Top Sukuk Manager Sees New Issuers Aiding Sales: Islamic Finance

Debut Islamic bonds from governments and companies seeking to cut financing costs will drive sukuk sales next year, according to HSBC Holdings Plc (HSBA), with issuance probably rebounding to a record.

Growth will be boosted as borrowers follow governments from Dubai to Malaysia, which are seeking to promote Shariah-compliant bonds and become centers for Islamic finance, said Mohammed Dawood, global head of sukuk financing at HSBC, the bank that managed the most sukuk sales in 2013. The London-based lender is also working to introduce new instruments to help the securities compete with conventional bonds, he said by phone Dec. 22.

Islamic bond sales fell 9.5 percent in 2013 to $42 billion after reaching a record $46.4 billion last year, according to data compiled by Bloomberg, in a market dominated by repeat borrowers. About $60 billion of sukuk will be sold in 2014, primarily by Malaysia and the Gulf countries, Moody’s Investors Service said in a report last month.

“In 2014, we will see a shift to new issuers,” Dawood said from Dubai. “We will see a lot more coming out of Asia and a lot more issuance from outside of the traditional markets.”

Financial centers around the world have announced plans to sell Islamic bonds as part of efforts to grab a greater share of an industry whose assets will more than double to $2.7 trillion by 2017, according toPricewaterhouseCoopers LLP. Hong Kong, the world’s fifth-largest currency-trading center, said in November it will offer a debut sukuk to spur capital markets. In October, U.K. Prime Minister David Cameron said the country planned to sell Islamic notes.

Maturing Debt

“You have more debt maturities in 2014, especially in Dubai, so this will drive issuance,” Montasser Khelifi, a Dubai-based senior manager for global markets at Quantum Investment Bank Ltd., said by e-mail yesterday.

Issuers in the Gulf Cooperation Council have about $32 billion of bonds and syndicated loans maturing next year, according to data compiled by Bloomberg. Among the debt is a $500-million note from Dubai due in November while Abu Dhabi’s Tourism Development & Investment Co., which is building museums in the U.A.E. capital, has to pay a $1 billion bond in July.

Dubai, one of seven sheikhdoms that make up the United Arab Emirates, said this year it’s seeking to become the capital of the global Islamic economy.

Greater Awareness

“The announcements that we have seen from the likes of Dubai and the region have really given the product a lot more awareness, particularly among international markets,” Dawood said. “That has led to a whole series of enquiries and interest from countries, from issuers who otherwise would be not so obvious targets for sukuk issuance.”

HSBC has helped manage 110 sales this year, giving it a 17 percent share of the global sukuk market, according to data compiled by Bloomberg. Kuala Lumpur’s CIMB Group Holdings Bhd (CIMB) and Malayan Banking Bhd (MAY), which mainly deal with sales in Malaysia, the largest sukuk market, were the second- and third-biggest, respectively. HSBC was a manager of the 15.2 billion riyals ($4.06 billion) issue of Saudi Arabia’s General Authority of Civil Aviation in September in the biggest sale of such securities this year, according to data compiled by Bloomberg.

“In 2014 you will see continued development toward new instruments,” Dawood said. We are “looking at what is available on the conventional product offering, looking to see how that can be structured for the Islamic market” such as the perpetual sukuk, he said.

Growing Popularity

Perpetual sukuk, which don’t mature, have grown in popularity since the first such issue in dollars by Abu Dhabi Islamic Bank PJSC in November 2012. Four perpetual sukuk have since been sold in the GCC as companies have used them to shore up capital without hurting their creditworthiness since the instruments are treated as equity on the balance sheet.

Within the six-nation GCC, which includes the two biggest Arab economies of Saudi Arabia and the United Arab Emirates, $21.1 billion of sukuk have been sold this year, about the same as in 2012, data compiled by Bloomberg show.

Sukuk are designed to comply with Shariah law’s ban on interest. The average yield on the Islamic bonds sold by GCC issuers was at 3.77 percent yesterday, according to HSBC/NASDAQ Dubai indexes. That compares with an average yield of 4.17 percent on non-Shariah-compliant bonds for council issuers, according to the data.

Possible volatility in global interest rates caused by a cut in monetary stimulus by the U.S. may influence the timing of new issues, although the pool of Islamic liquidity remains “very strong,” Dawood said. It may also push issuers to use local currencies such as the Malaysian ringgit or the Saudi riyal, he said.

(Bloomberg News / 25 Dec 2013)

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Islamic finance has taken the stage in 2013

It was the year that the Islamic economy moved from vague conceptual status, an item on Dubai’s “wish list”, to being a central part of the UAE’s economic strategy.

The tone was set early on, in January, when Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, set out the emirate’s aim to become the hub of global Sharia-compliant business within five years.

It was an ambitious plan. Dubai is already a leading financial centre for the issue of sukuk (Sharia-compliant bonds) but Sheikh Mohammed’s vision went far wider than just the sukuk market.

Sami Al Qamzi, the director general of the Dubai Department of Economic Development and one of the lieutenants entrusted with implementing the Ruler’s strategy, said the aim of the initiative was to create a global capital of Islamic industry, economy and finance.

“The plans to create an Islamic economic centre will provide access to a global market for Islamic products valued at more than US$2 trillion.”

Halal food production, pharmaceuticals and cosmetics, tourism and travel, and all other aspects of Islamic lifestyle were included in the plan, as well as the essential infrastructure of standardisation and certification of halal products.

Although nobody doubts the potential market provided by the world’s 1.3 billion Muslims, it is widely spread both geographically and sectorally. Dubai’s strategy was the first time one country had set out to be the world capital of the Islamic economy.

Dubai faces serious competition. Kuala Lumpar has been the driving force in Sharia-compliant financial business, having built up its resources in sukuk and other forms of Islamic finance over the past two decades.

London, too, was keen to augment its position as the leading financial market in the European time zone by becoming the global centre for sukuk listing and trading, a lucrative part of the Islamic financial market.

Other centres, like Dublin, Luxembourg, Indonesia and Bahrain also had plans to develop their Islamic economic capabilities. To make Dubai the centre of the Islamic business world would be a challenging task. The plan was immediately backed by leaders of the Dubai business and policymaking elite. In the Dubai International Financial Centre, the Nasdaq Dubai stock market announced it was considering a trading platform for sukuk, hoping to take away some of London’s lucrative trade.

Sultan Ahmed bin Sulayem, the chairman of Dubai World, applauded the move. “Dubai is pioneering; this is another example of how it does things before anyone else in the world,” he said.

The Dubai Multi Commodites Centre advanced plans to extend Sharia-compliant business in commodities and metals trading.

Banks beefed up their Islamic financial capabilities by hiring more experts on Sharia-compliant business, making it a growth market in the emirate’s financial scene and one of the forces behind Dubai’s recovery.

For most of the summer, the task force set up by Sheikh Mohammed was working hard behind the scenes to produce a practical strategy for the implementation of the grand plan.
By October, a master plan was in place. Seven separate strategic goals, each aiming to make Dubai a global leader in one aspect of the Islamic economy, had been identified: finance; the halal food industry; family-friendly tourism; the digital economy; fashion, arts and design; economic education; and standards and certification.

“The continued developments and changes in the global economy increase the need to constantly diversify the structure of our national economy,” said Sheikh Mohammed. “Our aim from all economic initiatives we launch is to improve the quality of life and provide opportunities that ensure a prosperous future for coming generations.”

And in a typical show of confidence that the emirate could achieve its ambition, he said that the time scale would be reduced. The aim was to make Dubai the capital of Islamic economy in three, not five years.

Early steps to be taken in 2014 include the establishment of an Islamic governance centre in Dubai, and an international laboratory for the certification and accreditation of halal products is also planned for early next year. Halal food and other products form an estimated US$3.5 billion global market.

Two other initiatives are also scheduled for the first part of next year: legislation to regulate the production of halal products locally and globally, and an international endowment authority to spread the culture of waqf, or Islamic charitable endowment.

At October’s World Islamic Economic Forum (WIEF) in London, held for the first time outside the Islamic world, the competitive pace was stepped up when Britain announced its plan to be the first non-Muslim country to issue a sovereign sukuk. But Dubai managed to steal London’s thunder when, after months of careful negotiations with the Malaysia-based WIEF, it was announced that the 2014 forum would be held in Dubai.

The final showpiece of the year was the Global Islamic Economy Summit held in Dubai in November, organised by the Dubai Chamber of Commerce and the information group Thomson-Reuters. Some 3,000 leaders of global Islamic business gathered to hear Dubai’s plans, and to give their general endorsement of the strategy.

The prize for Dubai had got bigger. A new study put the overall potential value of Islamic business at $6.7 trillion by 2018, more than the value of any national economy in the world except the United States and China.

(The National / 21 Dec 2013)
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Islamic banking attracting people's attention

PESHAWAR - Khyber Pakhtunkhwa Senior Minister Sirajul Haq has said that Islam is a complete code of life and offers solution to every aspect of human life. "Finance is a vital part of our daily life. We will be more comfortable if spend our lives according to Islamic laws," he said this while addressing the launching ceremony of The Bank of Khyber (BOK) Raast Islamic Banking.

The ceremony was also attended by the Managing Director BOK Imran Samad, Group Head Islamic Banking Kamran Masood Khan, Group Head Treasury and Investment Masood Wahidna Head Shariah Compliance Muhammad Asad, BOK Shairah Advisor Abdul Samad Khan, Head Business Development Islamic Naveed Qureshi, Head Business Development Lal Nawaz Khan, Head Marketing Syed Ali Nawaz Gilani besides the senior officers of BOK branches in Karachi.

The minister said that it was an accepted fact that Islamic Banking and financial institutions are attracting more attention of the people who are keen to emphasize the joining of human beings common financial needs. He also lauded the BOK management for dedicated efforts for the promotion of Raast Islamic Banking by establishing more Islamic Banking branches across the country.

Earlier, Imran Samad, Managing Director BoK, in his welcome address said that BoK Raast Islamic Banking was started in 2003 and with the Allah Almighty blessings today we are enjoying the confidence of masses by having more than Rs14 billion deposits in our Raast Islamic Banking Branches and we have also awarded financial facilities amounting to more than Rs8 billion and due to general public confidence our Islamic Banking Group assets are more than Rs23 billion.

Imran Samad said that BOK Raast Islamic Banking Branch profit for the period of January-November 2013 is Rs378 million which will increase in branches network in near future. "We are offering all banking facilities to our Raast Islamic Banking Group customers throughout the country successfully and their confidence is increasing with each passing day," he added.

Imran Samad said that we at the BOK ensured that Shariah standards are met. BOK follows the philosophy to have Shariah Based Solutions as against Shariah Compliant Solutions. He said that we at BOK has been able to divert peoples towards Islamic Banking and changed the attitude and changing their perceptions in general and in Khyber Pakhtunkhwa in particular towards Islamic Banking.

(The Nation / 23 Dec 2013)

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Islamic banking rises to $1.6 trillion: Dar

ISLAMABAD: Finance Minister Ishaq Dar said on Thursday the global size of Islamic Banking had reached $1.6 trillion, hoping that the Steering Committee for the Promotion of Islamic Banking would find ways to raise the banking’s size locally and give suggestions to benefit from it.

The Finance Minister was confident that the Committee would come up with its recommendations by Jan 31, 2014 as per its terms of reference.

In a meeting with the Committee’s officials at the Ministry of Finance, Mr Dar said, “Pakistan was created in the name of Islam. Therefore, it is incumbent upon us to create a conducive environment where the people can live their lives according to the teachings of Islam.”

The Steering Committee comprises Saeed Ahmad(Chairman), Maulana Mufti Muneebur Rehman, Munir Kamal (Chairman National Bank), Saleem Ullah (Director SBP/Secretary), Irfan Siddiqui (Banker), Afaq Khan (Banker), Dr Imran Usmani and Dr Waqar Masood.

(Dawn.Com / 20 Dec 2013)

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Dubai creates new centre to drive Islamic finance ambitions

Dubai ruler Sheikh Mohammed bin Rashid Al Maktoum has issued a decree to set up the Dubai Islamic Economy Development Centre as part of the emirate's plans to become a global hub for Islamic finance.

A decree was also ordered to form the centre's board of directors, which will be chaired by Mohammed Abdullah Al Gergawi, news agency WAM reported.

Sami Daen Al Qamzi was also named as vice chairman, while other board members will include Abdul Aziz Abdullah Al Ghurair, Hussain Nasser Lootah, Dr Hamad Al Shiebani, Abdul Rahman Saif Al Ghurair, Hussein Daen Qamzi, Helal Saeed Al Marri, and Isa Abdul Fattah Kazim.

Separately, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai, said on Wednesday that Abdulla Mohammed Al Awar will be CEO of the centre.

According to the decrees, the centre will have legal and financial independence and will promote Dubai "to become the global capital of Islamic economy".

It will build a database on Islamic economic activities and encourage recourse to arbitration in related Islamic economic activities disputes, WAM said.

The centre will also be tasked with conducting studies on the Islamic economy, determining the extent of Shariah-compliant economic activities on the GDP of Dubai, and how to develop them.

Earlier this year, Dubai announced it was launching a drive to develop its Islamic business sector, aiming to attract fresh investment from the Middle East and south-east Asia.

The government will promote Islamic banking and insurance, Islamic financial products and other areas including the arbitration of Islamic contracts and the setting of quality standards for halal food.

Islamic finance, based on principles such as bans on interest and on pure monetary speculation, has grown rapidly around the world over the last several years, although it remains much smaller than conventional finance.

Islamic banks now command a roughly 25 percent share of the banking market in the six countries of the Gulf Cooperation Council, according to an estimate by Ernst & Young.

Dubai, emerging from its corporate debt crisis of 2009-2010, wants to boost growth with trade and investment from around the region. It has a history of successfully developing service industries; the Dubai International Financial Centre, opened about a decade ago, has become the Gulf's top banking centre.

(Arabian Business.Com / 18 Dec 2013)

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Hong Kong's Islamic finance goal boosted by Basel III rules

Tougher international banking requirements should help the Hong Kong government achieve its goal of turning the city into an Islamic finance centre to capture a large slice of the US$1.3 trillion market.

The Hong Kong and the British governments next year plan to issue sukuks, bonds structured according to the tenets of Islam.

Bankers and lawyers said the sukuk market has been given a new lease of life by Basel III, under which Islamic banks must load up on sukuks as they are barred from buying conventional government bonds. This, they say, would mark a major difference from 2007, when the government tried but failed to make Hong Kong a centre of Islamic finance.

"The Hong Kong government's plan to issue sukuks comes at the right time as many Islamic banks would like to invest in government-issued sukuks to meet the tough Basel capital requirements," said Davide Barzilai, partner at international law firm Norton Rose Fulbright.

Barzilai said Basel III, which will be implemented this year, stipulates international banks should hold more high-quality equity, meaning they would need to invest more in highly rated government bonds. This has created a problem for Islamic banks as they cannot buy government bonds that do not comply with the sharia, or Islamic code.

The bonds need to be specially structured as payment of interest is unacceptable under sharia. In addition, the money raised through the bonds cannot be invested in gambling, derivative trading, pork or tobacco-related retail businesses.

"Sukuks to be issued by the Hong Kong or British government would thus meet the demand of Islamic banks and other investors from the Gulf," Barzilai told the South China Morning Post. The Hong Kong government had made the right choice in deciding to take the lead in issuing sukuks, he said.

"Sukuk is very complicated. It would be good for the government to take the lead so that others can follow it," he said.

Barzilai attributed the failure of the government's 2007 attempt for a sukuk market to the financial crisis that followed. Another reason was that the structure specified under sharia would subject these bonds to higher taxes than conventional bonds.

As interest payment is forbidden under sharia, Islamic bondholders are subject to stamp duty, income tax and profit tax. Ordinary interest-paying bonds are not taxable in Hong Kong.

The government changed the law in July to bring taxes for sukuks in line with those of other bonds. That, along with the Basel III regulation from this year, made this the perfect time for Hong Kong to reboot its Islamic finance development, Barzilai said.

However, Christopher Cheung Wah-fung, legislator for the financial services sector, said Hong Kong would find it hard to compete with Malaysia, which handles two-thirds of sukuk issues worldwide. "Malaysia has a much wider Muslim population than Hong Kong," Cheung said.

Barzilai countered that Malaysia's sukuk market is mostly domestic, unlike Hong Kong or London, which host international investors.

The Islamic finance market, which is expected to double to US$2.7 trillion by 2016, could support more than one international centre, Barzilai said.

Potential investors have mostly positive views about Hong Kong's sukuk thrust.

Badlisyah Abdul Ghani, executive director and chief executive of CIMB Islamic Bank, said the Hong Kong government sukuk would create a new benchmark as well as work as a lead for private issuers to follow.

Raja Teh Maimunah, chief executive of Hong Leong Islamic Bank, said the Hong Kong government sukuk would be popular if the pricing was right.

She said Hong Kong was suitable as an Islamic finance centre because it has a "huge cradle of potential issuers from both Hong Kong and mainland China and it has large flows of US dollars, the main Islamic market currency".

Tim Lo, managing director of French private bank CIC Investor Services, said that from a pure investment point of view, whether the bond was sukuk or not was irrelevant. "If the Hong Kong government issues a sovereign Islamic bond, investors will price it based on its probability to default, which is extremely low in Hong Kong given its top AAA credit rating," Lo said.

Daud Vicary Abdullah, president and chief executive of the International Centre for Education in Islamic Finance, said that "a lot of work is required in the areas of sharia governance, regulatory reform and human capital development".

(South China Morning Post / 16 Dec 2013)

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Tunisia Potential Islamic Finance Hub Fir French - Speaking Countries

JEDDAH – There are big opportunities to promote Islamic finance in Tunisia which can be the global hub of Islamic finance for French speaking countries, said Muhammad Zubair Mughal, Chief Executive Officer, AlHuda Centre of Islamic Banking and Economics (CIBE) in an international conference on “Finance and Enterprise” jointly organized by World Bank, International Monetary Fund (IMF), International Finance Corporation (IFC) and European Bank for Reconstruction and Development in Sousse, Tunisia.

The event was attended by the Prime Minister of Tunisia, including many government ministers, heads and senior delegates from central banks, World Bank, IMF, IFC, European Bank and other dignitaries from different international organizations. 

Mughal, during his address as guest of honor, said international financial crisis can be addressed in a better way through Islamic finance and such financial crisis could not have happened if Islamic financial system was followed and implemented at that time.

He said there are about 2000 Islamic financial institutions working globally as Islamic banks, Takaful (Islamic insurance), sukuk (Islamic bonds), Islamic fund and Islamic microfinance institutions, etc, in more than 100 countries.

Fortunately, he said no Islamic financial institution was effected by such global financial crisis, which ensures the strength and rationality behind the Islamic financial system. He added that international institutions such as Islamic Development Bank (IDB), Accounting and Auditing Organization of Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB) and International Islamic Liquidity Management (IILM) are working for Islamic finance around the globe which will further promote and strengthen the Islamic finance in future globally. Responding to a question related to the relationship between religion and Islamic finance, he said that Islamic banking and finance is a name of a system not religion so all other religions can get benefit from it and that is why Islamic banking and finance is growing in the Western world where non-Muslims are utilizing the Islamic financial products considerably, to fulfill their business, personal and financial needs.

America alone has has more than 20 Islamic financial institutions are working, which are actively providing the Islamic financial services to fulfill the financial needs of Muslims and non-Muslims equally.

During his stay in Tunisia, he met with Dr. Amel Amri, President – Tunisian Association for Islamic Finance (TAIF), Dr. Raza, President – Islamic Economic Association Tunisia and heads of some other Islamic financial institutions. He said that Tunisia has a good recognition in Islamic financial industry having 2 full-fledged Islamic banks, takaful companies, universities with Islamic finance program, sukuk laws and some other similar institutions which indicate the best future of Islamic finance in Tunisia.

Realizing the need of Islamic microfinance, he further said that Islamic microfinance is missing component of Islamic finance in Tunisia while socioeconomic development and poverty reduction can be done in better way through Islamic microfinance.

(Saudi Gazette / 16 Dec 2013)

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