finance (AIF) and International Shariah Research Academy for Islamic Finance (ISRA) to train and provide financial industry executives and managers with the knowledge on Islamic finance and syariah best practices.

“The Malaysian Securities Commission, along with the Securities Industry Development Corporation (SIDC), have also stepped forward in developing talents through their Islamic capital market graduate training scheme,” Muhyiddin added.

The ICIFE was set up by a taskforce comprising Bank Negara, International Islamic University of Malaysia, Education and Higher Learning Ministry, INCEIF and the Asian Institute of Finance AIF.

(Business Times / 22 August 2014)

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Islamic bank pushes for regulation review

THE laws regulating Islamic financing in Kenya need fine tuning to fully support sharia compliant banking, First Community Bank general manager Omar Sheikh has said.

Islamic finance is based on the sharia principle known as Murabaha in which a bank purchases goods and sells them to a client at a cost that includes a profit margin. This is because sharia compliant banking prohibits earning interest on money, hence Murabaha is the loan facility for Islamic banking.

"There is need to safeguard our operations from double taxation. Islamic concept is based on murabaha where you enter into a contract to purchase goods and then sell to a customer. The regulatory parameter needs a little more refining to support Islamic banking fully," Sheikh said.

"When we pay VAT when we buy an item, it will not be fair to charge tax again when we resell it to client."

However, Sheikh said, that at the moment there is no double taxation for the murabaha contracts but the law ought to be clear on this matter for future operations.

Sheikh also cited the loss sharing principle as a matter that creates confusion in terms of declaration and their accounting statements whereby while sharia law requires that profit and loss be shared among the bank and clients, the local industry's guidelines require that they record it as loss provision in their books.

Sheikh was speaking at a media briefing held where he outlined the bank's growth plans that include opening up four more branches by end year to raise their network to 21 outlets, signing up 177 extra agents and increasing customer numbers by another 50,000 by December.

The bank which was the first fully fledged Islamic financial lender to be licenced by the Central Bank of Kenya currently has about 100,000 active accounts.

Sheikh urged non Muslims to also seek services at the bank adding that wrong perception that the lender is restricted to Muslim clients has been the biggest challenge to its growth.

(The Star / 23 August 2014)

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Erdogan Retooling Turkish Banks To Boost Islamic Finance

Turkey’s biggest state-owned bank is branching out from being a traditional lender to farmers to providing the country’s largest corporate loan as the government pushes an expansion ahead of an initial public offering.

TC Ziraat Bankasi AS, the Ankara-based lender founded in 1863 during the Ottoman Empire, lent a record $1.6 billion to Cukurova Holding AS in July. The bank is also planning an Islamic finance unit, it said in a public filing today, while it ended talks about buying shariah-compliant lender Asya Katilim Bankasi AS (ASYAB) as it said a deal “is not in line with our bank’s priorities.” Bank Asya would have pursued talks if Ziraat had made an official bid, it said in a public filing today.

Deputy 

Prime

 Minister Ali Babacan, also in charge of banks, said earlier this month the government would welcome Ziraat’s purchase of Bank Asya.

“We will be in all areas that we think will support Turkey’s growth,” Ziraat Chief Executive Officer Huseyin Aydin said in an interview Aug. 19. He declined to discuss concrete targets.

Turkey’s government, which has said it plans to eventually sell shares in the bank, has encouraged Ziraat and two other state-owned lenders to broaden their offerings and include Islamic banking. The move may increase the state’s sway over financial institutions’ strategy, said Apostolos Bantis, a credit analyst at Commerzbank AG in Dubai.

“While Ziraat remains 100 percent controlled by the government, these transactions will increase concerns about the bank’s corporate governance policies and the government’s influence on the Ziraat’s business strategy,” he said.

Planned Sale

Aydin took over the top job at the bank in 2011 from another state lender, Turkiye Halk Bankasi AS. (HALKB) He’s charted new territory with the loan to Cukurova, the biggest yet by a Turkish bank to a domestic company.

Cukurova used the money to repay debt to Russia’s Alfa Group to recover a 13.8 percent stake atTurkcell Iletisim Hizmetleri AS (TCELL), Turkey’s biggest mobile operator.

“Ziraat is in a phase of growing its assets as a prerequisite for its planned IPO,” said Bulent Sengonul, an analyst at Istanbul-based Is Yatirim, in a telephone interview Aug. 18. “It will be positive for the bank to grow its capital through profits and its subsidiary base through participation banking.”

Bank Asya was established by followers of Fethullah Gulen, a U.S.-based imam, who is at the center of a power struggle with President-elect Recep Tayyip Erdogan’s Ak Party that has accused Gulen and his supporters of illegal wiretapping aimed at plotting a coup to topple the party.

Bank Asya said on Aug. 8 that talks about a deal with Qatar Islamic Bank SAQ had ended while Ziraat said in today’s public filing that the lender is in discussions with investors for a possible stake sale. Several government institutions canceled contracts earlier this month for the lender to act as cash collector for them. Turkey’s capital markets regulator also didn’t approve the bank’s application for a sukuk sale, citing uncertainty over its ownership structure.

“There is a risk that the Bank Asya transaction, which reportedly has links with the Gulen movement, might be interpreted as a tool to assert political pressure on the government’s opponents,” said Bantis of Commerzbank.

(Bloomberg / 21 August 2014)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Nigeria: Zakat Can Eradicate Poverty - Sultan

Sokoto — The Sultan of Sokoto, Alhaji Sa'ad Abubakar, has said that the practice of Zakat is capable of eradicating poverty. The statement comes as the Sokoto State Zakat and Endowment Committee disclosed that it collected and distributed N105.3 million between January and now.

Speaking during flag off of an enlightenment campaign on the payment of Zakat, organised by the Muslim Ummah in Sokoto, the Sultan said: "Giving out Zakkat and endowment, according to the teachings of Islam will surely purify our wealth and also eradicate poverty in our society."

The Sultan, who was represented by the Galadiman Garin-Sokoto, urged Muslims and the leaders to be faithful and always fear Allah in the conduct of their activities.

In his remarks, Commissioner for Religious Affairs, Alhaji Tukur Alkali, said the affluent in the state need to ensure they play their roles as stated in the Quran.

The commissioner, who was represented by Sokoto State Director for Shari'a and Religious Affairs, Alhaji Aminu Aliyu, added that government needs to be supported in ensuring the welfare of the masses.

(All Africa / 21 August 2014)

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Capital markets watchdog rejects Bank Asya sukuk issuance

Islamic lender Bank Asya has received another blow, as the Capital Markets Board (SPK) did not approve a 140 million-Turkish Lira sukuk issuance from the lender’s asset leasing subsidiary. 

The lender’s share trading was suspended by the Borsa Istanbul stock exchange on Aug. 14 until “uncertainty regarding its ownership is resolved.”

The country’s capital markets watchdog cited the same concerns and announced it has decided not to accept the Bank Asya subsidiary Asya Varlık Kiralama’s (Asset Leasing) request to issue a 140 million lira sukuk, which commonly refers to the Islamic equivalent of bonds, for consideration.

The bank has seen its profits and capital base collapse since December 2013, when it found itself at the center of a power struggle between President-elect Recep Tayyip Erdoğan and his political foe Fethullah Gülen, an Islamic scholar based in the U.S. whose sympathizers founded the bank in 1996.

Doubts over the bank’s future and its shareholder structure have been growing due to contradictory statements from the government regarding its potential acquisition by the state-run Ziraat Bank, as well as the annulment of key contracts by several public agencies.

(Daily News / 21 August 2014)

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Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Azerbaijan’s IBA plans stand-alone Islamic banking unit

International Bank of Azerbaijan (IBA), the country’s largest lender, is preparing to launch a separate sharia-compliant banking unit as the former Soviet state prepares an Islamic banking law slated for next spring.

A stand-alone unit would allow IBA, 50.2 per cent owned by Azerbaijan’s Ministry of 

×

Finance, to more than quadruple its 

×

Islamic financing business in the country, said Behnam Gurbanzada, IBA’s director of 

×

Islamic banking.

“IBA is working on developing new products as well as establishing a platform for a separate, fully sharia-compliant unit,” Gurbanzada said.

IBA, which holds 40 per cent of banking assets in 

×

Azerbaijan, has thus far extended $180 million of 

×Islamic financing in the country; after legislation is passed, this could increase to as much as $750 million within a year, he added.

The bank currently offers sharia-compliant products through an 

×

Islamic window, a practice which allows conventional lenders to provide 

×Islamic financial services as long as client money is segregated from the rest of the bank.

A separate unit could help increase the appeal of Islamic banking among retail clients, in a country where an estimated 93 per cent of the population of 9 million are Muslim.

IBA also wants to create a strong domestic Islamic banking platform for use with its subsidiaries in Russia, Georgia and Qatar.

“Azerbaijan shows considerable promise to become a hub for Islamic banking in the region and has great potential to cooperate with Russia and all other CIS (Commonwealth of Independent States) countries which are interested in Islamic banking,” said Gurbanzada.

This month, the Association of Russian Banks asked Moscow to consider ways to promote Islamic finance in the country, including through an industry-specific law.

IBA has hired Bahrain-based consultancy Shariyah Review Bureau to help in the design of several projects including a real estate development in Azerbaijan’s capital Baku and a cash financing product, said Gurbanzada. The bank is also developing a sharia-compliant student financing product.

(Gulfnews.Com / 18 August 2014)

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Perpetuals in Vogue as Malaysia Airports Sells: Islamic Finance

Malaysia Airports Holdings Bhd. (MAHB)’s plan to sell perpetual sukuk highlights rising interest in the debt from companies looking to shore up their balance sheets.

The manager of all of Malaysia’s 39 airports will hold an investor presentation for the offer on Aug. 25, two people with knowledge of the deal said last week. It will be the nation’s first sale of rated ringgit Islamic bonds with no set maturity following unrated issues by Malaysian Airline System Bhd. in 2012 and Boustead Holdings Bhd. in June. Boustead, a plantations company, sold the notes at 6.1 percent, 2.3 percentage points higher than its two-year non-Islamic debt at the time.

Perpetual bonds, which rating companies treat as equity, have been becoming more popular as they allow issuers to raise money without damaging their creditworthiness and offer higher yields to investors, Kevin Lim, RAM Ratings head of consumer and industrial ratings, said in an interview in Kuala Lumpur yesterday. Abu Dhabi’s Al Hilal Bank PJSC sold $500 million of perpetual sukuk in June, attracting around $5 billion of bids, the fifth such offer from the United Arab Emirates.

“The fact that Malaysia Airports is planning a rated perpetual sukuk suggests that investors are getting more sophisticated,” Mohd. Effendi Abdullah, head of Islamic markets at Kuala Lumpur-based AmInvestment Bank Bhd., the country’s third-biggest sukuk arranger, said in phone interview yesterday. “We are talking to a few companies that are keen to sell such debt.”

Income Dropping

Malaysia Airports will offer as much as 1 billion ringgit ($317 million) of perpetual sukuk, the two people who asked not to be named because the information isn’t public yet said in interviews on Aug. 15. It’s part of a previously-announced 2.5 billion ringgit Islamic bond program. Chief Financial Officer Faizal Mansor declined to comment on the latest offer when contacted by telephone yesterday.

The company, which has a market capitalization of 10.6 billion ringgit, had total debt of 4.2 billion ringgit at the end of June. The airport manager will report net income of 234.7 million ringgit this year, according to the average estimate of 19 analysts in Bloomberg survey, compared with 388.9 million ringgit in 2013. The company’s shares have fallen 14 percent this year, worse than the 0.3 percent decline in the benchmark stock index.

Malaysia Airports last sold Shariah-compliant securities in September 2013. The 4.15 percent notes due 2018 and the 3.85 percent debt due 2016 last yielded 4.17 percent and 3.87 percent, respectively, data compiled by Bursa Malaysia show.

Price Discovery

Borrowing costs on AAA-rated corporate non-Islamic bonds due 2024 climbed 40 basis points, or 0.4 percentage point, to 4.86 percent this year, according to a central bank index. That’s the highest level since September 2011.

“Rated perpetual issuance is rare in Malaysia and therefore I expect some price discovery to take place,” Norlia Mat Yusof, chief investment officer at Kuala Lumpur-based Etiqa Insurance & Takaful, said in an e-mail interview yesterday. “The yield must be reasonably above AAA issuance to account for the liquidity premium and the rather cautious investor sentiment due to rising interest rates.”

Worldwide issuance of bonds that comply with Islam’s ban on interest has climbed 27 percent this year to $26.9 billion, according to data compiled by Bloomberg. Malaysian sales have increased 78 percent to 39.3 billion ringgit, although the amount of offers has slowed from 18.7 billion ringgit in the first quarter.

Corporate Pipeline

The country’s beleaguered national carrier, which has lost two planes this year, sold 1 billion ringgit of perpetual Shariah-compliant notes in June 2012 to yield 6.9 percent. Khazanah Nasional Bhd., Malaysia’s sovereign wealth fund, has offered to take the airline private and announce details of a plan to revive it at the end of this month.

SP Setia, a property developer, issued 609 million ringgit of the debt at 5.95 percent last December and Boustead sold 201 million ringgit in June. All of the securities are unrated and can’t be traded under Malaysia’s Securities Commission rules.

“Perpetuals are attractive to investors because they offer higher yields,” Elsie Tham, a senior fund manager at Kuala Lumpur-based Manulife Asset Management Sdn., who oversees more than $1 billion, said in an Aug. 15 phone interview. “The offering should attract interest because the pipeline of corporate bonds in Malaysia is a bit dry at the moment.”

New Benchmark

Aeon Credit Service (M) Bhd., the Malaysian unit of Japan’s second-biggest consumer-finance company, still hasn’t offered perpetual sukuk since Managing Director Yasuhiro Kasai said it would do so in a Dec. 10 interview.

It’s more cost efficient to issue perpetual bonds than traditional equity because the transaction is tax deductible, said RAM Rating’s Lim. Corporates can improve their capital structure by replacing debt with notes that don’t mature because they are treated as shares by rating companies, he said.

“Malaysia Airports’ perpetual sukuk, once sold, will provide a benchmark to potential issuers,” Lim said. “Investors looking for higher yields will also have more investment choices.”

(Bloomberg / 19 August 2014)

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