IslamicFinance.de

Since the IMF deal might fail, Plan B could be the issuance of US$-denominated sukuk certificates to local Banks in turn for EGPC rights in upcoming oil/gas fields. This will be akin to monetizing production sharing rights owned by EGPC. This alternative will still require aggressive reduction in energy subsidies to ensure repayment of sukuk liabilities as they come due. The two prerequisites of Plan B success are 1) stability in the movement of FC customer deposits and 2) execution of energy sector reforms . Both actors ultimately hinge on political reconciliation.

Bankers have long past expressed their disappointment in the seeming inability of the International Islamic Liquidity Management Corporation (IILM) to issue its debut sukuk. After much speculation and expectation about a debut sukuk launch last April 6, IILM will eventually issue the Islamic bond in the third quarter of 2013 – a $500 million issuance. However, the Saudi Arabian Monetary Agency (SAMA) abruptly divested the IILM’s equity subscription last Friday. But what impact the Kingdom’s departure will have on the future of the IILM remains unclear. IILM also signed signed a Memorandum of Understanding (MoU) with the Asian Development Bank (ADB) in Doha on Saturday to strengthen cooperation between the two organizations.

Sharjah Islamic Bank (SIB) will issue a $500 million five-year sukuk on Tuesday after strong demand helped the lender to set price guidance at lower end of initial indications. Lead arrangers released official price guidance at 3.125 percent. The sukuk has attracted strong demand, with order books seen over $2 billion at the time official guidance was released. The deal size has been capped at $500 million. Abu Dhabi's Al Hilal Bank, HSBC Holdings, Kuwait's Liquidity Management House, a unit of KFH and Standard Chartered Plc are mandated lead arrangers on the sukuk.

President Mohamed Morsi has referred a controversial draft law on Islamic sukuk bonds to Al-Azhar for approval. The Shura Council approved the sukuk bond law last week, stating that it would not refer the bill to Al-Azhar for approval and sending it direct to president Morsi. The law allows the state and its related entities to issue Sharia-compliant debt both locally and internationally. The Ministry of Finance expects the first sukuk issue to take place within a couple of months and to yield $1 billion by June.

Bahrain-based Islamic investment bank, Gulf Finance House (GFH) has secured approvals from 32 syndicates for the restructuring of WestLB Murabaha facility. GFH also obtained approval from its sukuk holders to restructure its outstanding debt amounting to $105m. All debts are expected to mature in 2018 and provide a two-year grace period for the principal repayment amount.

Kuala Lumpur-based International Islamic Liquidity Management Corporation (IILM) announced its inaugural short-term sukuk programme aimed at addressing liquidity challenges faced by Institutions that offer Islamic Financial Services. The launch of the programme is pursuant to the granting of an A-1 public rating by Standard & Poor’s Rating Services. The completion of this phase of the programme paves the way for the issuance of the IILM inaugural sukuk which is expected to take place in the second quarter 2013. The sukuk programme will be the first Shariah-compliant US dollar denominated financial instrument in the market to be issued at maturities of up to one year.

Tunisia's government is working alongside the Islamic Development Bank to pave the way for a 1bn dinar ($700m) sukuk sale scheduled for later this year. According to finance minister Elyes Fakhfakh, it would set a benchmark for companies seeking to tap the Islamic debt markets. He said the government would target 80 per cent external investors and 20 per cent domestic. However, the lost of the investment-grade rating, slow economic growth and bank liquidity concerns may put investors off the government’s sukuk. The country is also seeking a $1.7bn loan from the International Monetary Fund to help stabilise the economy and plans to issue US government-backed bonds.

Several airlines have indicated that they are exploring the possibilities of financing new fleet acquisitions and expansion through the issuance of sukuk or other suitable Shariah-compliant financing instruments. Bankers in the UAE and Malaysia stress that sukuk are ideal for the airline and aviation industry because of the match between the long-term nature of the assets with a regular income stream from passenger traffic. However, aviation finance industry experts emphasize that sukuk is not necessarily a better option, it is simply a different option to find a source of financing.

Oman's market regulator has given its initial approval for two local firms to issue sukuk. The Islamic bonds will hit the market after clearing the formalities for final approval, said the chief executive of the Capital Market Authority, Abdullah bin Salim al Salmi, without revealing the names of the companies.

Some analysts see the ambition of overtaking London as the world capital of the sukuk business, as a challenge for Dubai's initiative to become the capital of the global Islamic economy. Mohieddine Kronfol, the chief investment officer for global sukuk and fixed income business for Franklin Templeton, thinks Dubai can establish itself in a leadership position in the long-term. Kronfol believes Dubai and the region need to be more mature in their overall approach to finance if they are to lead the Islamic economy. He cites the lack of a pension fund industry, the relative immaturity of the insurance and asset management businesses as examples of lack of financial depth.

Barwa Bank expects its sukuk trading platform to become full-fledged by the year-end. Moreover, it sees the market as very competitive and lucrative with a great potential, according to chief investment officer Bashar Jallad. He said Barwa Bank was active in both the primary and secondary sukuk markets and started to act as a custodian for some of the clients. Barwa Bank’s sukuk trading platform is already functional but has not reached the optimum level, Jallad added. A focus area for the bank is relationship management.

The sukuk market had its eyes opened to an expansive new landscape this week, as Saudi Electricity Company defied the doubters to bring the first ever benchmark dollar 30 year tranche, writes Dan Alderson.

Insurance Australia Group (IAG) is growing in Asia, but also interested in Australia. Its chief executive Mike Wilkins recommended Australia pull down tax barriers in order to encourage Islamic finance. The federal government is yet to respond to a subsequent Board of Taxation review. Indonesia is also a target market for IAG. In order to fund its takaful liabilities, IAG would need to invest the cash flows received from policyholders into sharia-compliant products such as sukuk. At present however, because sukuk is based on several transfers of assets into and out of an SPV, the cost of issuance os well above a conventional bond.

Malaysia is dominating global sales of sukuk in 2013 and Standard & Poor’s forecasts the trend will continue this year. Issuance in the Southeast Asian currency may account for more than 74 per cent of worldwide offerings, compared with 49 per cent in 2008. Global sales of Shariah-compliant notes, including government securities, may exceed US$100 billion in 2013 after rising 64 per cent to US$138 billion last year. Malaysia’s Islamic banking assets climbed 14 per cent last year to a record RM494.6 billion. Moreover, Shariah insurers, or takaful operators, saw assets rise 12 per cent to RM19 billion.

Turkey's Bank Asya has raised USD250m through a 10-year non-call five subordinated Islamic bond. The notes priced at par to yield 7.5%, in line with initial price thoughts of mid-seven percent. The issue carries a Ba3 rating by Moody's, one notch lower than Bank Asya's senior unsecured rating of Ba2. Bank of America Merrill Lynch, Emirates NBD, HSBC and National Bank of Abu Dhabi are joint lead managers on the Reg S transaction.

Panelists at the 2nd Annual PPP Investment Summit called the new sukuk law ‘quantum leap’ towards introducing Sharia-compliant products to the Egyptian market. It was confirmed at the Summit that seventeen upcoming Public Private Partnership (PPP) projects will be financed using sukuk. The Ministry of Finance is considering using sukuk to finance a number of PPP projects including silos projects, developing roads, and the Ain Shams -10th of Ramadan city train line in order to link the industrial sites along the way. However, panelists explained that infrastructure projects require more than one method of financing and that there are various Islamic financing methods available.

Turkish Islamic bank Turkiye Finans is in the final stage of preparing a sukuk issue which is planned to have a volume of around 100 million lira ($55 million). The bank, majority owned by Saudi Arabia's National Commercial Bank, could make the issue within several weeks if market conditions are right. Is Investment is mandated for the issue.

Strong investor demand supported by improving liquidity is expected to boost both issuance and performance of sukuk this year. Global issuance expanded for the fourth year in a row in 2012, growing 64 per cent to about $138 billion. While sukuk is still considered an alternative investment, it is believed to have the potential to grow, especially due to funding needs and large infrastructure investments in Malaysia and the GCC.

Saudi Electricity Co has chosen Deutsche Bank and HSBC Holdings to schedule meetings with fixed income investors from Europe and North America for possible debt agreements. The meetings would be considered as road shows, with the first to be held on March 19 in Los Angeles, CA and would end in London, UK by March 25 of this year. After these road shows, a dollar denominated bond issue would then follow depending on market conditions.

Al Hilal Bank plans to issue a debut Islamic bond worth $500 million in the third quarter of this year, according to its chief executive Mohamed Berro. The bank aims to fund growth, diversify its balance sheet, and benchmark the bank in on the debt market. Al Hilal Bank mandated National Bank of Abu Dhabi, HSBC and Standard Chartered Bank for the issue. Furthermore, the bank expects to obtain a credit rating in the coming two or three months.