IslamicFinance.de

Regulators in Jordan have introduced a set of long-awaited rules covering the structuring, issuance and trading of sukuk. Jordan is one of several Muslim-majority countries keen to develop their domestic Islamic finance sector and the government is studying a proposal to issue a sovereign sukuk, mirroring efforts by Egypt and Tunisia. The Kingdom has an established Islamic banking sector but sukuk have been slow to appear. Local company Al-Rajhi Cement has thus far been the only one to issue a sukuk, an 85 million dinar deal in 2011. Lawmakers passed legislation in 2012 allowing the government to issue sukuk but the sector has been held back by, among other things, legal limitations on the transfer of assets required to underpin such transactions.

Saudi Arabia’s plan to open its $531 billion stock market to foreigners is prompting analysts’ speculation that Islamic bonds will be next. Saudi Arabia capital market authority said last week that the stock-market change would take place in the first half (H1) of next year. The move may lead to the country’s inclusion in MSCI indexes, which are used to measure performance by money managers with an estimated $9 trillion of assets. Opening the local-currency sukuk market would give foreign investors access to companies that sold 42 billion riyals ($11.2bn) through a dozen sales in the past year. However, access to the kingdom’s debt market may appeal more to investors wanting to broaden their exposure than to those seeking yield.

Standard Chartered Saadiq expects 2014 to be good for the Malaysian sukuk industry, driven by the strength of the economy. Chief Executive Officer and Global Head, Consumer Banking, Standard Chartered Saadiq, Wasim Saifi, said the bank is already in discussions with several customers in looking at setting up specific sukuk issuances. Despite expectations of a further hike in Malaysia’s key interest rate, he said it would not hold back issuances, as borrowers are unlikely to defer raising money even if the cost of doing so goes up. Malaysia’s Overnight Policy Rate (OPR) was raised by 25 basis points to 3.25 per cent on July 10, the first increase for the past three years.

Brunei Darussalam’s only Islamic bank hopes oil industry investment will help stoke a sukuk market now dominated by government issuance of short-term Shariah-compliant bills. Bank Islam Brunei Darussalam is seeking to arrange as much as B$2 billion ($1.6 billion) of corporate debt in the next 12 months as companies seek to fund projects aimed at boosting crude oil output. Islamic banking assets total about $6.8 billion in the Southeast Asian sultanate, which funds investment largely with its oil wealth. Bank Islam currently supplies Shariah-compliant loans and a global corporate sukuk it was underwriting two years ago never came to fruition.While Brunei’s corporate sukuk has been in a lull, the formation of a central bank is a positive development for the market.

Jordan's Prime Minister Abdullah Ensour on Thursday acted as patron at a ceremony to launch a historic piece of legislation regulating the Islamic sukuk. The prime minister described the Islamic Sukuk Law as a milestone in Jordan's financial and economic history, noting that launching these items of legislation is the final step in building the pillars of finance compatible with Sharia. He also noted that the government will use sukuk to finance its productive projects, especially those in partnership with the private sector. The Jordan Securities Commission (JSC), Amman Stock Exchange (ASE) and the Securities Depository Centre are now ready to receive orders for issuing sukuk for the public and private sectors.

Saudi Arabia’s plan to open its $531 billion stock market to foreigners is prompting speculation that Islamic bonds will be next. The government’s approval of overseas financial institutions to trade equities may herald a similar relaxation of rules in the local-currency primary debt market. Opening the local-currency sukuk market would give foreign investors access to companies that sold 42 billion riyals ($11.2 billion) through a dozen sales in the past year. That’s more than three times the amount of dollar Islamic bond sales, which are open to overseas buyers. However, access to the kingdom’s debt market may appeal more to investors wanting to broaden their exposure than to those seeking yield since lots of Saudi debt prices very tightly.

Islamic Development Bank (IDB) issued $1 billion in five-year Islamic bonds, or sukuk, earlier this month, the largest ever privately-placed transaction from the supranational institution. The sukuk was priced on July 17 and carried a 1.8118 percent coupon at issue, underwritten by the IDB itself. The deal follows a $100 million three-year private placement in April and a $1.5 billion five-year sukuk in February, the largest ever public issuance from the multilateral lender. IDB usually prints one public transaction a year, with plans to issue a benchmark-sized - around $500 million - sukuk around May of next year.

Turkish lender Turkiye Finans Katilim Bankasi has raised 800 million ringgit ($252.21 million; Dh922.5 million) from an Islamic bond in Malaysia, its first issuance from a 3 billion ringgit programme announced last month. The issuance by Turkiye Finans, in which Saudi Arabia’s National Commercial Bank is the largest shareholder, is the first ringgit-sukuk done in Malaysia by a Turkish issuer. Proceeds from the five-year sukuk will fund general corporate purposes and working capital requirements, according to HSBC Amanah Malaysia Bhd. HSBC Amanah and Standard Chartered Saadiq Bhd are jointly advising the Turkish bank.

Malaysia-based International Islamic Liquidity Management Corp (IILM) has reissued $860 million of its three-month Islamic bond. The three-month sukuk, rated A-1 by Standard and Poor's, was priced at a yield of 0.52 percent. The issuance was fully subscribed by nine banks acting as primary dealers, including Abu Dhabi Islamic Bank, CIMB and Maybank. IILM last went to the market in May to re-issue $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. Shareholders of the IILM are the central banks of Indonesia, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Turkey and the United Arab Emirates, as well as the Jeddah-based Islamic Development Bank.

On 9 July 2014, the Luxembourg Parliament approved draft law 6631 on a sale and buy-back transaction of real estate assets necessary to issue an Islamic finance bond. By obtaining parliamentary approval, the Ministry of Finance has now paved the way to the issuance of the Sukuk transaction, marking a milestone in the development of Islamic finance in the Grand-Duchy of Luxembourg. This approval in Parliament underlines the political will to diversify and develop alternative markets within the financial services industry, according to a statement of the Luxembourg Ministry of Finance.

Commercial Bank of Kuwait has received regulatory approval to issue up to 120 million dinars ($425.8 million) of bonds, as it prepares to convert into an Islamic bank. In April, CBK shareholders approved both the issuance of the subordinated bonds and plans to convert the lender into a full-fledged Islamic bank. The bonds will comply with Basel-III rules. While CBK said its conversion would not be immediate, it would leave Kuwait with only four local conventional banks and could help tip the Islamic banking industry’s market share above an estimated 40 per cent. CBK is not the first to convert into an Islamic bank, with Boubyan and Al Ahli having done so previously.

The Tunisian government is studying the possibility to present cash collateral highways, for the issue of Islamic sukuk so as to mobilise funding from 180 to 300 MTD in 2014, according to Minister of Economy and Finance Hakim Ben Hammouda. The Minister underlined the difficulties on the level of issuing sukuk because of the obligation to present cash collateral. He specified during a hearing session devoted to the examination of the complementary finance law for 2014, that negotiation with the Islamic Development Bank reached an advanced stage.

Sukuk issuance in the first quarter of 2014 prompted relatively significant concern as issuance volumes showed no signs of rebounding from a weak 2013. However, the second quarter provided a boost heading into Ramadan with issuance sitting at $66.3 billion. Despite a decline in the number of sukuk issued from 383 to 330, issuance volume rose 14% compared to the same period last year as issuers boosted the size of their sukuk while also lengthening the average tenor. The issuance volume growth is significant but there is a greater need for more tradable instruments because there are no other sources in some of the largest markets.

The autumn sukuk pipeline already looks likely to include the first Turkish corporate sukuk from Dogus Group, as well as sovereign issues from Hong Kong, Indonesia, Luxembourg, Pakistan, Sharjah, Tunisia and Turkey. September is typically seen as the earliest that borrowers can expect to find a receptive Gulf investor base. But this year there are good reasons for breaking with tradition, particularly for borrowers who are more novel than others. Ramadan will have finished by the end of July and those borrowers who are not largely dependent on the GCC can steal a lead on the pack. There is good sense in being ahead of the queue since markets can turn. A bad secondary performance by any one deal can quickly dampen appetite for those that follow. Moreover, the proximity of other borrowers can also force compromises.

Sharjah, the third-biggest sheikhdom in the United Arab Emirates, is getting bigger in Shariah finance. The emirate has reportedly approached banks about a debut sukuk sale. Moody’s Investors Service last week gave state-backed Sharjah Islamic Bank PJSC an A3 rating, citing its strong capital buffers. While Moody’s said that Sharjah’s economic growth this year is expected to be only 0.5 percent, the ratings company also pointed to the government’s low levels of debt and strong finances. Sharjah’s economy is well-diversified, with strong manufacturing and a more affordable cost of conducting business than in Dubai or Abu Dhabi.

Emirates NBD has announced that its Investment Bank is ranked as the leading arranger of US dollar denominated sukuk globally. According to league tables published by Bloomberg, from January 2014 to June 2014, Emirates NBD Investment Bank arranged 10 dollar sukuk issuances aggregating to $5.4 billion, which is the highest number of dollar denominated sukuk issuances led by any arranger during this period. This achievement is the latest in a series of recognitions for Emirates NBD Investment Bank, which has also recently been named the “Best Regional Bank of the Year” by IFR Middle East (Thomson Reuters) and “Best Debt House” by EMEA Finance.

AlKhair Capital Dubai has successfully managed the last listing of Sukuk by the Saudi property developer Dar Al Arkan Real Estate & Development Company. AlKhair Capital Dubai was the financial advisor for the Sukuk listings program on Nasdaq Dubai, with a total value of $1.15 billion. The Sukuk program, in US dollars, included a $400 million, listing - the third tranche which was issued last month and orders opened on May 20, 2014. The value of the orders was 2.3 oversubscribed the size of the tranche exporters. The third tranche was issued for five years and will mature on May 28, 2019 at a coupon rate of 6.50%.

Euroclear UK and Ireland (EUI) is to bring to the market the first UK Soverign Sukuk bond. The £200 million Sukuk bond will primarily be issued in Brussels-based Euroclear and will settle in EUI and Euro Bank from 2 July. EUI is to provide an issuance, settlement and safekeeping service for this premier UK government Sukuk bond. UI already holds £1.3 trillion worth of gilts on behalf of clients. Euroclear Bank has a strong history of providing post-trade expertise in sharia compliant debt – last year Euroclear Bank partnered with Borse Dubai to support asset servicing for clients purchasing bonds on NASDAQ Dubai’s Sukuk trading platform.

The Islamic Corporation for the Development of the Private Sector (ICD) hopes to advise on the mandate for Pakistan's $1 billion Islamic bond. ICD and Karachi-based Burj Bank, 33.9 per cent owned by ICD, have applied to be advisers on the sovereign deal, meeting Pakistan's finance ministry earlier this week. A ministry statement also said that it would review the applications starting next week. The ICD has further initiatives in the pipeline. Among others, ICD signed separate agreements to help develop Islamic leasing businesses in Malaysia and Uzbekistan, as well as extending $5 million in financing to support SME lending in the former soviet state.

In his Keynote Address at the 2014 London Sukuk Summit on 18 June, Jaseem Ahmed, Secretary-General, Islamic Financial Services Board, noted that the high growth rate of the Islamic finance industry has led to the emergence of Islamic finance sectors that have attained systemic importance in a number of key economies in Asia and the wider Gulf and Middle East. The second aspect of the global IF industry he highlighted is that rapid growth of Islamic finance is taking place in a group of nations that display wide variation in their market, institutional and policy and regulatory development. The IFSB Secretary General noted that the key priority is to find the resources and organisational modes and partnerships that help committed jurisdictions to meet the challenges they face, and wish for assistance in addressing.