New regulation on sukuk to provide transparency

Muscat: Oman’s market watchdog Capital Market Authority (CMA) on Wednesday announced its new sukuk regulation, which includes stipulation on establishing a trustee structure and an LLC company as a special purpose vehicle for issuing sukuk.

The regulation, which is effective from Wednesday, also allows structure of the sukuk subject to the approval of respective Sharia Supervisory Board issuer and the choice of the board is left to the issuer.

The regulation made rating optional for the issuer and there is no restriction on the sukuk amount to be raised based on the company’s capital, said a CMA release.

The new sukuk regulation will provide clarity and transparency to the market players, while providing protection to investors in a sukuk transaction. In addition, it has been drafted to provide flexibilities and spur innovation for the market players.

“The issuance of this new sukuk regulation forms an integral part of the overall strategy of the CMA to enable the capital market to play its vital role as a fundraising platform for companies in the economic development of Oman, particularly in the fixed-income market, where sukuk forms an important element to further develop Oman’s Islamic capital market,” said Abdullah Salim Al Salmi, executive president of the CMA.

“In addition, the new sukuk regulation will form a key milestone in the evolution of the sukuk market in Oman and hopefully spur further Sukuk issuances particularly from the private sector players in order to meet their development and funding needs, while diversifying the financing base and risk away from the traditional banking sector,” he added.

“Further, sukuk issuances will also provide an essential liquidity management instrument and investment avenue for both Islamic and conventional financial institutions, investment funds and takaful/insurance operators in Oman. Hence, not only providing a wider investor base of both conventional and Sharia-compliant investors, but also attracting the required foreign investments into the country via the foreign investors. We are confident that this new regulation will have a positive impact on Oman’s capital market and the economy.”

The sukuk regulation is being issued subsequent to the amendments made to the Capital Market Law under Royal Decree No. 59/2014 on December 10, 2014, which provides the CMA the authority to regulate all sukuk issuances in Oman and any Special Purpose Vehicle or Company (SPV) being incorporated for the issuance of a sukuk, including the tax and fee exemption status provided for the SPV.

This sukuk regulation would complement the existing bond regulatory framework, which are currently in place in the Commercial Companies Law and Executive Regulation of the Capital Market Law.

All jurisdictions have specific and separate sukuk regulations, particularly in the Gulf Cooperation Council, with many just having a conventional bond regulatory framework with some additions made on the Sharia requirements.

In a short span of three years, besides the establishment of two Islamic banks and six Islamic windows, the Islamic financial market in Oman has seen the launch of the new Muscat Securities Market (MSM) Sharia Index with 30 Sharia-compliant listed companies on the MSM, three Sharia-compliant investment funds, the first Oman sovereign sukuk and also the first corporate sukuk, and the establishment of two takaful operators including the issuance of the new takaful law.

(Times Of Oman / 13 April 2016)

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Turkish central banker is social scientist with roots in Islamic finance

Istanbul - After Winning the backing of President Tayyip Erdogan, Turkey's new central bank governor must now convince investors that an Islamic banker without formal training in economics can tame inflation while resisting political pressure to cut rates.

Turkey's cabinet on Monday approved Murat Cetinkaya as the next central bank head, giving some initial relief to investors who had feared a battle between Erdogan, who equates high interest rates with treason, and Prime Minister Ahmet Davutoglu's more orthodox economic team.

Despite the initial relief in markets, the 40-year-old Cetinkaya remains something of an unknown quantity, lacking the experience of his predecessor, Erdem Basci, an engineer turned economics Ph.D. whose term as governor expires next week.

(The Jerusalem Post / 14 April 2016)

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Moody’s assigns (P)A3 rating to Malaysia Sukuk Global’s issuance

KUALA LUMPUR: Moody’s Investors Service has assigned a provisional (P)A3 rating to the US dollar-denominated trust certificates (sukuk) issued by Malaysia Sukuk Global Bhd.

In a statement on Monday, Moody’s said the rating is assigned to the sukuk as the sukuk certificate holders would effectively be exposed to the Government’s senior unsecured credit risk, and not be exposed to the risk of performance of the portfolio assets relating to the certificates.

It said the sukuk also would not have any preferential claim or recourse over the trust assets and the certificate holders could not sell or dispose of any trust assets except as expressly provided for under the transaction documents.

The sukuk certificate holders only have rights against the Government, ranking equally with other senior unsecured obligations as provided in the transaction documents, Moody’s said. 

“Legal opinions have also confirmed legal, binding and enforceable obligations for the Government,” it added.

The (P)A3 rating is at the same level as the Government’s long-term local-currency and foreign-currency issuer ratings.

Moody’s said the provisional status of the rating would be removed upon completion of the sukuk issuance and its satisfactory review of the final terms and conditions and legal opinions.

Moody’s also noted that its sukuk rating did not express an opinion on the structure’s compliance with syariah law. 

(The Star Online / 11 April 2016)

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Global takaful industry needs uniform standards

A concrete legal framework and global takaful reference body are needed to address some of the challenges facing the global takaful industry today, experts at the 11th annual World Takaful Conference (WTC) discussed on Monday.

Abdulla Mohammed Al Awar, chief executive officer of the Dubai Islamic Economy Development Centre (DIEDC) in his opening keynote, spoke on how there was a clear growth trajectory in the takaful sector over the years. The sector, however, remains underdeveloped compared to the thriving Islamic finance industry.

"Takaful is a key pillar within the Islamic ecosystem. Although a quantum leap cannot be expected in the takaful industry within a year, there have been a lot of strategic developments which will pave way for the growth of takaful within the Islamic finance landscape."

Al Awar offered various suggestions on how the global takaful industry could come forward to address the challenges facing the industry. "We need to harmonise standards in the takaful industry. In addition, we need to focus on showcasing a concrete legal framework, so that there is no ambiguity in terms of jurisdiction."

Another suggestion that he offered was clarification on the ethical nature of the takaful system, as Muslim consumers are still wary of takaful products.

Another suggestion was the establishment of a global takaful reference body that can organise the industry and deal with emerging disputes. This, he said, will provide a less costly and more effective solution for consumers. He also suggested creating an innovative platform for takaful products that will help with creating niche products. Other suggestions included filling the re-takaful gap and encouraging the presence of different players.

The event also saw the launch of Finance Forward's 2016 World Takaful Report, which offered various insights on the global and regional takaful sectors. Gross takaful contributions in the GCC were estimated at $8.9 billion, showing a year-on-year growth of 12 per cent. The report also revealed that the takaful market is highly concentrated in the GCC and Southeast Asia, with Saudi Arabia and Malaysia predominating these markets.

Finance Forward also pointed out in a previous report that the strong growth of the takaful industry in Saudi Arabia is primarily driven by strong regulatory support.

While many argue that the mandatory requirement by the Saudi Arabian monetary agency - that all insurance companies in the kingdom have to be established based on the cooperative business model - departs from the existing takaful model, it has been revealed that the model actually does more to support the introduction of a Shariah-compliant insurance model in the country.

Sahar Kazranian, acting CEO of Middle East Global Advisors, noted that the UAE is the second largest takaful market in the GCC region, whose gross takaful contribution weighs in at 15 per cent of the total takaful contribution in the region.

Ebrahim Obaid Al Zaabi, director-general of the UAE Insurance Authority, who spoke on the UAE regulatory space, said: "The Insurance Authority of UAE has played a pivotal role in setting out key rules to ensure stability of the insurance industry. Adhering to the regulatory requirements - ranging from adjusting the internal systems to appointing internal auditors and actuaries by 2018 - will be challenging for the insurance and takaful industry but will lead to its growth and stability."

Salmaan Jaffrey, chief business development officer at the Dubai International Financial Centre, spoke on the critical role of the DIFC as a global platform for the re-takaful industry to service the economies of the Middle East, Africa and South Asian regions. "Today, the Islamic insurance industry has gained wider acceptance and appreciation transcending the boundaries of Muslim-based economies. This growing momentum is expected to continue and expand its reach into emerging markets in the MEASA region. Our goal is to create a dynamic Islamic financial system that will support this growth and contribute to the overall development of our economy.

(Khaleej Times / 11 April 2016)

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Islamic Corp for Development of Private Sector launches $300 million sukuk

Dubai: Islamic Corporation for the Development of the Private Sector (ICD) has launched a $300 million five-year sukuk that should price later on Wednesday, a document from lead managers showed.

The transaction seems to have struggled to gain traction with investors, having initially been earmarked to price as early as Tuesday and sized as a benchmark offering — traditionally understood to mean upwards of $500 million.

ICD, a unit of Islamic Development Bank, has “retained a portion of the transaction”, the document said without elaborating.

The issuer has also set pricing at the wide end of the 125-130 basis points over midswaps guide range given on the previous day, according to the document from arrangers on Wednesday.

Noor Bank and Warba Bank have been added to the 10-strong group of banks arranging the transaction: Bank ABC, Boubyan Bank, CLIMB, Dubai Islamic Bank, Emirates NBD, First Gulf Bank, HSBC, Mizuho, Societe Generale and Standard Chartered.

(Gulf News Market / 11 April 2016)

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GLOBAL SUKUK ISSUANCE SLIDES 43PC IN 2015

Singapore—Global issuance of Islamic bonds, or sukuk, declined 43% on the year in 2015 due to the sharp fall in commodity prices and a policy change by Malaysia, according to a financial standards organization. The total value of new sukuk issues fell to $60.7 billion from $107 billion a year earlier after Malaysia, the largest issuer, suspended sales of short-term local-currency sukuk, which were used as an investment tool rather than for liquidity management, the International Islamic Financial Market said in a report released Tuesday.

The Bahrain-based IIFM also attributed the drop to global uncertainty stemming from the steep decline in oil prices, and talk of interest rate hikes in the U.S. The industry went through a “consolidation phase” last year, following record-high sukuk issues exceeding $100 billion between 2012 and 2014, the organization said. Around two-thirds of the issues in value terms — $39.8 billion — were denominated in local currencies, reflecting demand in the key markets of Malaysia, Saudi Arabia and Bahrain. However, the value of local-currency sukuk in 2015 was only half that of the previous year after Malaysia, which accounted for 66% of total sales, decided in January to halt sales of sukuk with maturities of less than one year amid a fall in the value of the ringgit. The value of other local-currency sukuk issues grew marginally in 2015, rising to $13.5 billion from $12.5 billion in 2014, sustained by interest from Indonesia, Bahrain and Turkey.

Meanwhile, international sukuk that is, those denominated in major foreign currencies such as the dollar fell 21% to $20.9 billion due to economic uncertainty and the maturing of a few long-term bonds that were not reissued. Out of the total outstanding sukuk as of Dec.31, 2015, Malaysia accounted for 57%, followed by Saudi Arabia with 17%, United Arab Emirates with 10%, Indonesia with 6% and Qatar with 4%.

The corporate sector accounted for 44% of the issues in value terms while sovereign issuers made up 34% and quasi-sovereign issuers 22%.IIFM predicts that although sukuk issuance in 2016 may be hampered by the slowdown in the global economy, the overall direction will remain “positive.” “The appeal of sukuk will sustain the issuance in 2016,” said Ijlal Alvi, CEO of the organization. He added that the number will pick up as issuance from the corporate sector and project financing gains steam. Newcomers such as Indonesia and Turkey may reduce Malaysia’s market share in the coming years, he said.

(Pakistan observer / 07 April 2015)

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MEEZAN BANK SUPPORTS ISLAMIC FINANCE RESEARCH INDUSTRY

Karachi—In an effort to support the development of Islamic finance research industry, Meezan Bank rewarded Raheel Jawed student of Institute of Business Administration (IBA), one of the leading business schools of the country for securing first position in ‘Islamic Banking and Finance’ course. Raheel was awarded with a cash award of Rs 50,000/- by Irfan Siddiqui, President & CEO Meezan Bank at a prize distribution ceremony organized at the Bank’s Head Office on 30th March, 2016.

Siddiqui praised the institute for its valuable contribution to Islamic finance education. The move forms part of the Bank’s efforts to encourage participation and interest of emerging and new talents in Islamic banking and finance. Referring to the recent activities at IBA CEIF (Centre for Excellence in Islamic Finance), a joint effort of Meezan Bank and IBA, Siddiqui said that this centre is positioned and capable of leading the way forward, developing outstanding leaders who can deliver exceptional Islamic banking services and contribute to the industry at large.

The initiative comes within the Bank’s strategy to foster high quality talent for the Islamic banking industry. 

Currently, Meezan Bank focuses on university students in order to garner their interest towards Islamic finance during their graduate and under-graduate studies. The Islamic banking course offered at IBA will enable students to realize the centrality of Islamic finance as a sub-discipline of Finance. Through such and similar initiatives, the Bank aims to contribute to the Islamic banking talent pool.

(Pakistan Observer / 10 April 2015)

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