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Report from the Third World Forum on Governance

The Brookings-Zaostreno “World Forum on Governance” was held in Prague on April 9 – 11, 2014. There were sessions on prosecutorial initiatives and the role of judges, police and prosecutors in countering corruption and a consideration of transnational instruments such as treaties, courts and international organizations. But there were also sessions on fighting corruption with social media and the relationship between government reform efforts and corruption control. In addition there was an emphasis on the corporate side and on how to include the private sector in the fight against corruption. This year’s Forum had a broad perspective to include government reform as a means of getting at the underlying incentive structures in public sector corruption.

GULF FINANCE HOUSE PLANS SUKUK ISSUE

Bahrain-based Gulf Finance House (GFH) plans to issue a sukuk or arrange new debt facilities of up to $500 million. The funds raised will be used to restructure the current liabilities, develop projects and for acquisitions of new businesses. The announcement follows ordinary and extraordinary general meetings of the bank yesterday, with the board getting authorisation from shareholders to determine the final structure of the sukuk or the debt facilities. GFH chairman Dr Ahmed Al Mutawa said that the bank reported a net profit of $6.3 million, reduced operating cost by 20 per cent and successfully restructured debt last year. Additionally, the shareholders approved the appointment of eight new members to the board for three years. The auditors and the Sharia supervisory board have been reappointed for the year.

Global Islamic Insurance Industry Still Struggling to Build Scale

At the 9th annual world Islamic insurance conference in Dubai, the emphasis, as usual, was on the industry’s seemingly limitless expansion potential. True, takaful business worldwide increased at around 8% to $19 billion in 2012, with plenty of room for the sector to expand. However, the current takaful industry is very fragmented with few players that can claim to be pan-regional, let alone global players. That in itself adds to the lack of global accountancy, corporate governance and procedural standards. There are currently few signs of heightened mergers and acquisitions activity in the takaful sector, indicating the issue of scale is not one that will be addressed in the near future.

Bank Islam still keen on Indonesia market

Bank Islam Malaysia Bhd has reiterated its interest in the Indonesian Islamic banking market despite previous attempts at penetrating the world’s largest Muslim country seeing a dead-end. Managing director Datuk Seri Zukri Samat said Indonesia possessed tremendous prospects as the country, with a population of 240 million, is still underserved in the Islamic banking sector. Islamic banking penetration in Indonesia is about 3% to4%, whereby Malaysia is between 23% and 24%. There is a huge Muslim population in Indonesia but Islamic banking penetration is very low, certainly there is a lot of business opportunity there, he said.

GÜLENIST BANK'S SUPPOSED MERGER SCRUTINIZED

Bank Asya, known for its close ties to the controversial Gülen Movement announced last month that it would sign a merger agreement with Qatar Islamic Bank (QIB). After announcing the prospective merger, Bank Asya's share in BIST, Turkey's stock market, rallied and increased by nearly 60 percent in one week. However, officials at the Banking Regulation and Supervision Agency (BDDK) said they have not received any formal merger application from Bank Asya executives. Authorities said that Bank Asya is looking for assurances from the BDDK that the agency will approve the merger, otherwise the Qatari bank may not be willing to sit down at the negotiating table again. Whether or not the merger happens, the speculative news has negatively affected small investors.

The IFSB's 6th Seminar Legal Issues Discussed Innovation in Sukuk Securitisation and Islamic Hedging Instruments: Developments and Challenges

The Islamic Financial Services Board (IFSB) successfully organised the 6th IFSB Seminar on Legal Issues in the Islamic Financial Services Industry (IFSI), themed "Innovation in Sukuk Securitisation and Islamic Hedging Instruments: Developments and Challenges" on 25 March 2014 in Brunei Darussalam. This Seminar is a part of the IFSB seminar series on legal issues in the Islamic financial services industry. Speakers shared their insights on the legal challenges faced by asset securitisation and Sukuk structuring. Moreover, discussions focused on the need for establishing international standards governing transactions of Islamic hedging instruments in order to reduce the legal uncertainty. In the last session, speakers discussed the Shari`ah governance structure and the role of Shari`ah supervisory boards in assisting the innovation and development of these evolving markets.

US$14 billion Sukuk issuance in December, 120 billion for 2013

Fears that the Fed’s taper will cause interest rates to rise further has triggered a wave of issuance during the 4Q13 (up 68.5% q-o-q) with issuers looking to take advantage of cheaper funding rates. Total Issuance volume for 2013 came in at USD119.7bln, 8.7% less than in 2012. Malaysia accounted for the largest share of the sukuk market during the month with 72.8% of the issuance total. December saw new issuances from a number of jurisdictions such as the UK, Yemen and Singapore, which collectively accounted for 1.8% of issuance volume. Qatar, Saudi Arabia and the UAE continue to witness strong growth this year with further issuances amounting to USD1.5bln, USD1.1bln and USD750mln respectively during the month.

Maybank issues 1.5 bln ringgit sukuk

Maybank Islamic Bhd, a unit of Malaysia's Malayan Banking Bhd, has raised 1.5 billion ringgit ($458.65 million) with its first Basel III-compliant Islamic bond. The sukuk has a tenure of 10 years and was priced at 4.75 percent. It was oversubscribed by 2.9 times and increased in size from an initial plan for one billion ringgit. It is the first issuance under a 10 billion ringgit subordinated sukuk programme announced by the bank in March.

Saudi Electricity’s sukuk issue oversubscribed

The Saudi Electricity Co (SEC) has successfully managed to price and allocate two global sukuk, worth $2.5bn (SR9.37bn). The bonds were reportedly issued in two separate tranches: The first is a $1.5bn 10-year bond at a rate of 4% and the second is a $1bn 30-year note at 5.5%. Subscription to the bonds reached $12.5bn, or five times of the required fund.

Mashreq Al Islami launches new Sharia Compliant equity fund in MENA region

Mashreq’s Islamic banking division, Mashreq Al Islami, has launched its flagship Islamic Equity Fund, Al Islami Arab Tigers Fund. The fund will facilitate investment in a diversified portfolio of growth and dividend stocks in the MENA region. The Al Islami Arab Tigers Fund will invest in listed equities of companies that comply with Shariah law values. Mashreq fund manager Reda Gomma said that given the spending spree by MENA governments to upgrade their infrastructure, corporate earnings are poised to grow substantially over the medium to long term. Al Islami Arab Tigers is a well regulated fund and is a good opportunity for investors to benefit from growing economies in the Middle East, Gomma added.

Opportune time for borrowers to issue Sukuk, says BLME

Following on from S&Ps comments regarding strong demand for Sukuk and low yields; credit spreads have been tightening in the Sukuk space for quite some time, due to supply outstripping demand and strong fundamentals in the Middle East. In addition, with the recent geopolitical tensions in Ukraine and other emerging markets, a flight to credit quality has led to further tightening. The news of Dubai rolling over its debt owed to Abu Dhabi and the UAE Central Bank for 5yrs at 1% has lowered yields further. With yields at such low levels it seems an opportune time for borrowers to issue Sukuk, even for existing conventional issuers.

KFH Research: Sukuk issuances in March 2014 amounted to US$11.2 billion

The month of March has produced the most volume of sukuk issuances for the global sukuk market in 2014 with total sukuk issuances amounting to USD11.2bln. This represents an increase of more than 23% as compared to the USD9.07bln issuances in February 2014 and a 3.13% increase as compared to the USD10.86bln issuances in January this year. However, there was a substantial decline in corporate sukuk issuances in March with only USD1.45bln worth of issuances. The decline in corporate sukuk issuances was contributed mainly by a noticeable absence of issuers from the Gulf Cooperation Council (GCC). The sukuk volume in March saw heavy involvement of the sovereign and government related entities issuers in the primary market as collectively these two types of sukuks represented over 87% of total sukuks issued.

BLME acts as co-lead manager on Islamic Development Bank Sukuk issuance

BLME, Europe's largest Islamic bank, has been selected to co-lead the Islamic Development Bank (IDB) US$1.5 billion five-year Sukuk. The bank's representative office in Dubai was appointed in to handle the issuance. DB Sukuk is the largest ever Islamic bond issued from the AAA rated supranational lender in 2014. It is also the largest Sukuk issuance BLME has been appointed to act as co-lead manager on to date. The IDB issued 16 Sukuk in London since 2005 which raised around US$7 billion. It has a US$ 313 million programme listed in Malaysia and has raised 700 million ringgit since 2008 via three Sukuk. BLME listed on NASDAQ Dubai in October 2013, and announced a strong performance for the full year on 3rdMarch 2014.

Tunisia: Marzouki Calls on Islamic, West African Banks to Back Up Tunisian Economy

Caretaker President Moncef Marzouki this week received presidents and directors of Islamic banks of West Africa. The meeting discussed ways to strengthen the national economy, boost investment and find ways to finance small and medium enterprises in Tunisia (SMEs). The President of the Republic on Monday commended the signature of a strategic draft agreement between the Zitouna Bank and the Islamic Development Bank (IDB) to create a specialised joint institution in Islamic micro-finance that would allow both partners to expand to Africa. He insisted on the need to speed up legal reforms in the finance field to allow Tunisian banks to integrate in Africa and overcome challenges. The IDB will contribute to the Tunisian government's programmes to meet the challenges of employment, fight against poverty and regional development.

Saudi Banks Reject Algosaibi Meeting on $5.9 Billion Default

A group of Saudi Arabian lenders has rejected an invitation from Ahmad Hamad Algosaibi & Brothers Co. to attend a meeting next month to discuss their claims on $5.9 billion of debt. The banks have no interest in attending the meeting proposed, according to a letter to Algosaibi from a law firm representing the unnamed Saudi lenders. The letter, dated April 3, didn’t give a reason why the banks don’t want to attend. Algosaibi and billionaire Maan al-Sanea’s Saad Group missed payments on at least $15.7 billion of debt in 2009 in the Middle East’s biggest default, as the global financial crisis froze credit markets and asset prices slumped. The two family holding companies, which are related by marital ties, have been locked in legal disputes ever since.

Islamic finance body IILM to reissue $860 mln sukuk next week

Malaysia-based International Islamic Liquidity Management Corp (IILM) will reissue $860 million of its three-month Islamic bond next week, after expanding its issuance programme to $1.35 billion in January. The auction of the three-month sukuk, rated A-1 by Standard and Poor's, will be conducted on Apr. 17. In February, the IILM sold $490 million worth of three-month paper, designed to meet a shortage of highly liquid, investment-grade financial instruments which Islamic banks can trade to manage their short-term funding needs.

This Islamic bank wants to get Britain building

Britain could become the first truly global Islamic finance centre if the government sets its mind to attracting infrastructure investment, according to Gatehouse Bank’s chairman Fahed Faisal Boodai. He estimates the industry is worth $1.5 trillion, and the sector is growing at around 20 per cent per year. Chancellor George Osborne is raising £200m with a sharia-compliant bond, the bank alone expects to buy £30m to £40m of the sukuk, and predicts bids for the debt to run into the billions of pounds. However, one problem is finding investment opportunities which meet stringent sharia standards. More certainty is needed if the government wants to unlock Islamic investment into infrastructure on the grand scale needed.

Al Salam Bank-Bahrain boosts share capital

In a statement to the Bahrain Bourse, Al Salam Bank-Bahrain noted the increase in its authorised share capital to BHD 250 million and in its issued and paid up share capital to BHD 214,093,075. The bank’s share capital has been increased as part of its acquisition of BMI Bank, approved by shareholders at EGM on 8 October 2013 and following the obtaining of the required regulatory approvals.

Kenya’s Sharia-friendly livestock insurance

A mutual insurance scheme based on Islamic Sharia law has been launched to reduce the impact of extreme weather events on pastoral livelihoods in Kenya’s arid northern regions where perennial drought often decimates thousands of livestock. The Islamic Takaful insurance is boosting risk management. Those insured under the Tafakul scheme are compensated for the loss, or reduction in value, of their livestock based on an index formulated by the International Livestock Research Institute (ILRI), and according to information gathered by satellites to measure vegetation coverage and thus the severity of drought. Recently, some 101 livestock farmers received their first pay-out.

Kenya leads African Islamic finance charge

With Islamic financing growing significantly in Kenya over the last five years and now accounting for 2% of the country's total banking industry, it's not surprising that Standard Charted chose Kenya as the first African nation in which to launch its Sadiq suite of Islamic banking products. Trade Finance caught up with Wasim Saifi, Standard Chartered's global head of Islamic banking, to find out what Islamic trade products it has planned for Kenya and why the bank sees Africa as the new growth frontier for the $1 trillion plus Islamic finance market.

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