Turkey’s giant projects to fuel Islamic finance boom

Turkey’s large infrastructure investments may boost the country’s Islamic finance sector which has already been witnessing a boom, the country’s top capital markets officials have said.

“Islamic finance tools may be benefited from in [financing of] in Turkey’s mega projects like bridges, airports, and Kanal Istanbul. These projects are compatible with the Islamic financing structure,” İbrahim Turhan, chairman of Turkey’s stock exchange Borsa Istanbul said yesterday, speaking at the Islamic Finance News Roadshow.

Vahdettin Ertaş, Capital Markets Board (SPK) chairman, also said that they “believed” the private sector’s sukuk, an Islamic compliant bond, export needs would increase due to the large infrastructure investments on the agenda.

Currently, the Treasury’s sukuk exports have outpaced $5 billion, while the private sector has exported more than $1.5 billion.

During the ceremony, Bank Asya said it was planning to export at least 125 million Turkish Liras of additional sukuk before the year ended, while Albaraka Türk said it was mulling exporting over $200 million worth of sukuk within the last quarter or at the beginning of next year. 

In the past 10 years, the non-interest finance sector grew around 15 percent and the number of countries in which financial bodies operating in compliance with Islamic finance rules could be found has surpassed 70, Ertaş stressed. “It’s expected to exceed $1.9 trillion by the end of this year,” he said.

Islamic finance has been sublimated as a safe haven during the financial crisis that sparked skepticism towards interest-oriented finance.

Alternative financing

According to the chief regulator, these Islamic-compliant tools were “not only valuable because they are religious or virtuous,” but they were also “alternative products leaning on a strong financial basis.” 

Non-interest financial tools are accorded a great importance in Turkey’s bid to make Istanbul a global financial center as well. “We see that there is a substantial saving surplus in our neighboring Gulf country friends, and in Asia, and these funds prefer non-interest financial tolls, in which they can invest safely,” Ertaş said. 

BIST Chairman Turhan also announced that they are planning to open a research and development center for the Islamic financing studies, with the support of the Treasury and World Bank. 

In February the government expanded the utilization of Islamic financial tools. It introduced new regulations opening the way for Islamic banks to found non-interest pension funds and most recently enabling them to invest private pension funds in non-interest financial instruments. 

“As of today the investors of these kinds of [non-interest] funds have surpassed 400,000, while the fund amount reached above $175 million,” Ertaş has said during the same event.

(Daily News / 04 Sept 2013)

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Strong Malaysian capital market seen, SC says Malaysia has good fund-raising track record

KUALA LUMPUR: The local capital market is expected to be “reasonably strong” based on the pipeline of capital raising, Securities Commission (SC) chairman Datuk Ranjit Ajit Singh said.

“We are not targeting any specific number but we have said (based on projections) that the capital raising figures for the local (market) are reasonable. However, it would depend on how the market condition would pan out for the rest of the year,” he told reporters after delivering a public lecture on Islamic Wealth Management co-organised by BNP Paribas Malaysia Bhd and the International Centre for Education in Islamic Finance.

He said Malaysia had a fairly successful fund-raising track record for the last few years. Notably, RM146bil was raised from the Malaysian market last year, of which RM124bil was through the bonds market and RM22bil through the equities market.

Ranjit also said the regulator was targetting to position the country as an Islamic wealth management centre, following Malaysia’s success in other areas of Islamic financial services such as Islamic banking, sukuk and takaful.

“Malaysia has a large pool of savings worth some RM1 trillion. The challenge we have is to ensure that some of these pools of savings are intermediated through the capital markets, so that you create scales in terms of those intermediaries to address Malaysians’ needs, and then to position yourself outside,” he said.

One of the strategies was for foreign asset management units to enter the country, he said, adding that the regulator had issued 19 licences to Islamic fund management firms to-date.

He pointed out that such companies got to enjoy tax incentives.

According to Ranjit, of the US$25 trillion (RM82 trillion) worth of mutual funds in the world, the demand for Islamic funds was only US$60bil to US$70bil (RM197bil to RM230bil), which showed that there was still lack of demand for the product, prompting him to urge fund managers to participate in Islamic fund management to create more awareness.

Notably, Malaysia was home to the world’s largest unit trust industry, with 169 Syariah-compliant funds, he said.

Assets under management (AUM) for Islamic funds stood at approximately RM80bil last year, up RM32bil or 66.7% from RM48bil in 2010, he added.

He also said the RM80bil represented about 16% of the total funds industry.

“By 2020, the SC has projected the Islamic fund management industry’s AUM to expand to RM322bil,” he said.

(The Star Online / 05 Sept 2013)

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Malaysia: KL to be Islamic wealth management hub

KUALA LUMPUR (Sept 4, 2013): The Securities Commission (SC) aims to position Malaysia as an Islamic wealth management centre, a target that is highly feasible because of the country's high savings rate.

Chairman Datuk Ranjit Ajit Singh said to this end, steps were being taken to create a certain number of intermediaries in the area.

"This is the effort that we are collectively pursuing now. The strategy is that we are getting some firms to come in," he said at a public lecture today.

The lecture, titled "Positioning Malaysia as an Islamic Wealth Management Marketplace -- A Regulator's Perspective", is organised by BNP Paribas Malaysia Bhd and the International Centre for Education in Islamic Finance.

Ranjit said this in response to a question on how Malaysia could be an Islamic wealth management centre.

As of July 2013, there were 19 licensed Islamic fund management companies in Malaysia, according to the SC's website.

Ranjit said currently, the Islamic fund management companies enjoyed tax incentives.

He said players should look into innovative solutions that could be offered to their clients.

Earlier, in his lecture, Ranjit said Malaysia's assets under management of Islamic funds were expected to hit RM322 billion by 2020 from RM80 billion end-2012.

He said the RM80 billion represented about 16% of total industry assets, thus there was strong demand for the local Islamic funds.

"As a result, Malaysia has emerged as the world's largest sukuk market, accounting for almost 70% of global sukuk outstanding.

"Malaysia is also home to the world's largest unit trust industry with 169 syariah-compliant funds," he said.

Following this, he said, there was a significant scope for Malaysia to continue innovating and expanding the Islamic market place by generating broader approach with regional countries.

(The Sun Daily / 04 Sept 2013)

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Malaysia: Amend Wakaf Laws To Let Firms Manage Corporate Wakaf, Urges DPIM

KUALA LUMPUR, Aug 30 (Bernama) -- The proposed corporate wakaf masterplan announced in Budget 2013 needs to take into account the laws concerning wakaf which are currently under the jurisdiction of state Islamic religious councils, says the Malaysian Islamic Chamber of Commerce (DPIM).

DPIM President Tan Sri Muhammad Ali Hashim said despite increased acceptance by society of corporate wakaf, the involvement of the corporate sector is still limited, probably due to the lack of legal provisions permitting wakaf to be managed by bodies other than the state Islamic religious councils, he told Bernama in a recent interview.

"In the state Islamic religious councils, there are no management experts, corporate figures or economists as most of their members have a religious education background.

"So it is time to open the doors to wakaf and to amend the laws related to it to allow companies, bodies or universities to form and manage this corporate wakaf," he said.

In this matter, he said, the state Islamic religious councils could set down the conditions, especially in ensuring the proposed corporate wakaf follows syariah principles.

"In Johor, it can be done because there are legal provisions allowing the Islamic religious council to authorise the Johor Corporation, for example, to establish a corporate wakaf.

"We hope Islamic religious councils in other states review their existing legal provisions that touch on wakaf affairs, so as to enable other bodies such as corporations, government-linked companies, universities and cooperatives to form a corporate wakaf," he said.

Muhammad Ali said there is as yet no provision in the Administration of Islamic Law (Federal Territories) Act permitting the formation of a corporate wakaf.

The Waqaf An Nur Corporation Bhd set up by Johor Corporation has as of end-2012 collected shares worth RM575.9 million from listed and unlisted companies, clear proof that the private sector can successfully manage corporate wakaf, he said, adding over 50 universities in Turkey have been set up under the wakaf concept.

Since its announcement by Prime Minister Datuk Seri Najib Tun Razak when tabling Budget 2013 last year, there has been no new development as to how the corporate wakaf masterplan is to be implemented.

(Bational News Agency Of Malaysia / 30 Aug 2013)

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Moody's upbeat on Oman's new Islamic banking sector

Oman's new Islamic banking sector is likely to take a 6-8 percent share of the market over the next three to five years, according to a new report by rating agency Moody's.

It said the introduction of the Islamic Banking Regulatory Framework was "credit positive for the local banks", as expansion into Islamic banking has the potential to strengthen their franchises and diversify revenue generation.

The industry, however, will still need to manage various challenges to deliver the anticipated growth, Moody's added.

"We believe that Islamic banking operations in Oman could capture a 6-8 percent share of system assets within the next 3-5 years. This share will stem primarily from the 'conversion' of customers from conventional to Islamic banking services," said Khalid Howladar, senior credit officer and co-author of the report.

Moody's said it based its projections on Oman's solid operating environment, which will increase general credit demand; and the appeal of Islamic banking to a largely Muslim population.

It said the demand for Islamic banking services has been demonstrated clearly in the other Gulf Cooperation Council countries, where Islamic assets currently account for between 15-50 percent of total banking system assets.

However, Moody's added that it anticipates that Islamic Financial Institutions (IFIs) will face sizable costs to establish brand new Islamic banking franchises and constraints in liquidity management given the lack of domestic Islamic instruments.

Moody's said it expects that the IFIs will manage to address these challenges over the medium-term and build solid franchises and diversify revenues through the provision of additional services to customers in Oman and regionally.

"While we expect that competition will intensify as new Islamic banks come into the market, we do not anticipate any substantial changes in the Omani banking landscape," said Elena Panayiotou, co-author of the report.

"The new Islamic windows of the existing conventional banks will be well-positioned to capture a significant share of the Islamic banking market given their ability to leverage their existing customer bases and infrastructure.

(Arabian Business.Com / 31 Aug 2013)

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Sri Lanka can become Islamic Finance hub

Given the geographical location of Sri Lanka, the country has tremendous upside potential to attract Islamic flows from Middle East to Far East, and thereby emerge as a commercial hub in the region, Managing Director and Chief Executive Officer at Amana Bank Limited Faizal Salieh, indicated last week.

Speaking at the Second Islamic Finance news Sri Lanka Roadshow (IFN) organized by the REDmoney Group of Malaysia in collaboration with the Amãna Bank, he further said that the demand for Islamic Financial services is on the rise, locally, where over 25 percent of the clients associated with the foresaid bank, which offers ‘Sharia’ compliant financial products, are non-Muslims.

“As of today, the country has one full-fledged Takaful bank, four banks that have opened Islamic financing windows and four financial institutions that offer Islamic banking instruments. Due to the uniqueness in terms of fairness, asset based approach and refusal to profit from genuine difficulties of people, Islamic finance is becoming increasing popular world over, among Muslim and non-Muslim customers alike,” the Chief expressed.

Despite the rapid development of the, however, Salieh pointed out there were still issues and challenges facing the Islamic Finance sector in Sri Lanka that has to be discussed and deliberated in order to progress further.

“The products offered need to be further developed. For instance, the agricultural sector of the country should be integrated to the Islamic Finance framework. On the other hand, the Central Bank of Sri Lanka could introduce Sharia compliant treasury bills, to enhance investor base of the country and thereby sustain the growth momentum of the country,” Salieh observed.

However, he emphasized that the regulator should communicate with stakeholders attached to the Islamic Finance sector in order to harmonize Sharia compliant products with the Sri Lanka’s economic system. 

Meanwhile, addressing the same forum, Governor of the Central Bank of Sri Lanka Ajith Nivard Cabraal reiterated that Sri Lanka’s banking and economic sectors should welcome fresh features and instruments such as Islamic Finance in order to attain and sustain the eight percent GDP growth target set by the regulator.

“Sri Lanka is one of the fastest growing economies in the region today. In order to retain this momentum, however, the country’s economy is open for new investors - to venture, and lock themselves into positions with Sri Lanka,” Cabraal remarked.

(The Nation / 01 Sep 2013)

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Emirates Mulls Sukuk for $4.5 Billion in Planes: Islamic Finance

Emirates, the world’s biggest airline by international passenger traffic, is considering the sale of Islamic bonds as it seeks to raise $4.5 billion in the financial year starting April 2014 to pay for planes.

The Dubai-based carrier will need an average of $5.34 billion a year over the next five years, including 2013, to finance 119 aircraft deliveries, Brian Jeffery, senior vice president for corporate treasury, said in an interview at the airline’s headquarters, which overlook Dubai International Airport. Among financing options the company could tap the sukuk or non-Shariah-compliant bond market early next year, he said.

Emirates last sold $1 billion of Islamic bonds in March, before speculation that the U.S. Federal Reserve will reduce its bond purchasing program prompted an emerging-market debt selloff and sent yields higher. The state-owned airline is undergoing a period of rapid growth as its home base Dubai recovers from the 2008 global financial crisis. Passenger traffic through Dubai airport jumped 17 percent in the first half to 32.6 million and hotel occupancy reached 84.6 percent.

The debt market is currently volatile, “and that is not ideal for us, but volatility has not stopped us from issuing bonds in the past,” Jeffery said last week. “I’m pretty confident that, given the brand and the credit story of Emirates, sufficient funding will be available.”

Yields Rise

Average yields on global corporate sukuk have risen 46 basis points to 4.62 percent since the Fed said June 19 it might taper its asset-purchase program as early as this year, according to the HSBC/Nasdaq Dubai Corporate US Dollar Sukuk Index. The yield on Emirates’ $1 billion sukuk, which carries a 3.875 percent profit rate, increased 40 basis points, or 0.4 of a percentage point, in the period to 5.1 percent at 4:03 p.m. in Dubai. The so-called amortizing notes have a final maturity date of March 2023 and a weighted average life of five years.

Emirates’ decision on whether to sell bonds will depend “on pricing and an acceptable structure,” Jeffery said. Other options for funding are commercial debt, operating leases and export credits, which are typically restricted to 20 percent of the deliveries, he said.

Cash raised for next year will finance the delivery of 21 aircraft including 10 Airbus SAS A380s, nine Boeing Co. 777-300 ER and two Boeing 777 freighters, Jeffery said.

Emirates is established as a major global carrier, serving 134 destinations in 76 countries. Its fleet of Airbus A380 double-deckers has turned Dubai into an international aviation crossroads, stripping business from veteran carriers such as Air France-KLM Group and Deutsche Lufthansa AG of Germany.

Keeping ‘Awake’

Emirates, which begins its fiscal year on April 1, needed $5.5 billion this year to finance 25 aircraft deliveries, Jeffery said. Of this, it raised $2.9 billion from an enhanced equipment trust certificate issued in June 2013 through Doric, vanilla finance leases and export credits, and pure operating leases for two freighter aircraft. It also issued $750 million in non-Shariah compliant bonds in January.

Of the 25 aircraft, financing for 21 has been arranged. Emirates is now evaluating offers for the remaining four aircraft for U.S. and European export credits, Jeffery said.

“The availability of funding generally, and the factors that influence that, are what keep me awake,” said Jeffery. “If the banks are having their own problems or the bond markets collapse that will affect us.”

IPO

Net income at Emirates soared 34 percent to 3.1 billion dirhams ($845 million) in the last fiscal year. The same year presented the company with its “real test” as it received 35 aircraft and had to raise $7 billion, Jeffery said. On average the airline takes delivery of 24 planes a year.

The carrier’s ability to raise funds proves it has no need for a credit rating, Jeffery said. Emirates boasts a fleet of 201 aircraft and has 192 on order worth more than $71 billion at list prices, according to the airline’s fact sheet.

Jeffery said he is “not too concerned” that runway repairs at Dubai International Airport starting May 2014 would affect the airline’s financing capabilities, and said it is being dealt with at “the commercial and operational level.”

Meanwhile Emirates has no plans for an IPO, as far as Jeffery is aware. The decision rests with the Dubai government, the airline’s owners, he said.

(Bloomberg / 28 Aug 2013)

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