IslamicFinance.de

Dubai has overtaken other financial centres in listing Islamic bonds on its exchanges, and is mounting a global drive to attract more listings while developing new channels to trade sukuk, Hamed Ahmed Ali, the chief executive of Nasdaq Dubai said. The exchange is working on ways to sell sukuk directly to retail investors, expanding the primary market beyond institutional buyers, and designing a sharia-compliant repurchase agreement, he said. Sukuk listed on Dubai’s two exchanges, Nasdaq Dubai and Dubai Financial Market, rose to $36.7 billion last month from $7bn in 2013. Nasdaq Dubai accounts for the vast majority. Until 2013, issuers from the Gulf usually chose European exchanges to list sukuk; that has begun changing.

Warning that the global sukuk market is heading toward a correction in 2015, Standard & Poor’s Rating Services (S&P) has halved its forecast for global sukuk issuance in 2015 as major issuer Bank Negara Malaysia (BNM) switches to other instruments to finance the government’s spending. The global ratings agency said it was revising its forecast for total sukuk issuance in 2015 to about $50 billion to $60 billion from $100 billion to $115 billion, assuming there will be no issuance from BNM in 2015. In a statement, S&P said the move by BNM to stop issuance leaves the door open to issuers such as the International Islamic Liquidity Management Corp (IILM) and the Islamic Development Bank (IDB) to step up their issuance and provide the industry with liquidity, thereby contributing to the development of an Islamic yield curve.

A number of African countries have opted to issue sukuk, or Islamic bonds, as an alternative to raise funds for projects. Last year, South Africa became the first non-Muslim country in Sub-Saharan Africa to issue a sovereign sukuk. Valued at $500 million, it was readily taken up by Middle East investors. Gambia is a frequent issuer of local currency sukuk, while Senegal raised more than $200 million in a local currency Islamic bond last year to fund a number of infrastructure and energy projects. Deeper markets and a Middle-Eastern investor base more familiar with Africa should help to advance sub-Saharan Africa sukuk issuance in the nearer term.

RAM Rating Services has reaffirmed the A2/Stable/P1 financial institution ratings of Bank Muamalat Malaysia Bhd. The ratings agency had on Monday also reaffirmed the bank’s A3/Stable rating of its RM400mil Islamic subordinated Sukuk programme (2011/2026). The one-notch difference between the bank’s long-term financial institution rating and that of its subordinated Sukuk reflects the subordination of the debt facility to the bank’s unsecured obligations, it said. RAM Ratings said the bank’s asset-quality indicators had weakened during the period under review. Its gross impaired-financing (GIF) ratio had increased to 3.0% as at end-December 2014 (end-March 2014: 2.7%), with the largest upticks in home and personal financing.

The Thomson Reuters Global Sukuk Index is at 118.12333 points, up from 117.85307 at the end of last month and 115.79726 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 116.96750 against 116.56666 at end-June and 113.69014 at end-2014. Some of the sukuk in the pipeline are: Malaysia's Sarawak Energy plans to issue 1 billion ringgit ($264 million) of sukuk. The company will offer tenors of 10 and 15 years and for the first time, 20 years. The Bahrain government announced a July 2-7 retail offer of 200 million dinars ($530 million) of 10-year sukuk ijara. Saudi Arabia-based Arab Petroleum Investments Corp mandated four banks for a debut international sukuk issue this year, off a $3 billion sukuk programme.

A government Islamic lease (Sukuk Al Ijara) issue floated to raise BD200 million ($530 million) is open to direct subscription by retail investors, the Bahrain Bourse (BHB) announced. Both Bahraini and non-Bahraini investors can subscribe to the issue through registered brokers at BHB. Each sukuk has a par value of BD1 and the minimum subscription is 500 sukuk (BD500). The securities have a tenure of 10 years with July 9 as the issue date and July 9, 2025 as the maturity date. The subscription ends on Tuesday, and investors will be able to trade the sukuk in the secondary market at BHB post listing, expected to be on July 26. The expected annual return (rent) on the securities is five per cent, to be paid every six months till maturity.

This year is shaping up to be a disappointing one for Islamic bond sales in the six-nation Gulf Cooperation Council. Sukuk issuance in the region has slumped by more than half in the year through 28 June. It’s a setback for the Shariah-compliant industry, where GCC sales accounted for 31 per cent of all global Islamic bonds in 2014. Islamic bond issuance from the GCC has plunged 53 per cent. Meanwhile, about 22 per cent more has been raised with Shariah- compliant loans from the GCC than in the same period a year ago. The worst-performing Islamic bond from a GCC borrower was a ringgit-denominated sukuk due 2022 from Abu Dhabi National Energy Company, known as Taqa, which has lost 8.2 per cent this year. Nevertheless, Islamic bonds returned an average 1.8 per cent, compared with 0.8 per cent for conventional bonds.

The Republic of Turkey is seeking to raise US$1.5bn from the issuance of sukuk and yen-denominated bonds this year, according to a treasury official. The sovereign, rated Baa3 by Moody's and BBB- by Fitch, is to raise around USD400m-equivalent from the yen-denominated transaction and the rest from the sukuk. The sovereign is aiming to price the sukuk in the fourth quarter of the year, and the yen-denominated deal at some point in the second half of the year, according to the official.

Kuveyt Türk will sell sukuk to qualified investors as well as to people through public offerings as part of the TL 1 billion ($373.65 million) issuance ceiling program taken from the Capital Markets Board in 2015. Therefore, the bank plans to issue TL 200 million of sukuk, which is due for 189 days after collecting demands on June 24, June 25 and June 26. Additionally, it aims to issue TL 800 million of sukuk in total by the end of 2015 to increase its resource diversity. Investors' interest in the bank's issuances valued at TL 1 billion from 2014 to 2015 and public offerings valued at TL 150 million in 2013 showed possible growth in the upcoming issuances, and this is why the bank has increased its aims.

Malaysia's Tenaga Nasional Bhd is seeking to raise as much as 10 billion ringgit ($2.7 billion) in an Islamic bond issue to develop a power plant project it is planning to take over from debt-laden state fund 1MDB. The planned purchase of 1MDB's 70 percent stake in 3B, a greenfield 2,000 MW coal-fired plant project, will take the pressure off 1MDB to find the funds to develop the project and help it focus on paring down debt of more than $11 billion - a burden that has weighed on Malaysia's currency and its credit rating. It also fits well with Tenaga's own energy supply needs, although some analysts are worried that the company may end up overpaying if the government pushes for 1MDB to gain the best deal it can.

Saudi Arabia's National Commercial Bank (NCB) has announced the sale of a capital-boosting Islamic bond, raising 1 billion riyals ($267 million) through a sukuk which will enhance its core capital. The kingdom's largest bank said on Monday the privately-placed sukuk, which would boost its Tier 1 capital, was Basel III-compliant and had a perpetual tenor, although the bank would have the right to call the sukuk on a predefined date. However, it did not disclose the call date in the bourse filing announcing the transaction. JP Morgan and NCB Capital, the investment banking arm of NCB, were the deal's arrangers. NCB joins a string of Saudi Arabian banks that have sought to replenish their capital reserves in the last couple of years, by issuing capital-boosting bonds and bonus shares.

Sukuk issuance plunged in the first five months of this year after Malaysia’s central bank stopped issuing short-term Islamic bonds, data from Standard and Poor’s showed. Issuance fell to US$33.7 billion in the year to May 31, down from $50.5bn in the same period of last year, according the rating agency’s figures. Bank Negara Malaysia (BNM) was responsible for about $10bn of sukuk issuance last year, mostly in short-term sukuk with tenors of three months. Overall sukuk issuance excluding BNM was down 5.1 per cent against the previous year’s figure of $35.5bn. Demand for sukuk from investors outside the Islamic world has been significant, but a shortage of supply characterises an industry segment in which highly-rated sovereign issuances are sought after and many times oversubscribed. The collapse in the price of oil could further harm sukuk issuance.

The International Finance Corp (IFC), the World Bank's lender to the private sector, has started work on a return to the market for Islamic bonds, with plans to issue sharia-compliant debt after summer in the Gulf region. Details such as currency, tenor and size were not yet available. The IFC, which aims to spur private investment in developing countries, last sold a $100 million five-year sukuk in 2009, listing it on the Dubai and Bahrain bourses. Its first sukuk came in 2004 in Malaysia, a 500 million Malaysian ringgit ($134 million) three-year deal. In December, the International Finance Facility for Immunisation Co (IFFIm), for which the World Bank acts as treasury manager, issued a $500 million debut sukuk.

Saudi Binladin Group, one of the kingdom's largest construction firms, has priced an Islamic bond with a 364-day tenor worth 1 billion riyals ($267 million). The transaction, arranged by the investment banking arm of Gulf International Bank and BNP Paribas' Saudi unit, was priced with a profit rate of 2.5 percent. The funds from the issue will reportedly be used to finance costs related to its work at the King Abdulaziz International Airport in Jeddah. Binladin is the main contractor for the project, which aims to increase the airport's capacity to handle 80 million passengers annually by 2035. The terms of the sukuk are the same as those on the company's last Islamic bond offer in July 2013, which was arranged by the same banks.

The Thomson Reuters Global Sukuk Index is at 117.95463 points, down from 118.42537 at the end of last month but up from 115.79726 at the end of last year. The Thomson Reuters Investment Grade Sukuk Index is at 116.76818 against 117.32893 at end-May and 113.69014 at end-2014. The sukuk in the pipeline include: Malaysian mobile phone operator Maxis Bhd will raise up to 5 billion ringgit ($1.33 billion) through sukuk to refinance debt and fund capital requirements. Brunei's central bank is preparing to issue long-term sukuk. The Malaysia unit of Toyota Motor Corp plans to set up a 2.5 billion ringgit programme to raise funds via both conventional and Islamic bonds. Malaysian SapuraKencana Petroleum plans to raise up to 7 billion ringgit with a multi-currency sukuk programme.

The long anticipated UAE Federal Commercial Companies Law no. 2 of 2015 (the “New Companies Law”) was issued on 25 March 2015 and will be in force by 1 July 2015 to replace the existing UAE Federal Commercial Companies Law no. 8 of 1984 (the “Former Companies Law”). The New Companies Law implements a number of important changes to the existing positions under the Former Companies Law, and in some cases, clarifies a number of issues that existed under the Former Companies Law. Article 31 of the New Companies Law confirms the existing position that only a Private Joint Stock Company or a Public Joint Stock Company may issue bonds and sukuk.

The country’s largest mobile phone operator, Maxis Bhd, is planning to raise as much as RM5bil from a 30-year sukuk for its capital expenditure (capex) and debt refinancing. The company said in a stock exchange filing that the unrated sukuk murabahah programme would be available 30 years from the date of the first issuance, which should be made within two years of approval. The issue price of the Islamic bond will also be fixed prior to each issuance. It added that the Islamic medium-term notes might be with or without periodic profit payments. The coupon rate and yield to maturity would also be fixed prior to each issuance of the sukuk. CIMB Investment Bank Bhd is the sole principal adviser and the sole lead arranger for the programme.

While the sustained demand for sukuk is widely acknowledged, challenges relating to restrictive legal regimes, standardization and default mechanics could potentially impede its anticipated growth. Latham & Watkins partner Nomaan Raja discusses the challenges the developing global sukuk market faces. The majority of Shari’ah scholars agree that a guiding set of principles should be developed for future sukuk issuances. Increasing standardization stabilizes the market and safeguards investor confidence. The development of a mature market requires that sukuk investors understand their rights and remedies in default scenarios. The AAOIFI is seemingly encouraging a move towards asset-backed structures, in which the investors have actual recourse to the assets in the event of a default.

Brunei's financial regulator is preparing to issue long-term Islamic bonds in the "very near future" while widening the eligible list of buyers of its issuance programme. The Autoriti Monetari Brunei Darussalam (AMBD) wants to develop the local capital market to help shift the economy away from oil and gas exports, with plans to launch a securities exchange as early as 2017. The AMBD did not give a specific timeframe or potential size for the deal. Since 2006, the AMBD has issued sukuk in maturities of up to 1 year for use by the country’s seven domestic commercial banks, but never in longer tenors. The new sukuk will be available to buyers outside the domestic banking sector.

Jordan will soon launch its first sovereign issue of Islamic bonds to finance real estate projects, Finance Minister Umayya Toukan said. Toukan did not give details on the size of the planned Islamic Sharia-compliant issuance, but informed sources indicated that the sovereign sukuk could raise around JD400 million. The source said the government may enter the Islamic financial market in the coming few weeks, adding that Islamic banks in Jordan enjoy liquidity in excess of JD1.4 billion. In April of this year, the government chose the Islamic Corporation for the Development of the Private Sector to support the country's debut for the planned domestic sukuk offering. The sukuk issuance will be a dinar-dominated offering.