The fourth quarter of 2016 saw proposals published by AAOIFI for standards on central sharia boards as well as new governance rules for Islamic banks in Kuwait and the Federal Territory of Labuan. The quarter also saw the IFSB issue a technical note on stress testing for institutions offering Islamic financial services. The proposed AAOIFI standard on central sharia boards is intended to provide guidance for strengthening corporate governance and thereby increase the consumer appeal of sharia-compliant financial products. It covers several aspects such as the appointment, composition and dismissal of board members, tenure of the board, functions of the central sharia board, responsibilities of the appointing authority, fit and proper criteria, and independence.
The Securities Commission Malaysia (SC) has launched a five-year Islamic Fund and Wealth Management Blueprint designed to drive further development and growth of Malaysia's Islamic capital market. The Blueprint aims to establish the country as a leading international centre for Islamic fund and wealth management. It was launched by Datuk Johari Abdul Ghani, Second Finance Minister of Malaysia, on behalf of Prime Minister Dato’ Sri Mohd Najib Tun Razak, at the International Fund Forum 2017. To be implemented on a phased approach, initial work programmes will include the formulation of a framework for SRI funds, the setting up of a global centre for Islamic capital market and the introduction of a digital investment services framework.
Saudi Arabia plans a new Islamic bond issue in a sale that could come as early as February. The sharia-compliant sukuk will form part of a pipeline of bond sales to finance the kingdom’s budget deficit and invest in economic diversification away from oil. Last year, Saudi Arabia set a record for developing countries with its first sovereign bond sale, attracting $67bn in investor bids for a $17.5bn issue. Bashar Al-Natoor, global head of Islamic finance at Fitch Ratings, said diversification is natural for any emerging market, but the fall in oil prices have made it a necessity for exporters like Saudi Arabia. Lower oil prices have led to a drop in government reserves held in banks, which in turn has had an impact on their willingness to lend, so they have to look for alternative sources of financing.
Africa Finance Corp (AFC), a pan-African multilateral institution based in Nigeria, is likely to make a debut U.S. dollar sukuk issue by early February. If AFC makes a final decision to go ahead with the proposed debt sale over coming days, the sukuk will be issued in two or three weeks through a private sale. The sukuk would be structured with a murabaha format and use Nasdaq Dubai's platform for murabaha transactions. Mohamed Damak, global head of Islamic finance at S&P Global Ratings, said more sukuk issuance will come from Africa-based issuers over the next few years as borrowers seek to expand their investor bases. Another reason for issuers in Africa is that sometimes sukuk can be cheaper than conventional bonds, especially when it attracts significant interest from the market.
Sukuk issuance growth in the Arabian Gulf is likely to remain subdued this year even as countries in the region need to raise more debt to plug budget deficits. According to the latest research from S&P Global Ratings, the reason lies in the complexity of selling Sharia-compliant bonds. S&P's analyst Mohamed Damak said sales of Islamic bonds fell in 2015 and 2016 in the GCC as the issuance of conventional bonds soared. Globally, the market for sukuk is also expected to remain stable this year at between US$60 billion and $65bn. Despite the recent rebound in oil prices, the GCC will need about $275bn of financing between this year and 2019, of which half is expected to come from bonds and sukuk. Complexity of sukuk issuance is not the only headwind facing Islamic financing. According to S&P, rising interest rates in the US will also dampen appetite for sukuk this year.
The year 2016 records quite remarkable achievements in terms of financial technology (fintech). The Investment Account Platform (IAP), Malaysia’s first multi-bank platform for financial intermediation in the Islamic financial system, was launched on the 17th February 2016. The IAP serves as a central marketplace to finance small and medium enterprises (SMEs) with initial funds of RM 150 million. Eight Islamic Crowdfunding Platform operators from across the globe clicked together to form Islamic Fintech Alliance (IFT Alliance) and launched it on the 1st April 2016. Then, on the 26th September 2016, New York-based Wahed Invest launched Wahed, the world’s first automated Islamic investment platform. Two months later, the Kuala Lumpur-based Faringdon Group announced that it would be launching Asia’s first Shariah compliant Robo Advisor. The online tool called Algebra will provide automated portfolio management advice. Further progress of these initiatives and new innovative entrants will position 2017 for more excitements.
The #Philippine Economic Zone Authority (PEZA) has scheduled investment roadshows in the Middle East to attract investors to explore the Philippine market. According to Peza director general Charito Plaza, this will be in preparation for President Rodrigo Duterte’s plan to visit the Middle East on Feb. 26 to March 3. Plaza mentioned that the Department of Foreign Affairs, Department of Trade and Industry, Philippine Chamber of Commerce and Industry, local government officials, and economic zone developers would join the investment promotion agency in its roadshow in the Middle East. PEZA recently held a seminar on sukuk to help local companies understand doing business with Middle East-based firms. Plaza noted the government aimed to expand the presence of Islamic banks in the country to facilitate investments.
Sabah Credit Corporation (SCC) increased the size of its Sukuk Musharakah programme from RM1.5 billion to RM3.5 billion. According to CEO Datuk Vincent Pung, the move will allow SCC to consolidate outstanding Sukuk issuance and generate an additional RM1 billion for the corporation to plan its future loans growth. Pung also announced i-Cash, a personal loan facility, offering borrowers simplified and online loan processing and the flexibility of drawing the loan. Finance Minister Datuk Seri Musa Aman noted that SCC had anticipated a significant drop in profits of RM16 million initially to RM54 million for the year 2016, but instead reported a beyond expectation pre-audited profit of over RM60 million as of December 2016. He said the corporation has also donated over RM23 million through more than 150 Corporate Social Responsibility projects such as rural hostels, orphanages, half-way homes and centres for single mothers.
The planned China-Pakistan Economic Corridor, or CPEC, is expected to bring the full potential of Islamic finance in infrastructure funding into action. The CPEC will see €54bn in investments up to 2030 to create or expand highways, railways, ports, airports, power plants, solar parks and wind farms, pipelines and optical fibre lines. Pakistan’s Finance Minister Ishaq Dar has repeatedly emphasised that Pakistan wanted to make Shariah-compliant financing its first choice for infrastructure and long-term financing needs. In fact, the government plans to shift between 20% and 40% of its debt financing to Islamic sources from conventional ones, which is also the case for CPEC projects. Co-financing for the corridor comes from Chinese state loans, as well as from the Asian Development Bank and the new, China-backed Asian Infrastructure Investment Bank. The CPEC is predicted to create more than 700,000 direct jobs up to 2030 and add two to 2.5 percentage points to Pakistan’s annual economic growth.
According to S&P's latest report, the global sukuk market is expected to remain fairly quiet in 2017, with total issuance reaching around $60bn -$65bn. The relatively subdued sukuk market anticipated for this year is mainly due to reasons related to complexity of sukuk issuance. S&P Global Ratings’ Global Head of Islamic Finance Dr Mohamed Damak said returning issuers, new entrants, and regulatory developments can stimulate issuance activity, but more likely in the medium term. S&P anticipates some GCC countries might take the Islamic finance route alongside a conventional one. Bahrain will most likely remain a prominent player after issuing $3.2bn of sukuk in 2016. Other GCC members will probably tap the market in 2017. The buyers of sukuk are not only in the GCC or Malaysia, but come from a broad range of investors, including conventional financiers in developed markets. More importantly, there is reportedly a large gap between sukuk issuance and demand.
The Nigerian Stock Exchange is set to list Nigeria’s first non-interest commercial bank, Jaiz Bank. The council of the Nigerian Stock Exchange (NSE) has approved the bank’s listing of its entire issued share capital on the exchange. Jaiz Bank will be listing a total of 29.46 billion ordinary shares of 50 kobo each at 1.25 naira, indicating a start-off market capitalisation of 36.83 billion naira. The bank has more than 20,000 shareholders, including shareholders such as the former Chairman of First Bank, Umaru Mutallab, industrialist Aminu Dantata, and development finance institution- Islamic Development Bank. The listing will be executed by way of an introduction, however, the company has indicated its interest in an Initial Public Offering.
Debt issuance from the GCC is expected to surge in 2017 with sovereign issuers leading while conventional bonds outstripping sukuk both in terms of amounts raised and number of issues. The key drivers to bond issuances in the GCC during 2016, which more than doubled to $66.5 billion (Dh244.5 billion), was primarily the sovereign bond issuances by Saudi Arabia, UAE and Qatar. Saudi Arabia’s first international bond issuance valued at $17.5 billion in October last year was the biggest recorded emerging market bond. Saudi Arabia has indicated further bond issuances in the near term and the Kingdom has a target debt-to-GDP ratio of 30% by 2020 as compared to 13.2% for 2016. Banking sector contribution to bond issuance witnessed a steep decline from 22% in 2015 to 15% in 2016, although the size of the total offering increased by 36% $11.7 billion.
According to Standard & Poor’s (S&P), global sukuk issuance fell short of market expectations last year, although it was higher than in 2015. The sukuk market will remain subdued in 2017, since the issuance process is still quite complex. S&P Global Ratings' Global Head of Islamic Finance Dr. Mohamed Damak said the sukuk market did not play a countercyclical role in core Islamic finance markets in 2016 and a stabilisation of total issuance in 2017 is forecasted at around $60 billion-$65 billion. Standard & Poor’s do not foresee a substantial increase in sukuk issuance in the GCC this year. The rating agency thinks that some member countries might take the Islamic finance route alongside a conventional one. Bahrain will most likely remain a prominent player after issuing $3.2 billion of sukuk in 2016. Other GCC members will probably tap the market in 2017.
Islami Bank Bangladesh has undergone abrupt, major changes in its three top positions - chairman, vice chairman and managing director. Arastoo Khan, the former chairman of Commerce Bank has now become chairman of Islami Bank, replacing incumbent Mustafa Anowar. As a representative of Ibn Sina run by Bangladesh Jamaat-e-Islami leaders, Mustafa Anowar was serving as the chairman of the bank. He also resigned from the post of director as well as from the post in the bank’s foundation. The board of directors also replaced the bank’s managing director (MD) Mohammad Abdul Mannan by Union Bank’s MD Abdul Hamid Mia. Islami Bank Bangladesh has 307 branches including 57 AD branches and three offshore banking units as well as 13,229 staff members, as of December 2015.
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has approved the draft of the governance standard on central Shari’ah boards. The proposed standard covers several key aspects such as the appointment, composition and dismissal of the board members; tenure of the board; functions of a central Shari'ah board; responsibilities of the appointing authority; fit and proper criteria and independence. The draft is expected to be issued by beginning of 2017 and will be posted on the AAOIFI website. The AAOIFI board also discussed progress on projects being carried forward into 2017, including the Internal Shari’ah Audit, Shari’ah Compliance and Fiduciary Rating, and Comprehensive Ethics projects. The next meeting is proposed to be held by March 2017, in Oman.
#Oman is preparing an international bond sale, as the country seeks to plug a budget deficit caused by low oil prices. The sultanate has sent invitations to banks to arrange the sale of a dollar or Islamic bond and responses are due this week. A fresh sale would be the latest in a series of issues by the oil-producing state. The sultanate sold US$2.5bn worth of bonds in June last year and tapped the bonds for an additional US$1.5bn in September. It was reported to have raised US$1bn from the international loan market last January and will get RO600mn from local debt in 2017. Oman is also seeking to reduce expenditure and from this month will impose new tariffs on its biggest electricity consumers. The state’s budget deficit is estimated by the International Monetary Fund to narrow to 10.3% of gross domestic product this year, from 13.5% in 2016.
Abu Dhabi Islamic Bank (ADIB) has acted as the sole bookrunner on a AED 1 billion Islamic financing facility for the Meydan business group. Dubai Islamic Bank and Al Hilal Bank were both mandated lead arrangers for the financing, which matures in December 2018. The deal was structured to meet Meydan’s financing objectives, on the back of its ongoing District One Project, a master-planned luxury residential neighbourhood in Mohammed Bin Rashid City in Dubai. Commenting on the transaction, ADIB's CEO Tirad Al Mahmoud said this deal demonstrates ADIB's ability to bring together diverse elements with a particular focus on high-growth companies and the real estate sector. Earlier this year, Meydan raised AED 1 billion Islamic financing through a dual tranche offering, comprising a AED 700 million Sukuk issue and a AED 300 million term facility, both maturing in 2024. ADIB acted as the sole coordinator of the transaction.
Dubai Islamic Bank (DIB) sold its stake in Jordan Dubai Islamic Bank. DIB held 20.8% in Jordan Dubai Islamic Bank through a 40% shareholding in MESC Investments. MESC Investments had completed the sale of its stake in Jordan Dubai Islamic Bank to Jordan-based Bank Al Etihad and Etihad Islamic Investment Company. The value of the sale was not disclosed.
The Bahrain-based Al Baraka Banking Group (ABG) has obtained the approval of the Bank Al Maghrib (the central bank of Morocco) to establish a new bank in Morocco. The Group is now represented in all countries in the Maghreb. The Group now owns banking subsidiaries in Algeria, Tunisia, Libya and Morocco, as well as the African continent in Egypt, Sudan and South Africa. The Group has already obtained the approval of the Central Bank of Bahrain to establish the Morocco bank and will carry the name of Al Baraka Bank Morocco. The new bank will be under the management of Al Baraka Banking Group and will operate within its network of subsidiary banking units, which are currently located in 15 countries and in turn own more than 700 branches.
ASMA Capital owned by the Islamic Development Bank (IDB), Saudi Arabia’s Public Investment Fund (PIF) and Public Pension Agency (PPA), Ministry of Finance of Bahrain and Ministry of Finance of Brunei has signed a deal with Utico for a significant minority stake. The deal with Utico for a stake in its water business is done through Asma Capital managed IDB Infrastructure Fund II. The deal is valued overall at $ 147 million in equity and project finance and will be completed in the first quarter of 2017. Ernst & Young, Hatch USA, ILFS, GU Advisory UAE, Latham and Watkins, Trowers and Hamlins and Taylor Wessing are advisers to the deal. Utico is making significant investments in the UAE and expanding its infrastructure assets in water, power, transmission and distribution, storage, billing and collection. Richard Menezes, Utico’s Managing Director stated that its model of development has saved the governments billions of dirhams in capital expenditure and subsidies.