IslamicFinance.de

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.

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 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.

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.

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.

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, 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.

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.

The EIIB-Rasmala has closed the second tranche of FWU Group’s US$100 million sukuk al-wakala programme. The second tranche of the programme has closed for US$40 million. The former is acting as the lead arranger and bookrunner for FWU’s sukuk al-wakala programme. The FWU sukuk has been assigned the investment grade credit rating BBB- by Fitch and is being issued in amortizing tranches, each with a term of five years. The first tranche of the programme previously closed for US$20 million in October 2013. Distributions are made quarterly to investors on a fully amortizing basis and the profit rate is 7% per annum. The sukuk will fund, in a fully Sharia’a-compliant manner, a set of retakaful transactions for one of FWU’s five main subsidiaries, Atlanticlux.

There are several sukuk issuances in the pipeline, among others the following: The Malaysian government will raise 2.6 billion ringgit ($797 million) via Islamic bonds on April 7 to finance new and existing housing loans held by government servants. The Tunisian government plans to issue sukuk worth "a few hundred million dollars" this year. Maybank Islamic will set up a 10 billion ringgit subordinated sukuk programme. Bahrain-based Gulf Finance House plans to issue convertible sukuk worth up to $500 million to restructure liabilities, develop projects and fund possible acquisitions, subject to shareholder and regulatory approval. A proposed bill in Luxembourg would allow securitisation of three properties for a sovereign sukuk issue worth 200 million euros ($275 million).

Etiqa Takaful Bhd, Malaysia's largest Islamic insurance provider and a unit of Malayan Banking Bhd, will issue a sukuk to raise 300 million Malaysian ringgit ($91.39 million). Etiqa is supported by a strong liquidity position although its family takaful business has seen poor growth due to unattractive pricing and a limited portfolio.

Costs of issuing Islamic bonds in Asia are still significantly higher than the costs of issuing conventional bonds, a study by the Asian Development Bank found. In Indonesia, profit rates for sukuk issued by the government are on average 86 basis points higher than comparable conventional government bonds. In Malaysia profit rates for sukuk are on average 8 bps higher. However, lack of familiarity with complex sukuk structures can translate into higher advisory fees for prospective issuers, while investors demand higher yields because of limited trading activity in secondary markets for sukuk. The average gap between issuance costs for sukuk and conventional bonds in the Gulf is believed to be very small or non-existent - and in some cases, it has even proved cheaper to issue sukuk.

Cagamas, the Malaysian mortgage corporation, has issued RM500 million three-month Islamic commercial papers (ICPs), its first ICP for the year. Proceeds from the murabahah ICPs will be used to fund the purchase of Islamic financing from the financial system. Investors' preference for high grade issues and short duration investment strategy results in strong demand for the company's three-month ICPs particularly from financial institutions with a bid to cover ratio of over 2.4 times and competitively priced at three-month KLIBOR. The ICPs, which will be redeemed at their full nominal value on maturity, will be listed and tradable under the Scripless Securities Trading System.

Several borrowers plan to offer sukuk such as the Saudi Electricity Co. which has already started to arrange investor meetings. The Malaysian construction company IJM Corp plans to sell up to 3 billion ringgit ($910 million) of Islamic bonds. Moreover, the Omani Bank Muscat plans to set up a 500-million rial ($1.3 billion) sukuk program and sell up to 1 billion rials of Shariah-compliant debt in Saudi Arabia. Besides, Malaysia’s Maybank Islamic has reportedly set up a 10 billion ringgit Basel III sukuk program. On the other hand, U.A.E.’s First Gulf Banks planned 3.5 billion ringgit sukuk program was assigned a AAA rating by RAM Rating Services. Furthermore, the governments of Oman and Pakistan are considering selling sukuk this year, among others.

Bahrain-based Gulf Finance House will seek shareholder approval later this month for a potential reduction in share capital and to issue a convertible sukuk of up to $500 million to restructure debt and fund new projects. Under the proposal, GFH will reduce the nominal value of its shares by 13.8 percent to $0.265 per share from $0.3075, according to a notice on GFH's website. As a result, paid-up capital will be cut to $837 million from $972 million. GFH also aims to issue convertible sukuk worth up to $500 million to restructure current liabilities, develop projects and fund possible future acquisitions, subject to shareholder and regulatory approval. No timeframe was indicated for the potential offering. The proposals will be discussed during its annual general meeting on March 31.

Indonesia’s central bank hopes to attract a local bank to sign up as primary dealer for short-term sukuk issued by the International Islamic Liquidity Management Corp (IILM). Bank Indonesia is one of 10 shareholders in the Malaysia-based institution, but it still lacks a local dealer bank for IILM sukuk. IILM sukuk just got issued recently, with limited outstanding, its illiquid and does not have secondary market. Hence, IILM sukuk is not yet well known by Indonesia-based primary dealers. A domestic primary dealer could help address this problem, even though other dealer banks have an indirect presence in the country, such as CIMB Islamic, Maybank Islamic and Standard Chartered Bank. Moreover, it could help the central bank justify its $5 million shareholding in the IILM.

Qatari Islamic bonds are poised to rebound from their steepest weekly drop since November as investors bet issuers' credit strength will resist the country's spat with its neighbours. The yield on Qatari government sukuk due in January 2023 jumped six basis points last week to 3.27 per cent after the United Arab Emirates, Saudi Arabia and Bahrain withdrew their ambassadors. The three neighbours of Qatar, keen to maintain stability in the wake of the so-called Arab Spring, are critical of the gas-rich nation's support for Egypt's Muslim Brotherhood. The ability of issuers to make all payments is not expected to be affected. Although the longer this goes on, the more likely it will have an impact on pricing of new issuance.

Like all financial services, Islamic finance needs an appropriate supervisory framework and legislation is often the first step towards opening a new market. Financial institutions also need to ensure they have sufficient shariah expertise and advice to develop appropriate products. Three factors are driving the market’s growth. First, it is becoming part of normal retail and corporate banking in core Islamic countries, such as Saudi Arabia. Second, its growth appeals to other markets, particularly in the Muslim world. The third driver is innovation. In the end, greater availability of sukuk offers more choice to companies and investors and allows issuers to offer products tailored to specific needs.

Indonesia's finance ministry sold Rp 19.3 trillion ($1.7 billion) of the three-year Islamic bonds to households, exceeding its Rp 18.5 trillion goal. That came after two of its three Shariah-compliant debt auctions this year failed to meet their targets. The yield on the non-retail 10.25 percent sukuk due 2025 slid 29 basis points this week to 8.61 percent, the lowest since November. Indonesia is targeting Rp 57 trillion of Islamic bond sales this year and wants to sell most of that this half before a presidential vote in July. The next offer is scheduled for March 11.

The UK’s maiden sovereign sukuk issue was announced with considerable fanfare in October, and appears to be making progress. But the UK Treasury is not in a rush, and market participants are beginning to wonder why there is a delay. The sukuk will now reportedly take place in the "next financial year" – that is, no earlier than April 5, and potentially not even this year. Sajid Javid, MP, the financial secretary to the Treasury, said that it is very important that the UK has looked at everything in fine detail before issuing its first sukuk. Javid also confirmed that, for the moment, the UK only intends to issue one sukuk. This is a one-off issuance, not a long-term programme, and its main purpose is not financing for the government, but to develop the UK as a financial centre.