IslamicFinance.de

RAM Ratings sees great potential in Green Sukuk, in tandem with the increased interest in both Shari’ah-compliant and ethical investment. The use of Islamic instruments to raise capital for sustainable development projects will set a new precedent; Green Sukuk is anticipated to become key to the financing of low-carbon and renewable-energy economies. As the phrase implies, Green Sukuk involves certifying the environmental credentials of the project to be funded as well as its compliance with Shari’ah principles. Nonetheless, a sustainable Green Sukuk market is not without its challenges; one of these is to assure investors that the utilisation of Sukuk proceeds is for projects with economic value while simultaneously meeting accepted and credible green standard

A new screening method for sukuk, developed in cooperation with Saudi Arabian financial institutions, aims to reduce the cumbersome approval process that these instruments often require. San Francisco-based IdealRatings said its product addressed compliance hurdles faced by sukuk investors contending with multiple structures and disparate opinions. The product reviews and categorises sukuk to allow Islamic banks to adhere to their own guidelines more efficiently, reducing the time and costs of due diligence in each deal. The service was developed over the past two years in consultation with Islamic financial institutions, in particular Saudi firms.

Goldman Sachs last week revived plans to issue a debut Islamic bond, a deal that was first mooted three years ago. In September 2011, Goldman set up a sukuk programme registered under the commodity murabaha format with the intention to follow it up with a deal. But some Islamic finance participants raised concerns over whether the proceeds would be used to lend interest-based money to Goldman’s clients. Those close to the transaction denied this at the time, but the programme expired unused. The hope is that the change in structure and circumstance would facilitate a different outcome this time round. The upcoming transaction will use the wakala structure, a cost-plus model with which Middle East Islamic investors are more familiar with, and it will be underpinned by crude oil assets.

Global sukuk issuance is expected to reach around $70 billion in 2014, largely driven by increased issuance from governments. Moody's expects sovereigns to issue approximately $30 billion of sukuk in 2014, increasing the size of the sovereign market to around $115 billion by year-end 2014. The ratings agency forecasts this momentum to be sustained as both Islamic and non-Islamic governments increasingly tap or newly enter the market. Investors’ growing comfort with relatively complex Islamic instruments, the increasing financing needs and leverage appetites of some Muslim countries, as well as a desire for stronger investment links with the faster growing economies in the Gulf and Asia are driving this growth.

Goldman Sachs is preparing to issue benchmark-sized, U.S. dollar-denominated sukuk with a wakala structure after announcing plans to meet fixed income investors, according to leads. The investment bank plans to issue the sukuk through the JANY Sukuk Co vehicle after meeting investors in the Middle East on Sept. 10 and 11, a document from lead managers said. Goldman Sachs picked itself, Abu Dhabi Islamic Bank, Emirates NBD, National Bank of Abu Dhabi and NCB Capital to arrange the investor meetings.

Indonesia raised $1.5 billion from the sale of dollar-denominated sukuk on Tuesday, which is to help finance the country’s budget deficit. Foreign investors submitted $10 billion worth of bids on Tuesday, or six times the amount offered. The government awarded 35 percent of the sukuk to Middle East and Islamic funds, 30 percent to investors based in Asia, including Indonesia, 20 percent to US funds and 15 percent to European investors. The 10-year Islamic bonds were sold at 4.35 percent yields, as compared with 6.125 percent paid on notes maturing in 5.5 years in September 2013 and the record-low 3.3 percent on 10-year sukuk sold in 2012. Foreign holdings of the country’s bonds increased to Rp 437.4 trillion as of Sept 2, accounting for some 37 percent of the total debt.

An eight-month rally in Islamic bonds showed its resilience as an Indonesian sukuk drew record bids before debuts by Luxembourg, Hong Kong and South Africa. A Bloomberg index tracking dollar-denominated Shariah-compliant debt from 43 sovereign and corporate issuers rose to an all-time high this week, as supply was limited amid the worst quarter for new issuance since 2010. Luxembourg and Hong Kong have hired arrangers for their sales planned for September. South Africa has hired banks for its debut offering of Shariah-compliant notes, while Bangladesh and Tatarstan are also planning maiden sales. While the average yield on debt that complies with Muslim tenets has dropped to a three-month low, it’s almost twice that available on U.S. Treasuries.

The World Bank plans to raise as much as $500 million worth of sukuk this year to help fund an immunisation programme, one of several initiatives from the multilateral body in the Islamic finance sector. The World Bank, acting as treasurer of the International Finance Facility for Immunisation (IFFIm), would help issue the sukuk. The World Bank has hired Standard Chartered and National Bank of Abu Dhabi to arrange the transaction, which could happen as early as this month although a specific timeframe has yet to be finalised. The size is expected to be between $300 million to $500 million, depending on market conditions. Since 2006, IFFIm has raised $4.5 billion through bonds, its last issuance was a $700 million bond in June of last year.

Rajhi Capital has started the offering period for the Al Rajhi Sukuk Fund. The Sukuk fund is an open ended fund designed to capture the opportunities available within the Shariah-compliant universe of sovereign, quasi-sovereign and corporate Sukuk, issued locally, regionally, as well as globally. The Fund will also invest in other income generating assets, within its mandate comprising of Commodity Murabaha Placements, Islamic Placements, Structured Islamic Products and Commodity Mudaraba Funds. The benchmark of the Fund is 3 month USD LIBOR 75 bps. Al Rajhi Capital is offering a special incentive whereby the subscription fees are waived for all new subscriptions until September 11 2014.

The Indonesian government raised $1.5 billion worth of Islamic bonds on Tuesday, attracting the largest order book ever achieved for a sovereign sukuk from southeast Asia. The 10-year sukuk drew strong investor demand - order books were worth $10.2 billion - helping reduce the yield of sukuk which had originally started in the vicinity of 4.625 percent on Monday, before being trimmed to 4.35 percent. Indonesia's sukuk kickstarts what looks to be a busy month for sovereign issuance, with Luxembourg, Hong Kong and South Africa conducting investor meetings ahead of their respective transactions. Indonesia's sukuk was rated Baa3 by Moody's. CIMB, Emirates NBD Capital, HSBC and Standard Chartered acted as lead managers.

Khazanah Nasional Bhd is considering the issue of Sukuk or Islamic bonds in Eastern Europe following the opening of its office in Istanbul, Turkey, last November. Executive director and chief financial officer Mohd Izani Ghani said the office was established to tap investment opportunities around Turkey, North Africa and Eastern Europe. He, however, said Khazanah was not planning on issuing a foreign currency Sukuk. There is a push for Khazanah to do 'kebab' sukuk but the interest rate environment in Turkey is on the high side and volatile, he added. The lender wants to do sukuk in other currencies that can match the stable environment, currency and interest rates in the country, he said.

Oman is expected to issue 500 million rials ($1.3 billion) worth of conventional and Islamic sovereign debt early next year, and aims to choose the arranging banks in October. Last month, the finance ministry received applications from banks to arrange the issuance, with plans to raise 300 million rials via conventional bonds and 200 million rials with sukuk, said Jamil Al Jaroudi, chief executive of Bank Nizwa. The issuance would be in local currency and would apparently be separate from an international, U.S. dollar-denominated sovereign bond issue which Oman has said it may conduct. It is expected to be in the market in the first quarter of 2015.

Gulf countries will be the engine driving the growth of the global sukuk market, according to a report released on Monday by the Dubai Chamber of Commerce and Industry. The report, which is based on data from the UK Islamic Finance Secretariat (UKIFS) and the Malaysia International Islamic Financial Center (MIFC), expected sukuk to play an important role over the next decade in securing funds for a substantial line-up of new projects in GCC countries, particularly in Dubai. The GCC and Malaysia are the traditional hubs for the issuance of sukuk. But the report sees other countries also playing major roles in the spread of the asset class, with emerging Islamic finance markets such as Tunisia, Mauritania, Senegal and Oman having the potential to become major sukuk hubs in the future, it said.

Sharjah gears up for its first Shariah-compliant bond sale this month. The emirate may price the debt to yield 2.5 percent to 3 percent if it’s a five-year issue. That compares with a yield of about 2.66 percent on non-Islamic notes due 2019 for Dubai, which doesn’t carry a rating. Sharjah’s A3 rating at Moody’s Investors Service, a grade four levels above junk, widens the pool of investors who can buy the debt. Moody’s cited the emirate’s “strong” fiscal and government-debt position, which may appeal to some money managers in Asia and Europe whose fund rules prevent them from holding non-rated or below-investment-grade debt. The emirate will meet investors in the U.A.E., Saudi Arabia, Singapore, Malaysia and the U.K., and will sell a sukuk subject to market conditions.

IdealRatings Inc. has announced the launch of the first ever Sukuk Shariah Screening Solution. The research-based online screening service is designed to serve Islamic investors and treasuries aiming to balance their portfolios with low risk fixed income instruments yet conform to the mandates defined by their Shariah boards. The Sukuk Screening Solution enables investors to screen Sukuk against different Shariah guidelines in the market such as AAOIFI, OIC, Malaysia Securities Commission (SC) as well as defining their own custom composite Shariah guidelines. IdealRatings has also designed and launched a series of Sukuk indexes, to empower the Sukuk service clients with benchmarks essential for Islamic fixed income portfolio management. The Index Family constitutes Five US Dollar indices with different segmentations.

A revival of international bond issues from the Gulf is set to draw heavy demand from local and foreign investors, despite the latest geopolitical upheavals in the Middle East and the approach of higher US interest rates. Gulf bond issuance has dried up since early July, because of a traditional summer lull in local investor activity as well as global market instability due to the crisis in Ukraine. But the vast majority of investors have decided that the geopolitics do not come close to posing any existential threat to the rich Gulf Co-operation Council economies. More than geopolitics, the biggest threat to the Gulf’s primary bond market may be expectations for US interest rates. The currency pegs mean eventual US rate hikes are expected to feed through into official Gulf interest rates quickly.

Kuwait’s Burgan Bank has chosen banks to arrange meetings with investors ahead of a potential issue of a capital-boosting bond. The lender will hold roadshows in Asia, the United Arab Emirates and Europe from Sept. 4, with a bond issue that enhances the bank’s Tier 1 capital ratio to follow, subject to market conditions. Should the US dollar-denominated bond issue happen, it will have a perpetual lifespan and be of benchmark size. Burgan Bank’s chief executive, Eduardo Eguren, said in March that the lender wanted to raise its capital before the end of the year to help it comply with Basel III guidelines, with perpetual bonds a potential route. The investor meetings will be arranged by HSBC as global coordinator and Citi, JPMorgan and National Bank of Abu Dhabi as lead managers.

The South African government plans to raise at least $500 million in its first issue of Islamic bonds, a Treasury official indicated on Thursday. 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. A sukuk issue may follow but the timing will depend on market conditions.

The Securities Commission Malaysia (SC) today launched the Sustainable and Responsible Investment (SRI) Sukuk framework to facilitate the financing of sustainable and responsible investment initiatives. The proposal on the SRI sukuk framework was first announced in the 2014 budget speech.

The launch of the SRI sukuk framework is in line with the initiative set out under the SC’s Capital Market Masterplan 2 to promote socially responsible financing and investment. With the shifts in investor demographics, there are growing concerns over environmental and social impact of business and greater demand for stronger governance and ethics from businesses. The Malaysian capital market is well-positioned to capitalise on these changing trends and facilitate sustainable and responsible investing. ommission Malaysia (SC) today launched the Sustainable and Responsible Investment (SRI) Sukuk framework to facilitate the financing of sustainable and responsible investment initiatives. The proposal on the SRI sukuk framework was first announced in the 2014 budget speech.

Covered bonds are generally backed both by the issuer and by a specific pool of assets. Issuers of covered bonds are generally banks and they typically issue covered bonds at tenors of 5 to 10 years, compared with a norm of 3 to 5 years for unsecured bonds. Covered bonds allow banks to diversify their investor base and reduce their funding risk. From an investor’s perspective, such bonds can be attractive because they are high-quality instruments that offer attractive yields and are often more secure than relying on the credit worthiness of the issuer alone. Covered bonds usually trade at lower yields to corporate debt because of this. From an issuer perspective covered bonds can be a low-cost way to expand the business in preference to issuing unsecured debt instruments.