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Islamic retail banking is at the frontline of the industry’s growth and acts as the vanguard for development in terms of public opinion and global usage. Yet all too oft en the media focuses on the investment and commercial side of the industry and ignores the innovations occurring on the retail side. This week therefore, we take a closer look at the factors driving (and limiting) consumer banking.
Retail banking is not commonly a focus area within the context of Islamic fi nance but it is vital to the industry’s capacity to grow. The sector also acts as a valuable bellwether for the industry as a whole: where retail banking prospers, we can expect the commercial and wholesale side to follow. This is especially true in countries new to Islamic fi nance, such as developing African nations, where there is a strong grassroots demand for Shariah compliant retail products that off er the chance to develop at a consumer level from the ground up.
Social responsibilityDr Adnan Ahmed Yousif, CEO of Albaraka Banking Group, in a recent speech at the International Islamic Retail Banking Conference in October 2011, noted that the vital importance of the retail Islamic banking industry lies in its overall strategic objectives, which are built around three key pillars:
1. Shariah purposes: the business must be of a Halal nature.
2. Shariah mechanism: the mode of fi nancing used must comply with Shariah requirements.
3. Ultimate end result must serve at least one or more social responsibilities: such as income increase, job creation, savings etc.
The end result of the Islamic retail system is to build a “fully integrated socially responsible fi nancial system” which over the past fi ve years, as the conventional system has been rocked by fi nancial and economic crises, has benefi ted from a growing social profi le as a safer and more ethical method of banking. President Obama famously commented on the 2008 fi nancial crisis that: “The crisis was born of a failure of responsibility –from Wall Street all the way to Washington…”
The key advantage of Islamic retail banking is the maintenance of a strong sense of social responsibility. This perceived advantage has led to considerably increased interest in the sector from the international fi nancial community, looking for a safe haven.
But is the Islamic retail banking system really a safer bet? Regrett ably the answer is not that simple. The Islamic system despite its religious base must operate within the international community, and as such it will
23rd May 2012
Islamic retail banking: Growth and prospects
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Volume 9 Issue 20
continued on page 3
IFN Rapids .........................................................2
Islamic Finance news .........................................6
IFN Reports: Superannuation goes Islamic; Coming to America .............................................13
IFN Correspondents: Iran; UK; Maldives ......15
Column: The US economy could hit recession by Q1 2013 — By Shan Saeed ................................17
Insider: Faisal Private Bank seeks new pastures .......................................................18Features:The Qatar Central Bank’s directive: Impact on Islamic banks .......................................................19
Foreign investment in the jewel of the GCC crown: The Saudi Arabian equity market ..........21
Turkey: Recent developments in real estate acquisition by foreign nationals .........................22
Islamic InvestorThe need for international recognition ..............23
News .................................................................24
Fund Focus: Meezan Islamic Fund ..................25
Fund Data .........................................................26
Takaful NewsTakaful in the UK: Education, education, education ...........................................................28
News .................................................................29
Forum ...............................................................30
Meet the Head: Dr Hatim El Tahir, director, Deloitt e & Touche (ME) ....................................31
Deal Tracker .....................................................32
REDmoney Indexes ........................................33
Performance League Tables ...........................35
Events Diary.....................................................39
Company Index ...............................................40
Subscription Form ...........................................40
RED
Exploring growth opportunities in Islamic finance
Editor’s Note
As the world comes to grips with slower economic growth and uncertain markets, investors, too, must seek new prospects to maximize returns. The Shariah compliant space has emerged as one of the most exciting and promising markets for new growth opportunities; and this week, we look at some options for savvy investors to put their money in.
continued on page 5
2© 23rd May 2012
IFN RAPIDS
Disclaimer: Islamic Finance news invites leading practitioners and academics to contribute short reports each week. Whilst we have used our best endeavors and eff orts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions are accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.
DEALSTürkiye Finans Katilim Bankasi receives US$350 million Murabahah syndicated fi nancing
Finance ministry of Indonesia seeks to raise US$108 million via Sukuk auction
The Royal Bank of Scotland to concentrate on Malaysian Sukuk market over the next 12 months
Islamic Bank of Thailand sends out formal request for proposals for Thai baht-denominated Sukuk
The Central Bank of Bahrain’s US$53 million Sukuk Ijarah oversubscribed by 175%
IDB seeks partners to raise US$1 billion for new Shariah compliant megabank
Global Investment House requests extension on debt repayment deadline
Afghanistan considers sale of fi rst short-term Sukuk
Banque Saudi Fransi prices US$750 million, fi ve-year Sukuk
IDB, Asian Development Bank and consortium of banks raise US$133 million for wind power projects
National Industries Group Holding seeks to raise over US$357.72 million in Islamic syndicated fi nancing
Dubai Islamic Bank releases initial price guidance for Sukuk
Bank Nizwa sees high demand for US$155.44 million IPO
Al Hilal Bank and Mashreq Bank close club deal for new Dubai theme park
IDB plans to issue up to US$1 billion global Sukuk in June this year
Noor Islamic Bank completes US$2.2 billion-worth of deals in Turkey
DIFC Investments close to securing US$1 billion to refi nance Sukuk
All eyes on Dana Gas
NEWSNational Bank for Development reports smaller loss in the fi rst quarter of 2012
Islamic megabank application still under review, says Bank Negara Malaysia
Hong Leong Islamic Bank posts US$33 million in net profi t for third quarter of 2012
More Shariah graduates needed to help further develop Islamic fi nance in Brunei
Crown prince of Brunei calls for more entrepreneur-friendly Islamic banking
First Islamic Modaraba among 26 potentially de-listed companies on Karachi Stock Exchange
Bank Simpanan Nasional reports US$330.83 million in 2011 net income
BNI Syariah to expand microfi nance business into local municipalities
Malaysian tax breaks spur interest for Sukuk from potential issuers
Bait Al Bursa to release new products
AMMB Holdings reports higher net profi t for 2012 fi nancial year
Bank Victoria Syariah targets 45% share of microfinancing in financing disbursements this year
Islamic Bank of Thailand to att ract 20,000 customers within the next fi ve years
Deputy prime minister of Malaysia calls for bumiputera entrepreneurs to tap into Islamic fi nance
Malaysia sees keen interest to invest from Tunisia, says second fi nance minister
Investors turning to Sukuk due to European fi nancial market volatility, says BLME
Bank Asya plans to introduce interest-free private pension plan
Gulf Finance House announces restructuring of Sukuk
BLME awaiting regulatory approval to begin operations in the GCC
Bank Negara Malaysia inks MoU with Central Bank of Turkey
ISLAMICINVESTORAsiya Investments launches new advisory fi rm in Dubai
Ridge Capital acquires 100% stake in Egypt-based El Rashad Holding
Katilim (Participation) Index Exchange Traded Fund begins trading
Investcorp receives investment commitments from US institutions
Islamic venture capital is att racting more local and international investors, says Malaysian Venture Capital and Private Equity Association
Al Rajhi Bank targets US$31.89 million in gold investment sales this year
Al Jazira Capital ties up with UAE brokerage house to provide access to Tadawul
Shariah compliant TFI-Hines Brazil Income Real Estate Fund makes fi rst acquisition
Kuveyt Türk Katılım Bankası launches silver-traded fund on Istanbul Stock Exchange
Positive growth prospects remain in Islamic securities market, says Central Bank of Bahrain
TAKAFULSharia Insurance Association of Indonesia to issue new guidelines
SALAMA - Islamic Arab Insurance Company reports US$3.54 million in fi rst quarter profi t
Methaq Takaful Insurance Company posts US$707,839 in net profi t for fi rst quarter of 2012
Asuransi Ekspor Indonesia plans to off er Takaful
RATINGSFitch assigns ‘A(exp)’ expected rating to Dubai Islamic Bank’s proposed US$2.5 billion trust certifi cate issuance program
Kuala Lumpur Kepong redeems US$161 million Sukuk Ijarah Islamic commercial papers/medium-term notes program
RAM withdraws ratings of Kencana Petroleum’s Sukuk Mudarabah
RAM assigns preliminary rating to Gulf Sukuk I Company’s US$1.12 billion Sukuk program
S&P assigns ‘A-/A-2’ rating to Qatar Islamic Bank
RAM withdraws rating on Segari Energy Ventures’ US$299 million Sukuk Ijarah (2006/2012)
MOVESLegal fi rm Taylor Wessing names Neale Downes as partner for its Dubai offi ce
Amana Bank appoints Ash-Sheik Muft i Muhammad Hassan Kaleem to Shariah board
Hong Leong MSIG Takaful appoints Mohd Fauzi Yaakub as new CEO
3© 23rd May 2012
COVER STORY
always be aff ected by the same risks and economic consequences.
However, Yousif points out that: “Islamic fi nance draws upon values of Islamic economics and social ethics… the values of Islamic fi nance. Thus I can claim with full confi dence that the system is highly qualifi ed to provide workable solutions to the current issues or challenges.”
Customer is kingThis focus on the social aspect is what drives the growth of the Islamic retail business, with grassroots demand from consumers pushing its development. Across the core strongholds of Islamic fi nance, retail banking has seen strong and consistent growth over the last fi ve years. And banks are thus increasingly adopting a consumer-centric strategy to achieve scale and tap the massive potential of the market. Recent research suggests that the 1.6 billion global Muslim population is expected to grow by 35% over the next 20 years, off ering a fertile market for retail banking services.
“One of the challenges we face is creating enough awareness amongst Muslim and non-Muslim customers, potential customers and bank staff ,” said Amman Muhammad, the managing director of South African Absa Islamic Bank, in a recent interview. “There`s still a fair level of scepticism towards Islamic banking and we fi nd there`s still a high level of not fully understanding the products.”
Muhammad says the bank`s approach is: “To educate ... via a customer focus group where we invite people from a certain area to congregate, and invite international Shariah scholars and members of our Shariah board to interact with them and answer questions.”
Education is keyEducating customers about Islamic fi nance, understanding their needs and delivering products and solutions that are creative, yet adhere strictly to Shariah principles and are cost-eff ective, is part of a concerted strategy that retail banks are now undertaking upon in order to develop the sector more fully and enlarge their share of the Islamic retail business.While the numbers are
promising, banks are realizing that just pushing products and waiting for the promising demographics to materialize into a fl ood of new customers is not going to generate the numbers that will see the sector, and the larger industry, fl ourish.
“Players across the conventional sphere are moving away from product selling to solutions based on customer needs, and Islamic banks are doing this too,” said Wasim Saifi , the global head of Islamic banking for the consumer banking division of Standard Chartered Bank. “We take the same approach as on the conventional banking side. We encourage staff to engage customers in need-based conversation rather than engage in product pushing — that`s the need of the day.”
Malaysian dominanceMalaysia leads the world in Islamic banking, with an estimated US$86 billion in banking assets. With one of the most sophisticated and well-developed retail Islamic banking systems, the country acts as a fl agship for the global industry. Eight local banks were ranked in the top 50 of the Top 500 Islamic Financial Institutions 2011 Report: including Bank Rakyat (12th), Maybank Islamic (18th), CIMB Islamic Bank (22nd), Bank Islam Malaysia (24th), Public Islamic Bank (38th), AMMB Holdings (43rd), AmIslamic Bank (44th) and Bank Muamalat Malaysia (48th).
In 2012, domestic Islamic banking assets are expected to increase to 25% of the total. Dr Zeti Akhtar Aziz, the governor of the central bank, Bank Negara Malaysia, recently announced that the market share of Islamic banking assets of the total banking industry had grown from only 6.9% in 2000 to 22% in 2011. She also noted that the contribution of Islamic fi nance to the Malaysian economy had also been growing signifi cantly, accounting for 2.1% of GDP in 2009, compared to only
0.3% in 2000.
LiberalizationRecent liberalization measures have not only been successful
in reducing the impact of the fi nancial crisis and pushing the Malaysia’s
Islamic retail banking: Growth and prospectsContinued from page 1
continued...
CLOSING BELLBahrain Development Bank receives approval to increase capitalBAHRAIN: Bahrain Development Bank has received approval to increase its capital base to BHD65 million (US$171.42 million), from BHD50 million (US$131.86 million).
Encorp Systembilt redeems Islamic facilitiesMALAYSIA: Encorp Systembilt has fully redeemed RM2.75 billion (US$882.12 million)-worth of Bai Bithaman Ajil (BBA) notes following its issuance of up to RM1.58 billion (US$506.82 million)-worth of Sukuk Murabahah.
Its outstanding BBA notes were also refi nanced through the Sukuk Murabahah issuance.
National Bank of Oman to launch Islamic window this yearOMAN: National Bank of Oman is planning to launch its Islamic window at all its branches in the sultanate within the year, pending regulatory approval.
The bank is also prepared to roll out Shariah compliant products and has put in place qualifi ed staff and infrastructure to off er the services. It has also appointed a Shariah board to oversee the Islamic operations.
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4© 23rd May 2012
COVER STORY
banking industry forward, but have been specifi cally targeted at growing the Islamic retail industry across borders and encouraging the development of foreign investment and participation.
Recent measures have included two new Islamic banking licenses off ered to foreign banks, fi ve new commercial licenses for international banks and two new Family Takaful licenses off ered to qualifi ed players. In addition, domestic Islamic banks can now enter international partnerships with a foreign equity limit of 70% and a requirement of US$1 billion in paid-up capital. Locally established foreign banks are allowed to open four new branches (based on a prescribed distribution ratio) while foreign insurance and Takaful operators can open branches nationwide without restriction and have greater fl exibility to employ expatriate talent. In addition, off shore banking institutions licensed by the Labuan Off shore Financial Services Authority can now open offi ces onshore.
Zeti recently commented that greater liberalization of the Islamic fi nancial system has resulted in a greater foreign presence and participation in Malaysia’s Islamic fi nancial system. This has been accompanied by an increasing trend in foreign participation in the domestic Islamic banking and Takaful industry. “Moving forward, Islamic fi nancial institutions in Malaysia will also expand beyond national boundaries to increase economic and fi nancial linkages with other parts of the world,” she added.
Global growthBut while Islamic retail banking is seeing strong performances in established markets, growth is not equal across the board. In Indonesia and Pakistan for example — two of the world`s most populous Muslim nations — Islamic retail banking growth is still in the single digits.
However, KFH Research notes that as the appetite for Shariah
compliant products and services increases, regions such as Southeast Asia, Pakistan, India and Africa, with their
sizeable Muslim populations and projections for
strong future economic growth, will continue to off er the best opportunities for Islamic retail banks. There are expectations that Indonesia`s Islamic banking share could climb to 10% over the next few years, while Pakistan`s could rise to 12% from a current 7.8% in 2011 (up from 4.9% in 2008). In the December 2011 Islamic Banking Bulletin from the State Bank of Pakistan Yaseen Anwar, the governor of the central bank, noted several initiatives being undertaken in the country to promote Islamic retail banking.
“Despite signifi cant improvement during last 10 years, still a very large segment of our population does not have adequate understanding of Islamic fi nance and its distinction over conventional fi nance. The central bank thus has assumed a dual role for Islamic banking i.e. as both the regulator and the promoter and facilitator. Under the facilitation that we have been partnering with the industry to improve Islamic banking awareness and understanding of the masses and to build the industry’s HR capacity. To create awareness we have launched an awareness campaign, whereby targeted workshops, public seminars and conferences are being organized. Further, a media campaign is being launched for mass awareness using electronic and print media. To help the industry to build its HR capacity, our training subsidiary NIBAF (National Institute of Banking & Finance) is off ering regular and customized Islamic banking courses to national and international participants.”
In the MENA region, Islamic banking has also seen steady growth and has spread to several new countries. While the GCC is an established market for Islamic retail banking already several new developments, such as the introduction of Islamic banking to Oman and the impact of the Arab Spring on countries such as Tunisia and Egypt which are now pushing the development of domestic Islamic banking, have led to a growth spurt in the region.
However, further increase in appetite is contingent upon ongoing public education to raise and enhance
awareness of Islamic fi nance — how it works, its structures and its benefi ts.
Limiting factorsKey concerns holding back the development of Islamic retail banking, particularly in newer markets, have also included limited liquidity management instruments and lack of lender of last resort facilities. Anwar notes that: “So far we have had limited success in developing an eff ective and ongoing liquidity management mechanism for Islamic retail banking institutions due to infrequent issuance of sovereign Sukuk. However, as a result of extensive eff orts made both at industry and the central bank level we are at an advanced level of development of a comprehensive liquidity management solution that would include; i) development of Islamic interbank money market; ii) development of Islamic Interbank Off ered Rate (IIBOR) for use as a benchmark for pricing of Islamic fi nance products; iii) transformation of a sizeable portion of conventional sovereign debt in the books of central bank into Shariah compliant debt; iv) allowing IBIs to place surplus liquidity with the central bank to be remunerated based the central bank’s earnings on Shariah complaint assets and investment portfolio; and v) lender of last resort facility for IBIs.”
Increased competitionSteps such as these off er strong support to the development of Islamic retail banking in new countries, and off er the prospect of real competition to the dominance of established Islamic retail banks. Flagship territories such as Malaysia should not get complacent, warn industry experts, as competition is fast developing. According to Malaysia-based Multimedia University’s Conceptual Framework for the Adoption of Retail Banking Services in Malaysia, Islamic banks in the country despite their strong growth and governmental support are constrained by a lack of innovation and risk stagnation. To keep up with globalization and to serve the growing wealth of the rapidly increasing global Muslim population, the industry needs to invest in research and development
continued...
Islamic retail banking: Growth and prospectsContinued from page 3
5© 23rd May 2012
COVER STORY
to create new and innovative Shariah compliant products and services that go beyond simply matching those off ered by conventional banks.
Regulatory requirements“Islamic retail banks must either achieve economies of scale to compete, or fi nd a strong niche to focus on,” according to Badlisyah Abdul Ghani, CEO of CIMB Islamic. “They should also insist on a level playing fi eld from regulators that Islamic windows operated by conventional banks should be treated as stand-alone Islamic retail bank(s).”While few would disagree that the sector`s growth potential is enormous, there is an urgent need for a regulatory, supervisory and Shariah frameworks to be put in place across all markets in order for the sector to realize its fullest potential. Stronger standards for corporate governance, transparency, disclosure, accountability, market discipline, risk management and customer protection are crucial to increase market confi dence and penetration. “Without eff ective legislation, regulation and a legal framework, Islamic retail banking will never take off , which is what has happened in many countries,” said
Badlisyah. “Even when regulations are made to be facilitative to Islamic banking, other relevant laws such as tax and land laws need to be amended or enhanced to accommodate a level playing fi eld between Islamic and conventional retail banking.”
Moving forwardIn order to keep up with the conventional sector, says KFH Research, Islamic retail banks must be able to compete by enhancing their capability and capacity in terms of investment portfolio management, pricing, staffi ng, corporate governance; off ering innovative products; and ensuring risk management systems are up to par.
Yousif identifi es a number of key challenges which he believes are vital in developing the retail banking industry, including:
• Improvement of customer services and marketing research capabilities at both the institutional level and the industry level (research fi rms).
• Institutions need to play an eff ective role to promote the system
globally and raise awareness that it is not just for Muslims.
• Institutions need to work as think tanks to fi nd solutions for the operational challenges facing Islamic banks (including internal credit processes, Shariah risk management, innovation management, consumer awareness programs, etc.)
• Professional training and certifi cation programs.
A crossroadsThe recent International Islamic Retail Banking Conference in October 2011 concluded that: “Islamic retail banking has great potential, especially in the Middle East.” However, “Islamic fi nance is currently at the crossroads, and needs to decide whether to continue with imitating conventional banks or to begin to improve and create products bett er than conventional, and benefi cial for everyone regardless of their faith.” — LM
Islamic retail banking: Growth and prospectsContinued from page 4
Editor’s Note
As the world comes to grips with slower economic growth and uncertain markets, investors, too, must seek new prospects to maximize returns. The Shariah compliant space has emerged as one of the most exciting and promising markets for new growth opportunities; and this week, we look at some options for savvy investors to put their money in.
Turkey is one market lauded for the rapid growth of its local Islamic fi nance industry; but the country has also att racted foreign interest as an investment destination. In our issue this week, Gökmen Başpınar and Burak Gencoglu of Baspinar & Partners Law Firm contribute a feature on recent developments in real estate
acquisition by foreign nationals in Turkey.
Saudi Arabia, which has grabbed the spotlight this year due to its record level of Sukuk sales, is also seen as an appealing destination for foreign investment; although there remains plenty of room to further open up the local market. Irfan Butt , a senior legal advisor at Hogan Lovells, in association with Al Yaqoub Att orneys and Legal Advisors, explores the opportunities in a feature on foreign investment in Saudi’s equity market.
Meanwhile, we also look at the Islamic retail banking market this week; as covered in our lead story on the growth and prospects of the segment; while Amjad Hussain of law fi rm K&L Gates writes on the impact of
the Qatar Central Bank’s directive for conventional banks to stop off ering Shariah compliant services.
Our IFN Reports cover Islamic pension schemes in Australia and Islamic private equity and fund management in the US. This week, IFN Correspondents write on developments in Iran, Maldives and the UK.
Susan Dingwall and Ffi on Flockhart of Norton Rose contribute our Takaful cover story on Islamic insurance in the UK; while Insider looks at developments at Faisal Private Bank.
IFN columnist Shan Saeed contributes a report on the US economy; and Meet the Head talks to Dr Hatim El Tahir, a director at Deloitt e & Touche (ME).
Exploring growth opportunities in Islamic finance
6© 23rd May 2012
NEWS
DEALSTürkiye Finans gets Murabahah dealTURKEY: Türkiye Finans Katılım Bankası secured a US$350 million Murabahah syndicated fi nancing from a consortium of 29 banks from 15 countries.
The consortium includes ABC Islamic Bank, HSBC, Noor Islamic Bank and Standard Chartered.
The fi nancing is for a period of one year and has a profi t rate of six-month Libor plus 2%.
Indonesia Sukuk auctionINDONESIA: The fi nance ministry is targeting to raise IDR1 trillion (US$108 million) from a Sukuk auction.
Proceeds from the issuance will be used to fund the country’s budget defi cit this year.
RBS to focus on Sukuk marketMALAYSIA: The Royal Bank of Scotland (RBS) intends to focus on the local debt capital markets, in particular Sukuk issuances, over the next 12 months, said Ho Weng Yew, its head of corporate coverage in Malaysia.
According to Ho, the bank currently has four to six potential issuances in its pipeline, which are spread out over the next nine-12 months.
He added that the potential issuances are of sizeable amounts; from Central Asian and European countries through fi nancial institutions and conglomerates from diff erent sectors.
IBT sends out RFPTHAILAND: Islamic Bank of Thailand (IBT) sent out a formal request for proposals (RFP) to a number of banks for the issuance of a Thai baht-denominated Sukuk.
Siam Commercial Bank, Bangkok Bank and TMB Bank were among banks included in the RFP. However, the document did not include terms such as the size or tenor of the planned issuance.
The RFP also comes as a surprise as Malaysia’s CIMB Group has already reportedly been working on a Thai baht Sukuk for the IBT.
CBB issues Sukuk BAHRAIN: The Central Bank of Bahrain’s (CBB) BHD20 million (US$53 million) monthly issuance of Sukuk Ijarah has been oversubscribed by 175%.
The 81st issuance of Sukuk Ijarah has an expected return of 1.34%. It matures on the 15th November.
US$1 billion for Islamic megabankGLOBAL: The IDB is seeking partners to raise US$1 billion-worth of investment into its planned US$11 billion Islamic megabank, being set up in partnership with the Dallah Albaraka Group and the Qatari government.
The bank is expected to fi nance large construction projects and issue securities for Islamic fi nancial institutions to help manage excess funds.
Deadline extension for GlobalKUWAIT: Global Investment House has asked creditors for a further extension of its debt repayment deadline due on the 10th June this year, to the 10th November.
According to a statement, the company is progressing in its negotiations with its lenders.
Global signed a deal with 53 creditor banks in December 2010 to reschedule its US$1.7 billion-worth of debt, which comprises conventional and Islamic facilities.
Sukuk for Afghanistan?AFGHANISTAN: Khan Afzal Hadawal, the fi rst deputy governor of the country’s central bank, said that the government is contemplating the sale of short-term Sukuk to raise capital; following a projected sharp decline in fi nancial support from the west.
“We have to develop the fi nancial markets of Afghanistan. We have to off er those instruments not only for the banks, (but) so that the government has an alternative to fi nance their projects and the central bank can control money growth,” he said.
Banque Saudi Fransi prices US$750 million, five-year SukukSAUDI ARABIA: Banque Saudi Fransi has priced a US$750 million, fi ve-year Sukuk at par with a spread of 185 basis points (bps) over midswaps, or 2.95%, following an initial price guidance of a 200 bps spread. The off ering att racted orders worth US$4 billion.
Citi, Credit Agricole and Deutsche Bank were the lead arrangers of the transaction; yet another to come out of Saudi’s burgeoning Islamic bond market.
The Sukuk marks Banque Saudi Fransi’s fi rst Shariah compliant off ering. The bank is part-owned by Credit Agricole, which earlier in the year said that it was also looking at issuing a Sukuk for its Islamic business, of which a large part has moved to Dubai from Bahrain.
The issuance is also seen to have received strong regional support, despite prevailing uncertainty in the Eurozone.
“We have seen regional buyers support deal momentum and pricing increasingly over the last six months.
“Despite the troubles in the rest of the world, the [Gulf] region has its own microclimate,” a Gulf-based debt capital market offi cial is quoted as saying.
Banque Saudi Fransi’s Sukuk also brings optimism on the growing participation of western, conventional banks in Islamic fi nance. Much like the eff ect Goldman Sachs’ planned US$2 billion Sukuk was to have on the market, the Sukuk is also seen as an affi rmation of the increasing importance of Shariah compliant fi nance in the conventional markets; cementing Islamic fi nance’s role as an alternative source of funding.
As a result, Banque Saudi Fransi’s successful sale could further help shine the spotlight on Islamic fi nance and lead the way for further Shariah compliant off erings from conventional institutions.
7© 23rd May 2012
NEWS
IDB financing for wind power projectsPAKISTAN: The IDB and the Asian Development Bank signed a US$133 million long-term Ijarah facility to fund the development of two wind power projects in the Sindh province.
A consortium of fi nancial institutions, namely Allied Bank, Faysal Bank, Meezan Bank, National Bank of Pakistan and United Bank, are also participating in the transaction.
NIG in Islamic syndicated dealKUWAIT: National Industries Group Holding (NIG) has appointed Warba Bank as the lead arranger to raise at least KWD100 million (US$357.72 million) via an Islamic syndicated fi nancing facility.
Warba will invite local, Gulf and international banks to participate in the fi nancing, said NIG.
NIG is involved in building materials, petrochemicals, oil and gas and fi nancial services, among others.
Indicative pricing for DIBUAE: Dubai Islamic Bank (DIB) released an indicative price of 375 basis points over midswaps for its impending fi ve-year, benchmark-sized Sukuk off ering.
The bank registered a US$2.5 billion trust certifi cate program and began investor meetings to market the issuance on the 17th May.
Deutsche Bank, DIB, Emirates NBD and National Bank of Abu Dhabi are arranging the sale.
Bank Nizwa IPO oversubscribedOMAN: Bank Nizwa’s OMR60 million (US$155.44 million) IPO has been
oversubscribed between seven and nine times since it opened on the 23rd April.
The off ering closed on the 22nd May.
Theme park financingUAE: Al Hilal Bank and Mashreq Bank closed a Shariah compliant club facility for the construction of a new theme park in Dubai developed by Ilyas & Mustafa Galadari Group.
Both banks were mandated lead arrangers for the deal; while Mashreq also acted as the documentation bank and investment agent.
The size of the facility was not disclosed.
NIB’s US$2.2 billion Turkish market forayTURKEY: Dubai-based Noor Islamic Bank (NIB) completed AED8 billion (US$2.2 billion)-worth of transactions in Turkey over the last two years.
Deals closed include a US$350 million dual currency Murabahah facility for Turkiye Finans Katilim Bankasi, for which NIB was the initial mandated lead arranger and joint bookrunner and a US$325 million facility for Bank Asya.
It also arranged a US$350 million facility for Albaraka Turk Participation Bank.
DIFCI to refinance SukukUAE: DIFC Investments (DIFCI) is expected to secure a US$1 billion fi nancing facility from four banks to help refi nance its US$1.25 billion Sukuk maturing in June this year.
Dubai Islamic Bank (DIB), Emirates NBD, Noor Islamic Bank and Standard Chartered are involved in the deal, with DIB and StanChart likely to contribute the largest amount of funds.
DEAL TRACKER Full Deal Tracker on page 32
ISSUER ISSUING CURRENCY SIZE (US$) DATE
ANNOUNCED
Amer Group Holding EGP 448.05 million 14th May 2012
Qatar sovereign TBA TBA 9th May 2012
Emirates NBD - 500 million 7th May 2012
Malaysian Airline System TBA TBA 3rd May 2012
Dana Infra RM 641.53 million 2nd May 2012
All eyes on Dana GasUAE: The market is closely watching developments on the repayment of Dana Gas’ US$1 billion Sukuk due in October this year; of which US$920 million remains outstanding.
Newsfl ow on the hiring of fi nancial advisory fi rm Blackstone Group, Deutsche Bank and Latham & Watkins to advise on the Sukuk’s repayment options has sent yields on the papers soaring as investors lean towards the belief that a restructuring is imminent. Dana Gas’ largest shareholder, Crescent Petroleum, also announced that it will not inject cash to help repay the debt; further fuelling concern on its fate.
A restructuring of the Sukuk could make them the fi rst Islamic bonds to be restructured in the UAE. The price on the papers has fallen to 68.5 US cents on US$1 from 72.5 US cents.
In a report Exotix, a boutique investment bank specializing in, among others, illiquid bonds, said that: “We expect Dana Gas’ restructuring to be a hard-fought batt le. However, we think this fi ght ultimately ends badly for Sukukholders.” The investment bank projects a recovery of 52% of par under a liquidation; while a restructuring could involve a full principal extension of at least fi ve years.
The warning bells on Dana Gas’ obligations are sounding amid IMF cautions that UAE government-related companies have around US$30 billion-worth of debt due this year, with a further “signifi cant amount of debt” maturing in 2014 and 2015.
In a statement, the IMF, which noted that it welcomed consolidation plans in Dubai, which will help improve the emirate’s debt sustainability, also stressed the need for further eff orts to mitigate fi scal risks posed by the state-linked entities. It also said that the entities are “still faced with high refi nancing needs and are reliant on foreign funding.”
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continued...
AFRICANBD reports smaller lossEGYPT: The National Bank for Development (NBD), owned by Abu Dhabi Islamic Bank, reported a net loss of EGP97.6 million (US$16.14 million) in the fi rst quarter of this year; 42.3% lower than in the previous corresponding period.
Its performance was boosted by a 66.6% year-on-year growth in net revenue from funds to EGP60.5 million (US$10 million).
ASIAApplication under reviewMALAYSIA: The central bank’s review of applications for the establishment of an Islamic megabank in the country is still under review, according to the authority.
The license for a Malaysia-based Islamic megabank was expected to be given last year.
HLIB in growth surgeMALAYSIA: Hong Leong Islamic Bank (HLIB), the Shariah compliant arm of Hong Leong Bank, reported RM103.3 million (US$33 million) in net profi t for its third quarter ended the 31st March 2012; recording a 107% growth compared to the same period last year.
Meanwhile, Hong Leong Bank’s profi t for the period rose 60.5% year-on-year to RM465.1 million (US$149 million).
More Shariah graduates for BruneiBRUNEI: Dr Mohamad Akram Laldin, the executive director of the International Shari’ah Research Academy for Islamic Finance, said that the establishment of the Center for Islamic Banking, Finance and Management in Brunei is a very good step towards producing more Shariah graduates that will be able to run, plan and further develop the country’s Islamic fi nance industry.
He noted that the country requires more Shariah graduates to enter the fi nancial industry; with the building of human capacity representing the key for Brunei to develop a niche in the global Islamic fi nance industry.
Islamic entrepreneurship laudedBRUNEI: Prince Al-Muhtadee Billah, the crown prince and a senior minister at the prime minister’s offi ce, has urged the local Islamic banks to be more “entrepreneur-friendly” by off ering various Islamic fi nancing methods that will help Muslim businesses become successful.
Meanwhile, he also called for the establishment of a comprehensive regulatory system for the global Islamic fi nance industry to develop further.
De-listing for First Islamic Modaraba?PAKISTAN: First Islamic Modaraba, a local Shariah compliant fi nancing provider, is among 26 companies proposed to be de-listed from the Karachi Stock Exchange due to non-compliance to listing regulations.
The companies’ shares have already been suspended from trade.
BSN reports marginal growthMALAYSIA: Bank Simpanan Nasional (BSN) reported a net income of RM1.03 billion (US$330.83 million) for the fi nancial year ended the 31st December 2011, against RM968 million (US$310.92 million) in 2010.
Revenue from its Islamic banking portfolio rose by 18.2% to RM618 million (US$198.45 million).
BNI Syariah to expand microfinance INDONESIA: Bambang Widjanarko, the director of business at BNI Syariah, has said that the bank will be expanding its microfi nance business into the municipality of Bogor and its surrounding areas.
Other areas targeted are the Lampung, Surabaya, Bandung, Makassar, and Mataram municipalities.
Enticing tax breaksMALAYSIA: The government’s decision to off er tax breaks on foreign currency Sukuk has spurred interest from potential local issuers to off er non-Malaysian ringgit Sukuk.
New products from Bait Al BursaBAHRAIN: Bait Al Bursa, the Shariah compliant arm of the Bahrain Financial Exchange (BFX), plans to expand its business by launching a number of Islamic products in the coming months, which will include Islamic equities, Sukuk and exchange traded funds.
In a response to Islamic Finance news, the bourse also said that it will be introducing other Shariah compliant assets onto its fully automated platform, e-Tayseer, such as industrial equipment, metals and soft commodities.
The current underlying assets for e-Tayseer are cars and car parts.
In addition the Islamic bourse, which currently has 20 members including Al Baraka Islamic Bank, ABC Bank, Elaf Bank, Khaleeji Commercial Bank, TAIB Bank and Tadhamon Capital, aims to double that number by the end of this year.
However, BFX, which recently announced a total turnover of US$1 billion as at the 24th April, with its total trading volume increasing to 24,046 contracts, has yet to release trading fi gures for its Islamic platform. “We have not yet started making the fi gures about volumes on our Murabahah platform public,” it said.
The Bait Al Bursa was launched in February last year.
Meanwhile, BFX recorded trading turnover of US$523.44 million for the period between the 1st-24th April, 11 times more than in December 2011. “During the same period, the trading volume has increased around 10 times, from 1,170 contracts to 11,150 contracts. The total trading turnover in April 2012 (up to the 24th April), was more than the total trading turnover from the launch date of the 23rd November 2011 to the 31st March 2012,” it said.
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“Companies see Sukuk denominated in currencies other than the [Malaysian] ringgit as an alternative funding source to expand their operations overseas. The trend is rising,” said Mohd Eff endi Abdullah, the head of Islamic markets at AmInvestment Bank.
AmInvestment has reportedly received a growing number of inquiries from companies looking to sell foreign currency Sukuk in Malaysia, while Standard Chartered is said to be in discussions with up to fi ve companies to manage deals amounting to at least US$1 billion.
Growth surges at AMMB’s Islamic businessMALAYSIA: AMMB Holdings, which owns AmIslamic Bank, reported a net profi t of RM1.51 billion (US$481.2 million) for its fi nancial year ended the 31st March 2012, compared with RM1.34 billion (US$427.03 million) a year earlier.
Profi t aft er tax at its Islamic banking business rose 43.4% to RM245.1 million (US$78.11 million), contributed by strong asset growth and higher investment and trading income.
Boosting microfianceINDONESIA: Bank Victoria Syariah is targeting IDR350 billion (US$37.8 million), or a 45% contribution, from its microfi nancing business to its projected IDR750 billion (US$81 million) in fi nancing disbursements this year.
To this end, the company will open 18 more branches and offi ces for the remainder of the year.
IBT in MLM pushTHAILAND: The Islamic Bank of Thailand’s (IBT) multi-level marketing (MLM) strategy aimed at att racting new customers is projected to account for up to 20% of new fi nancing each year, according to Uraiwan Maneechote, a senior executive vice-president of the bank.
The strategy is also expected to help the bank att ract 20,000 new customers within the next three to fi ve years.
Islamic finance for bumisMALAYSIA: Muhyiddin Yassin, the deputy prime minister of Malaysia, has urged bumiputera entrepreneurs
to utilize Islamic fi nance more in their business ventures.
“It has been proven that our country has a comprehensive Islamic fi nancial system, also covering Islamic insurance and share trading on Bursa Malaysia,” he added.
Tunisia to invest in MalaysiaMALAYSIA: Tunisia is keen to invest in Malaysia as it sees potential in the local market, said Ahmad Husni Mohamad Hanadzlah, the second fi nance minister of Malaysia.
“Their [Turkey’s] chamber of commerce will identify 30 large companies which Malaysian companies can forge ties with,” he said.
On another development, the minister also said that the country, via the Malaysian central bank, has fi nalized an off er to cooperate with its Turkey counterpart to provide Islamic banking services in Europe.
EUROPEInvestors turning to SukukUK: Nigel Denison, the head of markets and asset management at the Bank of London and the Middle East (BLME), said that volatility in the European fi nancial markets has sparked greater investor interest in Sukuk.
He noted that the “consistent and positive performance in the Sukuk market” as well as the att raction in alternative investments have made investors view the GCC as a more stable and safer investment venue, compared to Europe.
“We expect to see a signifi cant number of Sukuk issuances before the end of June as issuers take advantage of current high demand before the summer slowdown and the beginning of Ramadan in July,” said Denison.
New product in the pipelineTURKEY: Bank Asya is planning to introduce interest-free private pension plans for its customers in the near future, said Abdullah Çelik, its general manager.
The scheme will include money circulated in Turkey’s participation banks’ accounts, gold and Sukuk.
GFH announces restructuring of Sukuk BAHRAIN: Gulf Finance House (GFH) has announced the restructuring of US$110 million-worth of Sukuk outstanding; extending its repayment of the debt.
The bank received approval from its Sukukholders for the restructuring, which will see the bank extending its repayment over the next six years. The Sukuk will now mature in June 2018, with GFH receiving a two-year grace period for the principal repayment amount in 2012 and 2013.
“With the approval to restructure GFH’s Sukuk, we are now in a bett er position to accelerate growth initiatives for the future. We are targeting to extend the maturities of our debt over a longer-term to retain our key assets. The restructuring of the GFH Sukuk is an extremely positive development for the bank and will enhance the bank’s balance sheet signifi cantly,” said Hisham Alrayes, its acting CEO.
More than 92% of the bank’s Sukukholders voted on the restructuring during an extraordinary general meeting on the 15th May, with 100% of the voters agreeing to the new terms.
Liquidity Management Center and KPMG advised on the transaction.
GFH sold the US$200 million Sukuk in July 2007. The bank, which has been struggling since the 2008/2009 fi nancial crisis, reported a 92% year-on-year plunge in its net profi t to US$1 million in the fi rst quarter of this year. It has embarked on a recovery plan which, apart from debt restructurings, also includes stringent cost cutt ing measures.
As at the 31st March this year, the bank’s cash and cash equivalents amounted to US$6.42 million against US$40.92 million a year earlier.
continued...
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UK: Humphrey Percy, CEO of the Bank of London and The Middle East (BLME), said that the bank is currently awaiting regulatory approval to begin operations in the GCC, fi rstly with a representative offi ce this year and a branch or a subsidiary in the longer-term.
The bank is targeting wealthy Gulf residents who have ties to the UK to help boost its corporate and private banking business. However, Percy did not specify which country in the GCC the bank is entering.
GLOBALEnhancing tiesGLOBAL: Malaysia’s central bank, Bank Negara Malaysia, signed an MoU with the Central Bank of Turkey aimed at promoting bilateral investments and liquidity arrangements, supporting the development of the fi nancial services sector in both countries and enhancing economic and fi nancial linkages.
The MoU also includes the establishment of the required fi nancial infrastructure and payments and sett lements arrangements to facilitate bilateral trade in the countries’ respective local currencies.
Sukuk sales winding down?GLOBAL: Sukuk yields have risen to a two-month high in the worst weekly performance since the beginning of this year, as the risk of contagion from Europe and China’s slowing economy drive investors towards safe-haven US debt.
According to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, global Sukuk yields climbed nine basis points to 3.76%. The rising borrowing costs may lead potential Sukuk issuers to delay sales.
Seven new standards from AAOIFIGLOBAL: AAOIFI announced the fi nalization of seven new Shariah standards which will be added to its 41 existing Shariah standards and 40 accounting standards.
The standards cover fi nancial rights and its management, the regulations of liquidity management, bankruptcy,
capital and investment protection, agency in investment, calculation of profi t transactions and options of trust.
Meanwhile, Hussain Al Qemzi, the group chief executive of Dubai’s Noor Islamic Bank, noted that AAOIFI’s review of its standards is timely due to the rapid growth of Islamic fi nance. “This speed of growth will inevitably expose systemic fl aws in how the industry is regulated, which could impact Islamic fi nance institutions and stall growth unless they are addressed,” he said.
IFSB takes on reformGLOBAL: Dr Erdem Başçı, the governor of the Central Bank of Turkey, has called for structural reform in the Islamic fi nance industry to help reduce pro-cyclicality in the fi nancial system and make it more resilient to external shocks.
He was speaking at the ninth IFSB Summit in Turkey, for which Islamic Finance news was the information partner, from the 16th-17th May.
Speakers at the summit, who included the governors of the central banks of Luxembourg, Malaysia, Nigeria and the UAE, also spoke on the strengths of the Islamic fi nancial services industry, which if fully explored, could help build a robust, resilient and just fi nancial system that supports growth economic activity.
Meanwhile Jaseem Ahmed, the secretary general of the IFSB, announced the launch of a new global initiative to revise its 10-year framework and strategies for the development of the Islamic fi nancial services industry; in coordination with the IDB and the Islamic Research and Training Institute.
On another note, speakers at the IFSB summit also covered the importance of Islamic microfi nance in promoting fi scal inclusion.
Bank Sarasin to expand in Malaysia?GLOBAL: Swiss-based Bank Sarasin is considering venturing into the Malaysian Islamic fi nance market, according to Fares Mourad, its head of Islamic fi nance.
However, he clarifi ed that the bank’s assessment of entering Malaysia is still at an “extremely early” stage and it has not made a fi nal decision on the matt er.
KFH Malaysia announces 2011 loss but first quarter profitMALAYSIA: Kuwait Finance House (Malaysia) announced a loss aft er tax of RM596 million (US$190.04 million) for 2011, as it continued its provisioning exercise on legacy accounts.
It reported a net loss of RM75.64 million (US$24.12 million) in 2010.
“This was a necessary approach for the bank to adopt in order to remain on track to write-off the last traces of legacy matt ers while maintaining prudent quality management,” said Dr Nabeel Al-Mannae, its chairman, of the bank’s provisions.
The bulk of KFH Malaysia’s loss for the year is a result of RM796 million (US$253.81 million) in impairment allowances on fi nancing, advances and other receivables.
However, for the fi rst quarter ended the 31st March 2012, it reported a net profi t of RM16.54 million (US$5.27 million) against a net loss of RM30.48 million (US$9.72 million) a year earlier.
Commenting on the results, local rating agency MARC said that its ‘AA+/MARC-1’ ratings on KFH Malaysia are not aff ected following the bank’s fi rst quarter earnings announcement, further noting that while the bank’s balance sheet strength has been impacted by the huge losses, its capitalization remains strong, with a risk-weighted capital ratio of 18.4%.
“KFH Malaysia’s long-standing non-performing fi nancing facilities have been a drag on the bank’s performance in recent years.
“MARC believes that the bank’s improved operating performance in the fi rst quarter of 2012 and the reduced potential for unexpected material impairments that could weaken profi tability or capitalization levels, suggest reduced downside risks to the bank’s creditworthiness,” it said.
The rating agency also expects further recovery in the bank’s profi tability in the subsequent quarters, factoring in the potential for additional impairment to decline from its peak in 2011.
11© 23rd May 2012
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1st - 2nd October 2012Kuala Lumpur Convention CentreIssuers Day: Monday, 1st OctoberInvestors Day: Tuesday, 2nd OctoberTakaful & re-Takaful Day: Tuesday, 2nd October
Following the tremendous success of last year, the 7th IFN Asia Forum will be held in Kuala Lumpur, Malaysia on the 1st-2nd October 2012. The renowned 'Issuers & Investors' format will again ensure both the buy-side and sell-side are fully incorporated in this 2-day event.
With complimentary delegate passes for all issuers, investors, regulators and other senior and relevant key practitioners, the IFN Asia Forum 2012 is again set to be the industry’s largest and leading annual event; the only event you need to attend if you are involved in Islamic finance in Asia.
So, don’t miss out on the IFN Asia Forum 2012 and register today! We look forward to seeing you with the rest of the industry’s finest!
SPONSORS & PARTNERS
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www.REDmoneyevents.comAttendance, while FREE, is by invitation only and open to those who register
and have an active interest in this fast growing industry.
RATINGSGood startUAE: Fitch assigned an ‘A(exp)’ expected rating to Dubai Islamic Bank’s proposed US$2.5 billion trust certifi cate issuance program.
Islamic notes redeemedMALAYSIA: Kuala Lumpur Kepong redeemed its RM500 million (US$161 million) Sukuk Ijarah Islamic commercial papers/medium-term notes program (2007/2012).
RAM has subsequently withdrawn the Sukuk’s rating of ‘AA1’ /stable/’P1’.
Double rating actionsMALAYSIA: RAM has withdrawn its ‘AA3’ ratings of Kencana Petroleum’s RM700 million (US$225 million) Sukuk Mudarabah program and its earlier proposed issuance of a RM350 million (US$113 million) Sukuk Mudarabah, which has now been aborted.
This follows the fi nalization of Kencana Petroleum’s merger with SapuraCrest Petroleum; resulting in the formation of SapuraKencana Petroleum.
Kencana’s RM700 million Sukuk Mudarabah has now been novated to SapuraKencana; to which RAM has assigned an ‘AA3’ rating with a stable outlook.
Good kick-offMALAYSIA: RAM assigned a preliminary ‘AA1(s)’ rating to Gulf Sukuk I Company’s proposed Sukuk Wakalah medium-term note program of up to RM3.5 billion (US$1.12 billion).
Fine beginningQATAR: S&P has assigned its long-term ‘A-’ and short-term ‘A-2’ counterparty credit ratings to Qatar Islamic Bank. The long-term rating carries a stable outlook.
No longer ratedMALAYSIA: RAM has withdrawn its ‘AA1’/stable rating on Segari Energy Ventures’ RM930 million (US$299 million) Sukuk Ijarah (2006/2012) following the company’s redemption of the papers.
12© 23rd May 2012
NEWS
Senior additions to IIBRGLOBAL: Muhammad Taqi Usmani, the chairman of AAOIFI; and Dr Akram Laldin, the executive director of the International Shariah Research Academy, have joined the Islamic Interbank Benchmark Rate’s (IIBR) Shariah committ ee.
Muhammad Taqi will chair the Shariah committ ee for the IIBR, jointly set up by institutions including the IDB, AAOIFI and Thomson Reuters.
In addition, Dr Abbas Mirakhor, the fi rst chair of Islamic fi nance at INCEIF; and Ismail Dadabhoy, an Islamic banker and the former executive director and head of Islamic fi nance at UBS, joined the IIBR’s Islamic benchmark committ ee.
MIDDLE EASTVCBank bounces backBAHRAIN: Venture Capital Bank (VCBank), a local Shariah compliant investment bank, reported a net profi t of US$8 million for the fi rst quarter ended the 31st March, against a net loss of US$2.9 million a year earlier.
During the same period, its total revenues increased sevenfold to US$11.1 million.
Yields decline UAE: Ras Al Khaimah’s Sukuk yields have fallen to their lowest in six months following plans to build a Real Madrid-themed resort in the emirate.
The yield on the emirate’s 5.24% Sukuk due in January 2016 has dropped by 31 basis points (bps) to 2.98% since the March announcement from Real Madrid; compared to a 12 bps decline on Dubai’s 6.4% Sukuk maturing in November 2014.
The Real Madrid resort island, that will off er a theme park, a museum and luxury hotels, is scheduled for completion in January 2015.
Sukuk an option for JordanJORDAN: The kingdom could reduce borrowing costs by issuing Sukuk as it seeks to bridge its budget defi cit and faces US$3.7 billion-worth of maturing debt this year, analysts said.
Gabriel Sterne, an economist at Exotix Holdings, noted that Jordan’s
government will either have to tighten spending or issue more debt to manage its defi cit, forecasted at 9.3% for this year. “They can tap the markets if they so choose. In fact now would be a prett y good time to do so because the bonds have done prett y well recently. That would be the obvious thing to do,” said Sterne.
Earlier this month, Dr Maher Sheikh Hasan, the deputy governor of the central bank of Jordan said that the authority is draft ing a law to govern the sale of Sukuk.
Bank Albilad picks GemaltoSAUDI ARABIA: Bank Albilad will deploy French smartcard group Gemalto’s Dexxis Instant Issuance solution for EMV (Europay, MasterCard and VISA) payment cards at all its branches.
The solution will enable the bank to issue up to 2,000 banking cards per day.
Growth slows at CapinnovaBAHRAIN: Capinnova Investment Bank reported a net profi t of US$743,000 for the fi rst quarter of this year; against US$1.2 million in the previous corresponding period.
Gross revenues amounted to US$2.1 million from US$2.3 million a year earlier.
MOVESTAYLOR WESSINGUAE: Legal fi rm Taylor Wessing has appointed Neale Downes as partner for its Dubai offi ce, eff ective from the 10th June 2012.
Downes was previously a Bahrain-based partner in the Islamic fi nance group at Trowers & Hamlins.
AMANA BANKSRI LANKA: Amana Bank has appointed of Ash-Sheik Muft i Muhammad Hassan Kaleem to its Shariah supervisory council.
HONG LEONG MSIG TAKAFUL MALAYSIA: Hong Leong MSIG Takaful has appointed Mohd Fauzi Yaakub as its new CEO.
BARCLAYS BANKUK: Barclays Bank has named Alexander Harrison as its newhead of debt fi nance for the UAE and the GCC.
Harrison will be responsible for driving the bank’s debt fi nance business and managing its debt portfolio.
Coming up...Volume 9 Issue 21 — 30th May 2012
Meet the HeadNaoki Ishikawa, partner, Mori Hamada & Matsumoto
FeaturesBasic requirements for Islamic microfi nance; By Moinuddin Malim, CEO of Mashreq Al-Islami Finance and head, Islamic banking division at Mashreq Bank.
Islamic microfi nance: Challenges and the way forward; By Sutan Emir Hidayat, senior lecturer and academic advisor for Islamic fi nance, University College of Bahrain.
Islamic fi nance — the role of off shore jurisdictions; By Caroline Barton, associate and member of the corporate and commercial practice group in the Cayman Islands offi ce of Appleby.
Putting the pieces together?
Briefing 1: Latest Developments in
Sukuk Instruments
Briefing 2: Islamic Profit Rate Swaps
12th July 2012, Kuala Lumpur
briefings
13© 23rd May 2012
IFN REPORTS
Australia’s pension scheme has been a success story since the government introduced the ‘Superannuation guarantee’ in 1992 compelling the employer to contribute towards its employees’ retirement savings in additional to their wages.
Total Superannuation assets stood at AU$1.3 trillion (US$1.35 trillion) as at September last year and this amount is expect to continue to surge aft er the country’s senate passed what was termed an “historic” piece of legislation compelling the increase of employees’ Superannuation contributions to 12% from the current 9%.
This year will be signifi cant to the Australian Superannuation Fund, bett er known as the ‘Super’, for two reasons. Firstly, it marks the 50th anniversary of the Association of Superannuation Funds of Australia and secondly (and more importantly to Islamic fi nance) it will also see the birth of an Islamic Super to be launched sometime this year.
Islamic Finance news spoke to Ken Atchison, the managing director of Atchison Consultants, who played a pivotal role in structuring the Shariah compliant fund, who outlines two reasons for the launch. Firstly, he says it is the religious aspect: as currently there is no Superannuation fund available for Muslims to invest while holding on their religious beliefs. The other reason is the investment proposition: “The investment is low risk as under Islamic principles there is a far more stable proposition,” he explains.
On whether there will be suffi cient
investment opportunities for a Shariah compliant model, Atchison is confi dent there is about 65% of the Australian share market (translating to roughly AU$600-700 billion) to be invested. “My view is that despite Shariah compliant screening eliminating 35% of the share market but there are opportunities out there as there is always a greater demand for capital than there is availability of investment capital. The other thing that might occur as a result is more listings that would adhere to Shariah law. A creation of a market of sorts to invest that will lead to Shariah compliant companies or stocks.”
Cerulli Associates in a recent report on Australia’s Super stated that despite the large number of funds and types of funds, self-managed funds have increased exponentially, making up 33.9% of all the superannuation assets. Cerulli predicted that the number of large Supers is likely to shrink as the total number of funds increases. Atchison, while admitt ing that self-managed funds are a fast-growing structure, advocates that the institutional structure remains a prominent part of the market which
will adopt the Shariah compliant model. However, he does expect a Shariah compliant model platform will also emerge for self-managed structures.
The rate of returns of a fund is vital in addition to the religious aspect. Atchison is of the view that conventional and Shariah compliant returns will not be materially diff erent coming from the same broad equity market but the latt er will be less volatile. “Our strong view is mid to high single digit returns (7-9%) that is the best an investor of an Islamic super will hope to get in our three to fi ve-year forecast period.”
With Islamic fi nance growing in prominence in Australia, Islamic Supers have the potential to not only capture the hearts of Islamic investors in the country but if professionally managed, to produce strong forecasted returns. This could also win over non-Muslim Super members as well as other conventional Super funds looking for a less volatile investment or an ethical theme in their portfolio. — RW
Superannuation goes Islamic
My view is that despite Shariah
compliant screening eliminating 35% of the share market but there are opportunities out there ...
14© 23rd May 2012
IFN REPORTS
Private equity investments and fund management are at the top of the Islamic fi nance agenda in America, with Latin America being touted as a possible new frontier for such investments. According to Amar Meher, a senior associate at law fi rm Vinson & Elkins, South America is a “very interesting prospect” and many investors are now turning to this emerging market to see the potential for Shariah compliant instruments. “They also recently had a commodity Murabahah transaction in Brazil, and this is expected to pick up,” he added.
Sarah Alexander, the founding president and CEO of the Emerging Markets Private Equity Association, elucidated: “Private equity investors in Latin America provide more than just capital. They employ strategies that are yielding larger, more professionalized companies ready for the next stage in the region’s development.” Recent market developments have also been skewed towards movements in emerging markets, with investors preferring to focus on minority deals, equity deals and working closely with portfolio companies to add value.
Despite the economic gloom surrounding the Eurozone, there could also potentially be a silver lining for the private equity markets, with the weakened euro aiding exports and cajoling the US markets to increase their Eurozone bank debt, signaling renewed confi dence in the
global capital markets. An industry analyst affi rmed this, saying: “Current market conditions off er an opportunity to make sound investments at att ractive prices, and harvest them as the markets recover. Investments in underlying companies made over the next three years will be exited between 2016-20; when the economic climate is expected to have improved.”
The US funds industry is also massive, with its mutual fund industry representing the largest mutual fund market in the world, constituting 47% of global assets under management. At the end of February 2012, the US market accounted for 70.5% of total global
market share for global exchange-traded products, with North American equities’ assets under management standing at US$634 billion, followed by emerging market equities at US$241 billion.
According to recent data, US Islamic mutual funds have seen rapid growth due to the outperformance of Shariah compliant indexes over conventional indexes.
The main reason for this, an industry expert said, is due to the zero exposure of Islamic indexes to western fi nancials, and the over-exposure of Shariah indexes to commodities.
However, despite this, Islamic mutual funds in the US still have a long way to go to att ain satisfactory growth levels, with the main roadblocks being a lack of quality Shariah compliant products— with a greater selection of asset classes and lower fees needed to eff ectively compete with the conventional industry; as well as, scalability and the limited availability of index-based ETFs and mutual funds.
Saeid Hamedanchi, the founder and CEO of Shariah Shares, stated: “It is critical that Shariah compliant fund managers (in the US) obtain scalability in order to compete eff ectively in the industry. This requires a solid track record of outperformance for actively managed funds and strong branding.” — NH
Coming to America
It is critical that Shariah
compliant fund managers (in the US) obtain scalability in order to compete effectively in the industry
15© 23rd May 2012
IFN CORRESPONDENTS
IRAN
By Majid Pireh, IFN Correspondent
Since the Islamic revolution in 1979 Iranian offi cials have had a tendency to implement Islamic laws in the society and reform the existing structures to be compliant with Shariah rules and regulations. Although there has been a great deal of work already done, there is still a long way to go to perfectly achieve the Shariah goals.
Fortunately, the pace of Islamic reforms in the economy and the fi nancial system has increased in recent years, especially aft er establishing the Securities and Exchange Organization (SEO) in 2007. The most important task of the organization is to develop fi nancial markets, institutions and instruments as well as regulating and supervising the country’s capital market.
Some Islamic countries have put forward an idea of convergence among diff erent Islamic stock exchanges and it seems that
it is the time for all Muslim economists and fi nancial experts to think carefully about it. Convergence among Islamic stock exchanges is necessary for Muslim countries to establish an international phase of Islamic capital market as a dual for conventional capital market.
The regulatory bodies for capital markets should think of their requisites including legal and institutional grounds as well as political considerations. It is clear that the controversies in theoretical aspects are not so much because there is a high degree of similarity in diff erent schools of Islamic jurisprudence (Fiqh). In the practical aspects, however, there is the need for more debate and academic work.
For the fi rst bold step, we may use the excellent potentialities of the OIC for such important common goals or, preferably, the OIC member countries can be at the vanguard of this great endeavor and joint enterprise. In this way, we can pool our resources and staunchly
champion the cause of establishing an international fi nancial institution.
On behalf of the SEO as a rule-making body and a regulatory authority in the Iranian capital market, we venture to propose to all participants in the Islamic capital markets all over the world, to combine forces towards designing and forming an international Islamic fi nance institution which will ultimately contribute to the direction, integration, supervision and adoption of various Islamic fi nance products, services and instruments. This can be taken as a ‘shared aim’ to be achieved through a concerted eff ort by all because many hands make light work.
Now it is the time for opening new horizons for developing the Islamic fi nancial system across the globe.
Majid Pireh is an Islamic fi nance expert and head of Islamic studies department at the Securities and Exchange Organization. He can be contacted at [email protected].
The Iranian capital market looks forward to the establishment of an international Islamic stock exchange
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Inaugural Address
H.E. Ravi Menon Governor
Monetary Authority of Singapore
Opening Keynote Speaker
H.E. Dr. Ahmad Mohamed Ali Al-Madani
President Islamic Development Bank
Jaseem AhmedSecretary-General
Islamic Financial Services Board (IFSB)
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16© 23rd May 2012
IFN CORRESPONDENTS
UK
By Dr Natalie Schoon, IFN Correspondent
Over the past period, the UK has further strengthened its position as the Islamic fi nancial center of choice outside the Middle East and Asia. Although still dominated by wholesale Islamic fi nance, a number of retail-related events have taken place. The Chartered Institute of Securities and Investments (CISI) held a ‘Professional Interest’ forum entitled ‘UK Retail and Pensions for its Members’.
In early May, the Islamic Bank of Britain organized an event called ‘Islamic Finance Question Time’ during which customers could ask a variety of questions of the bank’s Shariah supervisory committ ee.
This event, the fi rst in its kind where the bank’s scholars answered questions from the public, was well received by clients and potential clients of the bank.
The Bank of London and The Middle East (BLME) was, for the third year running, voted as the best Islamic bank in Europe in the Islamic Finance news polls. In addition, BLME was awarded the ‘2011 Real Estate Transaction of the Year’ for fi nancing the Brewery Square development in Dorchester. BLME’s fi nancial statement for 2011 displayed an increase in total assets from GBP95 million (US$150.76 million) to GBP 807 million (US$1.28 billion) and an increase in operating profi t from GBP4 million (US$6.35 million) in 2010 to GBP4.4 million (US$6.98 million) in 2011. With a number of new transactions recently announced including a renewable
energy transaction and the addition of a property to the Light Industrial Building Fund, it has shown a strong start to 2012.
Gatehouse Bank, which has steadily been building its property portfolio, has sold two student accommodation properties for GBP34.4 million (US$54.59 million) aft er a two-year holding period. With the sale, Gatehouse Bank realized a return on investment of 37.2% on exit on top of an internal rate of return of 18.6% during the holding period.
Although the growth in Islamic fi nance in the UK is not excessively high, the industry is growing at a sustainable pace and is well set for the future.
Dr Natalie Schoon is the principal consultant at Formabb and she can be contacted at [email protected].
Sustainable progress initiatives
MALDIVES
By Aishath Muneeza, IFN Correspondent
The Maldives has embarked on the huge task of developing Islamic fi nance parallel to its existing conventional fi nance market. Aft er establishing its very fi rst Islamic bank in March 2011, the country also witnessed the issuance of its fi rst Islamic equity in 2011. The fi rst company in Maldives that was listed as a company issuing Shariah compliant equity was Amana Takaful Maldives. The country is subsequently moving towards the development of a Sukuk market.
The Capital Market Development Authority, established under the Maldives Securities Act 2/2006, is the statutory body mandated to regulate and develop the capital markets in the country. Section 62 of the Maldives Securities Act states that “securities” means: “(1) debentures, bills or bonds issued or proposed to be issued by the government; (2) debentures, stocks, shares, bonds or notes issued or proposed to be issued or any right warrant or option in respect thereof by a body corporate or any other institution; and (3) any other instruments as the authority may prescribe to be securities for the purposes of this Act.”
On the 15th June 2011, by using the
power vested in the Capital Market Development Authority under Section 62(3), it was declared in the National Gazett e that “securities” include Islamic securities as well, thus giving the legal authority for the Capital Market Development Authority to deal with Islamic securities.
Hence in the Maldives, it is the Capital Market Development Authority that regulates Islamic securities including Sukuk.
The fi rst company in the country that openly announced that it was going to issue a Sukuk was the Housing Development Finance Corporation (HDFC). In a press release published on its offi cial website on the 11th April 2012 it was stated that the company, which
specializes in conventional retail home fi nancing loans, is going to introduce Islamic fi nance home fi nancing facilities soon. It was also stated that to pave the way for the off ering of Islamic fi nance products, HDFC will issue a Sukuk.
This press release has given the indication that Sukuk will be soon issued in the country for the very fi rst time. If so, this will also be the fi rst time ever in the Maldives that an instrument other than an equity product will be utilized, as at the moment there is no bond market in the country.
The country has yet to develop a regulatory framework to govern the issuance of Sukuk. However, it is anticipated that in the near future a regulatory framework will be developed to deal with the issuance of Sukuk in the country as the regulatory body as well as other stakeholders aspire for progress in the Islamic capital market sector.
It is a great hope by Islamic fi nance advocates in the country that the endeavor to issue Sukuk in the Maldives becomes a reality soon.
Aishath Muneeza is the head of Islamic fi nance at Capital Market Development Authority, Maldives. She can be contacted at [email protected].
A small island aspires to introduce Sukuk
The country has yet to
develop a regulatory framework to govern the issuance of Sukuk
17© 23rd May 2012
COLUMN
By Shan Saeed
Darling asset of hedge funds: Investors can easily buy nowStocks surged to their highest pre-2008 crash levels during the last few weeks. To some investors, that means we can throw caution to the wind. Happy days are here again. To me, multi-year highs are the kind of price levels that suggest caution. It also means that other asset classes may provide bett er returns during the next few years. I doubt the winds are very fast and they could cause problems to many investors.
Along that line of reasoning, bonds are out. In today’s zero-interest rate world, there’s no income and litt le upside. As I have mentioned in my previous articles, bonds might even be riskier than stocks at these prices. Warren Buff et is saying that stocks are bett er than bonds in this situation; where markets are extremely volatile and uncertain.
If you have already owned bonds during the past decade, these prices are a great time to sell. Likewise, it may be a great time to sell growth stocks that have been on a tear since the market rebounded nearly three years ago. So instead of looking at loved asset classes, let’s focus on an area that investors absolutely won’t even look at right now: housing.
Housing marketYes, the housing market remains on life support. Recently Barack Obama introduced a new plan to help struggling homeowners refi nance at lower rates and save on monthly payments. While this plan may allow consumers to have some more money to spend and thus stimulate the economy, it still puts housing squarely in a downtrend.
That’s also confi rmed by the latest numbers of the Case-Shiller Index, which shows that housing has not only continued to decline, it’s doing so at a faster rate than most economists expected.
So far, that doesn’t sound good for housing. But there’s a silver lining to this cloud. At today’s prices, in markets signifi cantly off their highs, investors can buy houses that provide positive monthly cash fl ow. During the height of
the real estate boom, investors piled in with the expectation of a quick sale. They weren’t concerned with a tenant making monthly rental payments.
Today, that’s fl ipped. Price-to-rent ratios are back to pre-housing bubble levels. And hedge funds want in on the game. A few have recently announced their intention to start investing directly in housing. That’s an indication that, despite the bad news, prices are so low relatively to rent, that it makes sense to become long-term homeowners to take advantage of a strong rental market.
Asians are buying most of the properties in the US and the UK. They are on a buying spree at the moment globally. Asians are buying 35% of the properties in the UK with rental yields of 5.3%. Yes, real estate is substantially diff erent than other investments. There isn’t a daily market where you can get an ever-changing price for the value of a property. Housing requires maintenance, insurance, and a watchful eye on tenants. Hedge funds can get around this by buying in bulk from banks and the government, and then sett ing up property management companies. But for the most part, individual investors can outdo hedge funds. Individuals have superior knowledge of their local markets.
Yes, prices may continue to go lower. Or they may be close to a bott om. Either way, at today’s prices, the right real estate investment can provide consistent, growing cash fl ow. That’s a far cry above uncertain markets.
The US economy might hit recession in 2013 The US economy will be in serious trouble in 2013, and could kiss recession again. If you look at her fi nancial history, she has had a recession every four to six years. Next year will mark the start of the next cycle. Taxes are set to rise next year, and as a
result, the US economy is headed for a recession and stocks are poised to tank. The Bush tax cuts are set to expire at the end of this year, but election-year politics will likely mean they will expire and renewing them aft er expiration will be messy. Furthermore the economy is due for a downturn anyway if history serves as an indicator.
Congressional inaction on pending tax hikes and spending cuts could send the country over a dreaded fi scal cliff .Without action, the ‘fi scal cliff ’’ could shrink next year’s economy by 3.5%, or about US$575 billion. If decision makers do nothing, early 2013 will be recession-like.
ConclusionThe US economy is doomed for sluggish growth at best as the country deals with a massive debt and too litt le growth. In my opinion, recovery is going to be very
weak, uncertain, shaky and inconsistent in fi rst-world economies
for the next three years.
The US can continue to
grow, but it’s going to be a disappointing growth. I have always thought any recovery would be
a very long process and it will take six
to eight years to shape up to benefi t
the economy. Tough times lie ahead in
the global fi nancial market.
Shan Saeed is a fi nancial economist and commodity expert with 12 years of fi nancial market experience.
He graduated from the University of Chicago, Booth School of Business,
US. He can be contacted at [email protected].
The US economy could hit recession by Q1 2013
18© 23rd May 2012
INSIDER
Faisal Private Bank, the 100%-owned Swiss unit of Bahrain’s Ithmaar Bank, revealed this month that it is seeking new shareholders to help raise funds to meet the minimum capital requirement under Swiss regulations.
Like many Gulf-related banks, Faisal fell victim to the 2008/09 fi nancial crisis and has since struggled to reverse its fortunes.
With Ithmaar unable to inject further capital into the bank, the entrance of new shareholders is seen as a crucial lifeline for Faisal to continue its operations.
Lacking capitalFaisal did not respond to questions sent from Islamic Finance news. However Mark Koch, its CEO, recently said that Faisal is in negotiations with three fi nancial institutions to take up a stake. The institutions comprise two from the Gulf and one from the UK.
The bank’s conundrum stems from the failure of Ithmaar to provide a US$60 million capital injection; required for Faisal to meet the Swiss Financial Market Supervisory Authority’s minimum capital requirement of CHF50 million (US$53.21 million). The Swiss regulator has given Faisal until June to meet the capital requirement.
In 2009, Ithmaar tried to raise up to US$500 million for its subsidiary, but only succeeded in raising US$100 million; aft er which it was barred by the Central Bank of Bahrain from further funding to Faisal.
Ithmaar itself has reported three straight years of losses since 2009, also stemming from the Middle East’s fi nancial woes. Although still in the red as at the fi rst quarter of 2012, the bank has narrowed its loss to US$452,000 from as much as US$233.37 million in 2009.
RoadblockFaisal’s story is not atypical to the fortunes of banks in the Gulf following the Middle East’s fi nancial crisis. Banking on the real estate boom, it initially booked rapid growth through upfront payments from investors.
The bank’s business model allowed it to build up a real estate portfolio worth CHF1.1 billion (US$1.17 billion) in 2009. However, the bubble quickly burst as real estate prices plunged. Faisal was also forced to contend with amendments to Swiss accounting rules which led it to stop collecting fees based on expected future earnings.
Nonetheless, the bank appears to
have been able to continue operations, although business may be close to a grinding halt due to its lack of funds, with Koch noting that the bank has had to turn down business as a result.
Big plansKoch himself was appointed to the bank in 2009 following the resignation of then-CEO, Marco Rochat. The new CEO’s mandate was to broaden Faisal’s focus beyond wealth and asset management to trade fi nance and asset management.
Launched in 2006, the bank aimed to tap into Arab funds managed by institutions in Geneva aft er receiving its Swiss banking license. It was set up in Geneva as Faisal Finance in 1982.
At its launch, the bank managed a CHF1.25 billion (US$1.33 billion) investment fund and has launched its funds in China, Hong Kong, Indonesia, Japan, Malaysia, Singapore and Taiwan. It has also been involved in real estate transactions in eastern Europe and the US.
With investors waiting in the wings to take over Faisal, there may be hope yet for the bank as its potential new shareholder could help steer it in the right direction. — EB
Faisal Private Bank seeks new pastures
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12th - 13th November 2012Four Seasons HotelRiyadh at Kingdom Centre
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This exclusive event in Riyadh will follow our tradition of delivering two, one-day events focusing on the 'Issuer' and 'Investor' markets within Saudi Arabia; and structured around a series of exclusive regulatory country presentations, practitioner-led round-table discussions, non-debatable power presentations, original case studies and sector focused side sessions.
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19© 23rd May 2012
FEATURE
Earlier this month Reuters assessed the impact of the Qatar Central Bank (QCB)’s February 2011 directive to conventional banks, requiring them to stop off ering Islamic products and close their Islamic windows. Reuter’s assessment was that the expected windfall for the Islamic banks has not yet materialized and the ban seems to have had litt le impact on the conventional banks.
Before the ban, the IMF estimated that the Islamic banking assets in Qatar during 2010 accounted for 31% of total assets. By QCB’s reckoning, those assets grew 35% last year.
That marked a slowdown, however, from the 39% expansion the previous year. Interestingly, the conventional banks seem to have been litt le aff ected, with assets growing 23% in 2011, up from a 16% increase during 2010.
In fact, contrary to Moody’s prediction that Qatar National Bank would be negatively impacted, its assets jumped 25% last year and there was actually a slight improvement on its return on assets.
Effect of the banSo what do these fi gures suggest? Firstly, it seems that many of the conventional banks have been successful in maintaining their deposits by converting their Islamic customers to conventional ones, probably based on pricing and service quality and the administrative inconvenience of transferring banks.
In fact, Qatar saw only the International Bank of Qatar complete a sale of its Islamic window business. Secondly, some of the Islamic banks may have suff ered from the slowdown in growth that is being seen globally, off sett ing the windfall that they might have received from the closure of the windows.
With the decline of QCB’s regulated institutions off ering Islamic banking services from 12 to four, the IMF’s
January 2012 report suggests that there is now a need to “manage the impact on banking sector competition in view of the decline in the number of [Islamic banks].” It remains to be seen whether the newly level playing fi eld, a factor that may have been one of the motivators
behind the QCB’s ruling, will impact competition; particularly in the corporate fi nance market.
We are aware of some continuing dialogue between conventional banks (with their technically ‘closed-down’ operations) and some Islamic banks looking to fi nd value by transferring any remaining customers.
It will be interesting to see how long this courtship will continue and when the regulator will step in and call it a day.
In my view, one of the key areas that
Islamic banks need to concentrate upon is how ready they are to support the development that is required to be carried out in Doha from now until the World Cup in 2022. The anticipated activity is likely to provide opportunity for Qatar-based Islamic banks to consider their product portfolio and see if they can add new products to ensure that they are capable of providing the full range of services that their customers will require.
This review also requires a certain amount of critical self-analysis to see what areas of the business need further work.
There are some positive signs in the market to suggest that Islamic banks are starting to respond to the challenges of the World Cup expenditure.
We recently saw Qatar Islamic Bank sign a fi nancing arrangement with the Middle East Dredging Company to assist in connection with its recent award of a QAR4.5 billion (US$ 1.2 billion) contract to carry out dredging work at the New Port Project.
The port is expected to cater for the growth in container traffi c and support the increase in vessels supplying goods for the World Cup infrastructure work. The port will have annual capacity in excess of six million containers and a railway station connected to the GCC railway network.
It was also encouraging to see that Qatar-based Islamic banks are looking beyond Qatar’s borders for expansion. Barwa Bank recently became the fi rst ever Qatari bank to participate at a senior level in a sovereign issue outside of Qatar when it stepped up to the plate to co-manage Dubai’s recent US$1.25 billion Sukuk issuance.
In connection with this deal Khalid Mahdi Al Ahbabi, the AGM head of wholesale banking, said: “Barwa Bank won over many other competing banks
The Qatar Central Bank’s directive: Impact on Islamic banks AMJAD HUSSAIN discusses the impact of the Qatar Central Bank’s directive requiring conventional banks to stop off ering Islamic banking services.
continued...
Qatar received a
stable rating from Standard & Poor’s in its recent ratings announcement for the 13 countries in the MENA region, indicating that it does not expect to raise or lower Qatar’s rating over the 2012-2013 ratings horizon
20© 23rd May 2012
FEATURE
to co-manage this transaction thanks to our capabilities, connections and strong market presence in Qatar.” This is a positive trend.
In other recent news in Qatar, we have seen the QCB partnering with Bloomberg to launch the fi rst ever Qatar interbank off er rate (Qibor) aimed at encouraging a more active interbank market in Qatar. Qibor fi xings for eight diff erent tenures, ranging from overnight to a year, will be based upon the contributed off er rates quoted by nine panel banks and will be publicly available each business day. The purpose of this is to enhance transparency and liquidity in the local market and has been largely welcomed by commentators.
Qatar received a stable rating from Standard & Poor’s in its recent ratings announcement for the 13 countries in the MENA region, indicating that it does not expect to raise or lower Qatar’s rating over the 2012-13 ratings horizon.
Sovereign Sukuk?There has recently been much rumor and excitement about the planned sovereign Sukuk in Qatar. Reports claim that Standard Chartered, Deutsche Bank , HSBC, Barwa Bank and QInvest have been mandated on this prestigious appointment.
This will be fi rst sovereign Sukuk issued by Qatar since 2007, when it raised US$700million and mandated HSBC and Qatar International Islamic Bank. Details of the mandate have not been formally released and are eagerly awaited.
So, it seems like the hot summer in Qatar is going to get hott er with the increase in activity in the Islamic banking sector.
The Islamic banks are growing and gett ing ready to lend to companies who are being awarded government contacts; QCB continues to intervene in the market place to address regulatory concerns and issues at an early stage; and the government is keen to do its bit by supporting local liquidity through its Sukuk issuance.
Amjad Hussain is a partner at law fi rm K&L Gates’ corporate and fi nance practices. He can be contacted at [email protected].
Continued
There has recently
been much rumor and excitement about the planned sovereign Sukuk in Qatar
30th - 31st October 2012One Bishops Square, London Issuers Day: Monday, 30th OctoberInvestors Day: Tuesday, 31st OctoberTakaful & re-Takaful Day: Tuesday, 31st October
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Generally recognized as the financial centre of Europe, and certainly the most active Islamic financial centre, London has been chosen as the home of the IFN Europe Forum 2012, which will take place on 30th - 31st October.
Senior industry players are invited to participate as delegates, and will witness the largest and most impressive gathering of industry practitioners ever assembled on European shores.
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21© 23rd May 2012
FEATURE
Back in mid-2011 some predicted that the doors to direct foreign investment in equity markets in Saudi Arabia would fi nally open by the end of the fi rst quarter of 2012. By the end of 2011 others speculated that with the continued Eurozone sovereign debt crises and the Arab Spring not such a distant memory the government would be in no hurry to rush the legislation through until there was more political and economic clarity on the horizon.
Then came the announcement by the Capital Market Authority (CMA) in January this year to update its listing rules to allow foreign listed companies to cross-list on Tadawul, the Saudi stock exchange. Added with the changes that started back in 2010 when share swaps and exchange-traded funds were made available to foreigners for the fi rst time and the discreet ‘test trades’ that were carried out at the end of 2011 by banks and investment fi rms to pilot the new rules, many expect the new Qualifi ed Foreign Investors Law (QFIL) to be announced at some point before the end of 2012.
With the draft of the new QFIL still being fi ne-tuned it appears that at least initially, only select large institutional investors will be given access to the equity market. Estimates vary as to what the fi nal fi gures will be but it appears that to qualify as a foreign investor the institution must have been in a business for at least fi ve years with at least US$5 billion and preferably more under management, replicating the current limits in China. The draft law also puts a cap of 49% on the total amount of stock held in any single company and it is envisaged that there will be a minimum and maximum amount that will be fi xed for investment in the exchange in total.
Limiting ownershipLimiting ownership is not uncommon in the GCC. The UAE is still ranked as a frontier market by the MSCI and is unlikely to move up to emerging
market status mainly because of the cap on ownership. Apart from the UAE; Bahrain, Jordan, Kuwait, Lebanon, Oman, and Qatar all are ranked as frontier markets which is an index calculated by reference to size and liquidity. To date, Saudi Arabia has not been included by the MSCI in its ratings but with Tadawul having a market value of about US$350 billion (which is equal in size to the combined value of all fi ve of the other stock markets in the GCC) that is unlikely to deter those institutional investors with an eye on the huge investments made by the government in key sectors of the economy.
InitiativesAlthough not in need of foreign investment with oil prices as high as ever, following the Arab Spring the government is keen to liberalize the economy and create jobs for an increasing unemployed youth in a structured and regulated manner. In recent years the government has followed a strategy to diversify away from the oil sector by att racting private sector foreign investment in those sectors that require a transfer of knowledge and specialist skills. This policy has been developed by the Saudi Arabian General Investment Authority (SAGIA), which regulates all foreign investment, to great eff ect in recent years and the government hopes that the same will arise with investments in the equity market.
LimitationsThe SAGIA has a ‘negative list’ of activities not permitt ed for foreign-owned companies to include in their objects clauses. It is highly unlikely that listed companies on Tadawul with activities on the SAGIA negative list will be open for foreign investment. Although the negative list has been reduced in the last few years and substantially since 2008, it still currently does not allow foreign investments in: real estate brokerage, real estate investment in Makkah and Medina, commission agents, audio-visual and media services, land transportation and
fi sheries and a few other sectors. Another factor that will limit foreign investments in the equity market and render the liberalization of it only partial is the approach that the government will take. By selecting only a few handpicked and experienced institutional investors the government will be keen to att ract long-term investors. With the recent political turmoil in the region the government will not want a repeat of the crash of the market as occurred in early 2006, which left many Saudis devastated with huge negative equity, something hardly known or properly understood before the crash, such was the naivety of the individual investors.
One of the reasons for the 2006 crash was the volatility of the market due to the lack of the very large pension and insurance sector which leads and has a stabilizing eff ect on other exchanges and instead a predominance of the retail sector. It is hoped that by att racting the right foreign investor that the insurance sector will benefi t in particular and in the long-term the market will mature based on economic fundamentals and proper equity research.
ConclusionAs Saudi Arabia edges closer to a more liberal economy and away from its protectionist past it is hoped that there will be a successful period of foreign investment in the equity market from institutional investors as envisaged by the QFIL.
In time it is hoped that this will encourage the CMA to relax the stringent QFIL rules to ensure that the regulation of foreign investment can be further liberalized and increased to include other investors, ultimately allowing a move away from dependency on oil revenues and helping to create the most vibrant and stable economy in the region.
Irfan Butt is a senior legal advisor at Hogan Lovells in association with Al Yaqoub Att orneys and Legal Advisors. He can be
Foreign investment in the jewel of the GCC crown: The Saudi Arabian equity market With the draft of the new Qualifi ed Foreign Investors Law in Saudi Arabia still being fi ne-tuned it appears that, at least initially, only select large institutional investors will be given access to the equity market. IRFAN BUTT discusses.
22© 23rd May 2012
FEATURE
Real estate and limited real rights acquisitions by foreign nationals, either natural persons or legal entities, are regulated by the Land Registry Law No 2644. In this regard the Land Registry Law articles 35 and 36 have a great importance for foreign nationals who wish to purchase real estate within the borders of Turkey. The Turkish government has been working on a draft law which will restructure the current articles concerning foreign acquisitions.
As a result of the government’s motion, the Turkish parliament enacted the aforementioned draft law on the 3rd May 2012 which makes immovable acquisitions easier for foreign nationals. The previous form of the law restricted foreigners through a reciprocity principle and by the real estate’s acreage. Essentially, a foreign national had to be a citizen of a country which should have reciprocity with Turkey while secondly the real estate had to have an acreage of up to 2.5 hectares.
The reciprocity principle’s rigid practice caused an obstacle for foreigners and therefore foreign nationals had to fi nd solutions such as establishing companies in Turkey whose only reason for establishment was to purchase a single piece of real estate. These obstacles have caused time and money wastage for both sellers and buyers and additionally discouraged foreign investors intending to invest in the Turkish real estate market.
The law on the amendment of land registry and cadastre lawThe law on the Amendment of Land Registry Law and Cadastre Law (the new law) which was enacted on the 3rd May 2012 has changed the Land Registry Law articles 35 and 36. The new law introduced two important changes;
I. The new form of article 35 does not mention the reciprocity principle anymore and grants an authority to the council of ministers to determine
the countries whose natural person citizens can purchase real estate in Turkey. In this way the council of ministers will decide on the list of countries whose nationals can acquire immovable properties and limited real rights.
There will be no need to have a reciprocity between these countries in the list and Turkey; the only important point to be considered is Turkey’s national interest which seems to be an easier requirement to be met when compared with the reciprocity principle.
II. The second signifi cant amendment is made on the total acreage of the immovable and limited real rights that a foreign natural person can acquire. As indicated, foreign natural persons could previously only acquire real estate and limited real rights country-wide up to 2.5 hectares.
This restriction is changed by the new law and the limitation is increased up to 30 hectares; thus now a foreign person can acquire country-wide real estate or limited real rights of up to 30 hectares. The ministry of environment and urban planning and the ministry of fi nance may jointly decide to double this acreage limitation; namely they may increase it up to 60 hectares when it is deemed necessary from the point of national interests.
With regards to foreign legal entities the new law - similar to its predecessor - stipulates that only foreign commercial companies, which have a legal personality and established in a foreign country pursuant to the local law of that foreign country, are permitt ed to purchase immovable and limited real rights in Turkey.
Article 36, as amended by the new law, stipulates that in the event a foreign commercial company incorporates or become a shareholder having more
than 50% of the total shares or have administration rights in a Turkish incorporated company, then the restrictions in article 36 shall apply on such Turkish companies for their real property and limited real rights acquisitions.
ConclusionThe recent developments on the real estate acquisition by foreign persons are publicly welcomed and they are likely to have a positive impact on the Turkish real estate sector. Since these amendments ease the way to acquire immovable or limited real rights by foreigners it is expected to increase foreign investment, especially from the Gulf countries, and cash infl ow into Turkey.
Effect on Islamic bankingIn terms of the Islamic fi nance industry, it is likely that there will be a positive impact on the Turkish participation bank sector aft er these amendments come into force. Removing the reciprocity requirement and increasing the total purchasable acreage will att ract more investors from the Middle East and consequently Islamic instruments are likely to be used for fi nancing such real estate investments in Turkey.
It should be noted that investors from all income levels have the opportunity to directly invest in diff erent real estate projects. Therefore, the Turkish participation banks will play an important role in fi nancing such investments from the Middle East.
The new law has been published on the offi cial gazett e on the 18th May 2012 and it is enforceable.. We also expect the countries list, which will be prepared jointly by the council of ministers to be published soon and following the publication it will become more of an issue.
Gökmen Başpınar is the founding partner and Burak Gencoglu is an associate at Baspinar & Partners Law Firm. They can be contacted at [email protected] and [email protected]
Turkey: Recent developments in real estate acquisition by foreign nationals GOKMEN BASPINAR and BURAK GENCOGLU look at the recent developments in real estate acquisition by foreign nationals in Turkey and the how this will aff ect the Islamic banking sector.
23© 23rd May 2012
Islamic InvestorCover Story
Over the last fi ve years, Islamic funds have maintained an uptrend despite a plateau in 2008. In its asset management report, KFH Research estimated the total assets of global Islamic funds at US$60 billion last year with a total number of funds in the region of above 870. The research house states that this still fell below the industry’s expectations, citing the turmoil in the global equity markets last year.
The success of Islamic fi nance in the global arena has resulted in many investors becoming more aware of the wide choice of Shariah compliant investment products currently available. However, the biggest challenge faced by the majority of global asset managers with Islamic funds is the perception of a lack of breadth and depth when compared to conventional mutual funds.
Fund managers of Islamic portfolios are of the view that this is due to the lack of visibility of a track record for Shariah compliant investment products that are structured for the domestic market using domestic currencies.
As such, some fund managers have taken the initiative to showcase their funds by internationalizing and exhibiting their track records as well as capabilities through existing global platforms such as Luxembourg and Dublin.
Sunny Ng, the director of fund research at Morningstar, an independent investment research provider, agrees that the asset classes available to Islamic investors are clearly more limited relative to the options available to
conventional investors. Unsurprising, he adds, given that amongst the other restrictions, all interest-based assets are also automatically excluded from consideration.
“There are however various investment options available to Islamic investors and both domestic and international asset management companies are increasingly looking at att racting capital from this segment of the market. Asset management fi rms that are able to operate eff ectively with capital controls, investment restrictions and country regulations, will benefi t from the increasing wealth of the region and interest in Islamic fi nance.” Ng contends that while track records of Islamic funds are short, there are asset management companies leveraging off their track records in other products such as socially responsible mandates to launch Islamic investment strategies. “We expect the growth and development of new Islamic products and services to
continue to grow rapidly as it has done over the past few years.”
While the display of information on an internationally recognized platform does play a signifi cant role in att racting investors, asset managers should also be mindful that other factors are also signifi cant, particularly to institutional investors. These include the size of a fund as well the reputation of the asset management company managing the Islamic funds.
As global uncertainties continue, boutique asset management companies should perhaps consider the prospects of either a merger with larger institutions or the acquisition of small fund houses to increase size. Besides recognition, size does aft er all matt er. — RW
The need for international recognition
Vol 9 Issue 20
Prudential Al-Wara Asset Management Berhad (PRU Al-Wara') is the Islamic asset management business of Prudential Corporation Asia. Established in 2009 and headquartered in Malaysia, PRU Al-Wara' is responsible for managing Shariah compliant assets on behalf of retail and institutional investors, as well as onshore and offshore institutional mandates.
Visit www.prudentialfunds.com.my for more information.
nt nd
ah d o
comffs
In this issue...
News ....................................................................40
Funds Focus: Meezan Islamic Fund ...................41
Funds Tables .......................................................42
Top 10 Islamic Fund Managers by AUM (2011)
Fund manager AUM (US$ million) No. of funds
National Commercial Bank 6,793.61 26
Public Mutual Berhad 6,115.88 35
Samba Capital & Investment Management 3,811.30 9
Saturna Capital 3,546.81 3
CIMB-Principal Asset Management 2,805.14 27
Al Rajhi Bank 2,141.83 10
HSBC Saudi Arabia 2,028.53 17
Riyad Capital 1,416.46 13
BlackRock Asset Management Ireland 1,299.58 27
Emirates Fund Managers (Jersey) 1,278.02 19
Source: IFIS, Bloomberg & KFHR
24© 23rd May 2012
ISLAMIC INVESTORNEWS
New firm in DubaiGLOBAL: Asiya Investments, a global advisory fi rm which manages Islamic funds, has announced the launch of its advisory services arm to be based in the Dubai International Financial Center.
The establishment will be followed by the launch of Asiya Investments Hong Kong, which will act as the new base for the group’s asset management activities in Asia.
Ridge Capital in Egypt acquisition UAE: Dubai-based investment bank Ridge Capital has acquired the entire equity interest in El Rashad Holding, an Egyptian-based asset management fi rm which is expanding its Islamic fi nancing business.
No fi nancial details were disclosed.
Islamic ETF in TurkeyTURKEY: The Katilim (Participation) Index Exchange Traded Fund (ETF), sponsored by Turkey’s Shariah compliant banks Albaraka Turk, Bank Asya, Kuveyt Turk and Turkiye Finans, began trading on the Istanbul Stock Exchange as of the 16th May.
The ETF is managed by fund manager Bizim Menkul Degerler.
Investcorp in US real estate dealBAHRAIN: Alternative investment manager Investcorp’s US-based real estate arm, in partnership with TriLyn Investment Management, has received commitments from interested parties to invest in US commercial real estate debt.
The parties include investment fi rm Akard Street Partners and an unidentifi ed UK-based pension scheme.
High demand for Islamic venture capitalMALAYSIA: Darawati Hussain, the chairman of the Malaysian Venture Capital and Private Equity Association, has said that Islamic venture capital in the country is att racting strong interest from local and foreign investors.
“There is a signifi cant amount of assets under Islamic fi nance like Sukuk and unit trusts; and [the] private equity asset class
should be highly considered as another good investment product,” she said.
Currently, there are over RM1 billion (US$318.89 million)-worth of Islamic venture capital assets under management.Darawati also said that Islamic venture capital assets will help boost the local venture capital industry’s assets under management by 25% this year from RM5.4 billion (US$1.72 billion) currently.
“A lot of our members are going out to raise (private equity and venture capital) funds. In the next one or two years, you will see some new funds being launched and most of them will be Islamic structured because there is a lot of interest from Shariah-conscious investors to deploy their money to this region,” she added.
Al Rahji banks on goldMALAYSIA: Al Rajhi Bank Malaysia is targeting sales of up to RM100 million (US$31.89 million) for its gold investment product by the end of this year, according to Yasmin Junus, its head of affl uent banking.
The bank’s gold investment business meets the needs of investors with medium risk appetite with returns that range from 5-20%.
Assets under management at its wealth management division have increased by 207% since 2010, with its gold investment product contributing 90% of that growth.
Opening up Saudi tradeSAUDI ARABIA: Al Jazira Capital, the investment arm of Bank AlJazira, signed an agreement with Al Ramz Securities to provide the UAE brokerage house’s clients with access to Tadawul, the Saudi stock exchange.
“This agreement will simplify the process of opening accounts and placing orders through a local partner such as Al Ramz Securities,” said Ziad Tarek Aba AlKhail, CEO and managing director of Al Jazira Capital.
First investment for Brazil fundBRAZIL: TFI-Hines Brazil Income Real Estate Fund, jointly managed by Barwa Bank subsidiary The First Investor and US-based Hines International Real Estate Holdings, purchased its fi rst seed
acquisition by investing in the World Trade Center complex in the city of Sao Paulo.
Barwa Bank and Hines International are the fund’s cornerstone investors.
Launched in March this year, the fund is Brazil’s fi rst Shariah compliant closed-ended income generating fund. The fund has a target size of US$500 million and is expected to achieve a net leveraged internal rate of return of between 10.5-12.5%; and targets an average annualized yield of 8%.
KFH-Turkey offers silver-traded fundTURKEY: Kuveyt Türk Katılım Bankası launched its silver-traded fund on the Istanbul Stock Exchange, following a strong demand for its gold-traded fund introduced last year.
Ufuk Iwan, its CEO, noted that GCC investors are expected to participate in the new fund.
Positive growth prospectsGLOBAL: Positive growth prospects remain in the Islamic securities market despite the credit crunch and global economic slowdown, said Abdul Rahman Mohammed Al-Baker, the executive director of fi nancial institutions supervision at the Central Bank of Bahrain.
However, he added that certain factors such as the creation of an improved system, able to facilitate eff ective and effi cient capital and trading fl ows; and further development Islamic fi nancial systems, should be taken into consideration fi rst.
Meanwhile, Abdul Rahman, who also noted that investors globally hold more than US$1.5 trillion-worth of Shariah compliant assets, added that Bahrain’s Islamic mutual funds industry is one of the fastest growing segments of the kingdom’s fi nancial sector.
“With around US$9 billion in assets under management, through more than 2,700 funds, the industry has been growing at an annual average of about 15% in recent years. Overall, there are 100 Islamic funds incorporated and registered in Bahrain with total assets of US$1.7 billion as of March,” he said.
25© 23rd May 2012
ISLAMIC INVESTORFUND FOCUS
What led to this fund being launched?There was a demand for Shariah compliant investment instruments due to very few options available at that time. Al Meezan Investments identifi ed the need to provide a Shariah compliant equity fund in the country and launched the second open-ended Shariah compliant equity fund in Pakistan.
Why has this particular region / asset class been chosen?Al Meezan chose to start its funds portfolio with an equity fund to provide an ideal investment avenue for investors looking for a fund that would provide long-term capital growth.
What are the key factors that drive the fund’s performance?The performance of MIF has been driven by the performance of stock market and selective security selection. The fund has outperformed its benchmark (KMI-30) since launch and is the largest private sector open-ended equity fund in Pakistan, rated ‘fi ve star’.
Who are your investors?A combination of institutional and high net worth individuals, mainly Pakistani nationals while about 3% are international investors including the Middle East, GCC, USA, and UK.
What are the sectors you are heavily invested in and why?At present, we are invested in the oil, chemical and construction & material sectors as the companies in these sectors are both undervalued and have high earning growth potential. Sectors are allocated among research analysts who are responsible of conducting thorough research for undertaking investment
decisions. The addition of potential companies in the universe is the collective decision of the fund management team (through the investment committ ee).
What specifi c risks does the fund take into consideration? And why?We take into consideration both micro and macro level risks when managing the fund. At a macro level, we look at the political risk most importantly. At a micro level liquidity and fi rm-specifi c risks are the most important ones.
What is the market outlook for this fund?We are positive on the market and we think it will slow down a bit and consolidate. During the month of April, the KSE-100 crossed the psychological barrier of 14,000 and closed at the level of 13,990, surging by 1.66% month on month. The trend was largely supported by the fundamentals as corporate results were above expectations.
The much awaited trigger for the market materialized during the month when the presidential ordinance giving a fi nal shape to all the amendments and relaxation of CGT rules was promulgated. This paved the way for sett ing aside the concerns of most of the local as well as foreign investors and helped the market to march in a positive direction. The momentum was supported by the result season where on one hand, oil and banking scrips posted bett er than expected results but the fertilizer and cement companies’ results remained below expectations. Besides that, on the political side, the ongoing eff orts to normalize Pakistani-US relations and the decision of the supreme court to convict the prime minister of contempt of court did create some disturbance in general market sentiment but this proved to be short-lived.
Meezan Islamic Fund Meezan Islamic Fund (MIF) aims to maximize total investor returns by investing in Shariah compliant equities focusing on both capital gains and dividend income.
*Fund performance450400350300250200150100
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MIFBenchmark
Fact sheetFund Manager Muhammad Asad
Trustee Central Depository Company of Pakistan
Shariah advisor(s)
Meezan Bank
Benchmark (Index)
Karachi Meezan Index- 30 (KMI-30)
Domicile Karachi
Inception date 8th August 2003
Fund characteristics
Fund TypeOpen-Ended EquityFund SizePKR5.27 billion (US$58.11 million)NAV per UnitPKR48.68 (US$0.5363) (Type B)Minimum InvestmentPKR5,000 (US$55.08)Subsequent InvestmentPKR1,000 (US$11.01)Management Fee2% p.a.
Performance Summary
YTD Return (Jul 2011-Mar 2012) 17%
Cumulative return since inception 335%
Annualized return since inception N/A
Oil & gasChemicalsConstruction and materialsElectricityGeneral industrialsOthers
39%17%13% 9%4%18%
*Industry allocation
EquityCashOthers receivables
97.73%2.22%0.05%
*Fund portfolio composition
26© 23rd May 2012
FUNDS TABLES
Comprehensive data from Eurekahedge will now feature the overall top 10 global and regional funds based on a specifi c duration (yield to date, annualized returns, monthly returns), Sharpe ratio as well as delve into specifi c asset classes in the global arena – equity, fi xed income, money market, commodity, global investing (which would focus on funds investing with global mandate instead of a specifi c country or geographical region), fund of funds, real estate as well as the Sortino ratio. Each table covering the duration, region, asset class and ratio will be featured on a fi ve week rotational basis.
Eurekahedge Asia Pacifi c Islamic Fund Index
Top 10 Monthly returns for Developed Markets funds
Fund Fund Manager Performance Measure Fund Domicile
1 AlAhli Global Real Estate The National Commercial Bank 4.45 Saudi Arabia
2 ETFS Physical Palladium ETFS Metal Securities 4.26 Jersey
3 AlAhli Healthcare Trading Equity The National Commercial Bank 1.83 Saudi Arabia
4 Oasis Crescent Balanced High Equity Fund of Funds
Oasis Crescent Management Company 1.32 South Africa
5 Oasis Crescent Balanced Stable Fund of Funds
Oasis Crescent Management Company 1.12 South Africa
6 CIMB Islamic Greater China Equity CIMB-Principal Asset Management 0.66 Malaysia
7 Oasis Crescent Global Property Equity Oasis Global Management Company (Ireland)
0.58 Ireland
8 Mashreq Al-Islami Income Mashreq Capital (DIFC) 0.51 UAE
9 Global Sukuk Plus QIB (UK) 0.43 Luxembourg
10 BLME Sterling Liquid Bank of London and The Middle East 0.38 Luxembourg
Eurekahedge Developed Markets Islamic Fund Index -0.48
Top 10 Monthly returns for Emerging Markets funds
Fund Fund Manager Performance Measure Fund Domicile
1 Meezan Tahaff uz Pension - Equity Sub Al Meezan Investment Management 5.13 Pakistan
2 Al Meezan Mutual Al Meezan Investment Management 4.77 Pakistan
3 Atlas Pension Islamic - Equity Sub Atlas Asset Management 4.54 Pakistan
4 HwangDBS AIIMAN A20 China Access HWANGDBS Investment Management 4.33 Malaysia
5 Meezan Islamic Al Meezan Investment Management 3.80 Pakistan
6 Atlas Islamic Stock Atlas Asset Management 3.03 Pakistan
7 Al Qasr GCC Real Estate & Construction Equity Trading
Banque Saudi Fransi 2.85 Saudi Arabia
8 Meezan Balanced Al Meezan Investment Management 2.81 Pakistan
9 CIMB Islamic Small Cap CIMB-Principal Asset Management 2.77 Malaysia
10 Apex Dana Al-Sofi -i Apex Investment Services 2.55 Malaysia
Eurekahedge Emerging Markets Islamic Fund Index -0.19
Inde
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Based on 89.61% of funds which have reported April 2012 returns as at 22nd May 2012
Based on 76.00% of funds which have reported April 2012 returns as at 22nd May 2012
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27© 23rd May 2012
FUNDS TABLES
Top 10 Islamic Globally Investing Funds by 3 Month Returns
Fund Fund Manager Performance Measure Fund Domicile1 Al Shamekh Islamic Portfolio Riyad Bank 7.69 Saudi Arabia2 Oasis Crescent Global Property Equity Oasis Global Management Company
(Ireland)6.13 Ireland
3 Al Shuja'a Islamic Portfolio Riyad Bank 5.86 Saudi Arabia4 Oasis Crescent Global Equity Oasis Global Management Company
(Ireland) 5.25 Ireland
5 Global Equity - Musharaka Riyad Bank 5.21 Saudi Arabia6 CIMB Islamic Greater China Equity CIMB-Principal Asset Management 5.01 Malaysia7 EasyETF DJ Islamic Market Titans 100 BNP Paribas Investment Partners 4.99 France8 AlAhli Global Real Estate Fund The National Commercial Bank 4.91 Saudi Arabia9 Reliance Global Shariah Growth - USD I Reliance Asset Management (Malaysia) 4.72 Guernsey10 JPM Islamic Global Dynamic Equity (USD)
A (acc)J.P. Morgan International Bank 4.51 Luxembourg
Eurekahedge Global Islamic Fund Index 0.79
Contact EurekahedgeTo list your fund or update your fund information: [email protected] further details on Eurekahedge: [email protected] Tel: +65 6212 0900
DisclaimerCopyright Eurekahedge 2007, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an “as is” basis and you assume and will bear all risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its affi liates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and fi tness for any purpose.
Based on 88.37% of funds which have reported April 2012 returns as at 22nd May 2012
Based on 84.72% of funds which have reported April 2012 returns as at 22nd May 2012
Perc
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ge
Perc
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Eurekahedge Islamic Fund Equity Index over the last 5 years Eurekahedge Islamic Fund Equity Index over the last 1 year
Top 10 Islamic Equity Funds by 3 Month Returns
Fund Fund Manager Performance Measure Fund Domicile
1 Jadwa Saudi Equity Jadwa Investment 21.76 Saudi Arabia
2 Al-Saff a Saudi Equity Trading Banque Saudi Fransi 21.01 Saudi Arabia
3 Jadwa Arab Markets Equity Jadwa Investment 19.38 Saudi Arabia
4 Jadwa GCC Equity Jadwa Investment 19.08 Saudi Arabia
5 Atlas Pension Islamic - Equity Sub Atlas Asset Management 18.71 Pakistan
6 Meezan Tahaff uz Pension - Equity Sub Al Meezan Investment Management 17.25 Pakistan
7 Saudi Equity - (Al Raed) Samba Financial Group 16.92 Saudi Arabia
8 Amanah GCC Equity SABB 16.78 Saudi Arabia
9 Al Meezan Mutual Al Meezan Investment Management 16.53 Pakistan
10 FALCOM Saudi Equity FALCOM Financial Services 16.42 Saudi Arabia
Eurekahedge Islamic Fund Equity Index 5.06
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28© 23rd May 2012
Takaful
www.takaful-ikhlas.com.my
For more information, please call 03-2723 9999
23rd May 2012
Brought to you by
Cover story
London has long been established as a center for Islamic fi nance products of various types. The confl uence of expertise, fi nance, and political will have helped cement that reputation. Indeed, successive governments have been keen to promote a level playing fi eld for conventional and Islamic products.
For Takaful specifi cally, the environment in the UK remains a welcoming one. Helpfully, the Financial Services Authority (FSA) understands the concepts and processes behind Takaful, having previously authorized a Takaful operator. As such, the learning curve has already been conquered to a large extent by the regulator. However, despite the political good will and friendly regulatory environment, challenges remain.
ChallengesOne criticism oft en directed at the att empts to introduce Takaful products to wider UK markets is that they stumble on cultural grounds. Some believe that the cultural diff erences are simply too big a gap to bridge when selling an Islamic product to the general insurance market in the UK. However, there seems to be litt le proof in support of this argument. Time and again, insurance products that demonstrate their commercial viability have succeeded in the UK. If Takaful operators can educate the market to the benefi ts of the product, there seems no reason why cultural diff erences should make a signifi cant diff erence. Rather than
culture, the big challenge is education and branding.
The understanding of Takaful within the UK insurance industry is still at a fairly early stage. That said, educating the market should not be too diffi cult as the theory behind Takaful has echoes of mutuality, which is a more commonly understood concept in the UK. It is a short step from understanding how mutual insurance works to understanding how a Takaful operator conducts its business.
The key is to overcome the mindset that Takaful is a niche product only suitable for Muslims. That is not the case. This is where education combined with careful branding is vital. In order to appeal to a wider market, operators will need to focus more on the ethical nature of Takaful rather than its religious underpinnings. Highlighting the fact that donations (premiums) are invested ethically and that there is a potential redistribution of surplus at the end of
the policy period could go a long way to changing market perceptions.
The Takaful experience so far in the UK has also taught us that market segments are important. For example, the motor insurance market is crowded and competitive and is characterised by low margins. Success in lines of business of this nature is a tough ask for any new operator. The future of Takaful in the UK may therefore be in the larger commercial lines of business.
ConclusionThe rewards on off er for anyone who can succeed with Takaful products in the UK are potentially signifi cant. Not only does London remain one of the largest insurance markets in the world, but success in the UK could also open up opportunities in Europe. The UK Takaful providers can utilize the EU passporting procedure to carry out business across the EU on the basis of a single authorization from the FSA as the home state regulator.
It’s an exciting time for Takaful in the UK. If the education challenge can be overcome, we may see signifi cant growth in the coming years.
Susan Dingwall and Ffi on Flockhart are partners at Norton Rose. They can be contacted at [email protected] and ffi on.fl [email protected].
Takaful in the UK: Education, education, education
In this issue...
News ....................................................................45
The understanding
of Takaful within the UK insurance industry is still at a fairly early stage
29© 23rd May 2012
TAKAFUL NEWS
Stricter rules for TakafulINDONESIA: The Sharia Insurance Association of Indonesia will issue two guidelines in an eff ort to adopt stricter policies in the marketing of products.
The guidelines cover the certifi cation of agents and Takaful policies.
SALAMA’s profits halveSAUDI ARABIA: SALAMA — Islamic Arab Insurance Company has reported a net profi t of AED13.02 million (US$3.54
million) for the fi rst quarter ended the 31st March 2012 against AED29.71 million (US$8.09 million) a year earlier.
The company’s earnings per share amounted to one fi l (0.003 US cents) from three fi ls (0.007 US cents) in 2011.
Lucrative quarterUAE: Methaq Takaful Insurance Company has reported AED2.6 million (US$707,839) in net profi t for the fi rst quarter of this year, compared to
AED471,772 (US$128,438) in the previous corresponding period.
ASEI to offer TakafulINDONESIA: Asuransi Ekspor Indonesia (ASEI) is planning to expand its business into Takaful to increase its premium income and is formalizing the establishment of its Shariah compliant unit, pending approval from Bapepam.
The company expects to off er its Islamic products from the 1st June this year.
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30© 23rd May 2012
FORUM
A This is widely seen as a move towards clearer governance and the
ring-fencing of businesses that have fundamentally diff erent risk propositions. There is no reason why such a move should not be contemplated for Islamic banks.
There are a couple of interesting things to note however.
Firstly, the residential mortgage business would be included in the retail section of the bank. However it was this business that was one of the key triggers for the global collapse we saw.
The lesson to learn (one of many in fact) is that even if the ‘safer’ retail business is segregated, banks still need to have stronger governance and controls in place to prevent that line of business crossing the line in terms of risk management and risk acquisition.
Secondly, I believe in due course it will be seen as a source for discomfort for our industry. Whilst purporting to embrace strong values (no debt, no speculation, real economy etc) Islamic banks have some protection from critical analysis by the amalgamation of its business practices into a single entity.
The proposed ring-fencing will make it much clearer as to what the Islamic banks are actually doing. The retail side (which is of course at its very essence accepting deposits at
interest and providing fi nancing at a spread) operates wholly within interest and debt-based parameters.
Similarly the risk acquisition element of investment banking (proprietary trading, structured fi nance, derivatives, speculation and other risk transfer activities without eff ective reference to the real economy) will also be segregated.
And again, many objective readers will question if these activities are really what we should be doing anyway.
One may argue the strict segregation of such activities will highlight exactly what Islamic banks are doing to make money and how they utilize capital and how they generate and manage risk. I think that is not a bad thing.
In summary — yes this move should be encouraged.
SAFDAR ALAMCEO, Siyam Capital
A Conventional corporate banking oft en involves banks trading in
complex derivative products which can result in substantial losses if markets move in a direction which is unanticipated or if counter parties cannot meet their commitments.
If the banks involved in such operations are also providing consumer services this poses regulatory challenges as bail-outs
may be needed to protect depositors from the consequences of poor trading decisions, imposing burdens on taxpayers. For this reason corporate and consumer banking should be segregated.
These challenges do not arise with Islamic banks however as most are involved in classic retail banking, funding their fi nancing from customer deposits.
They are not involved in derivatives trading which most are considered to be contrary to Shariah. Their riskiest corporate banking activities involve Istisnah and Musharakah, but the risks associated with the former are mitigated by parallel contracts and for the latt er diminishing Musharakah structures provide a safe exit.
Given these considerations there is no need for consumer and corporate activities to be segregated for Islamic banks.
RODNEY WILSONEmeritus Professor, Durham University
Next Forum Question:
In the short, medium and long-term, how can Islamic institutions fl ush with liquidity address the problem of a lack of Islamic products in which to invest?
If you would like to air your views on the next Forum Question, please email your response of between 50 and 300 words to Christina Morgan, forum editor, at: [email protected] before the 1st June 2012.
Q Following the recent financial crisis, conventional banks have been segregating
their consumer and corporate banking operations for corporate governance and clarity reasons. Should Islamic banks follow suit?
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31© 23rd May 2012
MEET THE HEAD
Dr Hatim El Tahir,director, Deloitte & Touche (ME)
Dr Hatim El Tahir’s specialization is in Islamic fi nancial regulation and risk management, and his research focuses on this landscape with an emphasis on methods of adapting best practices in the industry. He is also a member of AAOIFI’s auditing and governance standards committ ee.
Could you provide a brief journey of how you arrived where you are today?I started my career as a fi nance offi cer at Chevron Oil Company, which instilled the genesis of my interest in business and fi nance. I then trialed managing a family business for three great learning years before I went to the UK to pursue postgraduate studies which lasted for a good 10 years plus, and has become a life-changing endeavor.
However, my personal career highlights stem from balancing two things: a passion for business research and the desire to carry the fruits of research and learning into practice. I had the privilege of being trained into business research at the London School of Economics between 1995-2000. In the latt er part of my stay in the UK, I worked for a second tier and medium-sized business advisory fi rm in London advising Middle Eastern entrepreneurs and high net worth clients on their businesses in Europe and investment portfolios.
Another landmark point of my career was when I embarked into academia in the UAE. I was an associate professor of fi nance at several universities in the UAE and I had a hand in the dynamic business and fi nancial development that took place in the UAE and elsewhere in the Gulf. In 2006, I moved back to the industry and joined the Dubai International Financial Center (DIFC), working for the DIFC’s Exchange – currently NASDAQ Dubai. In early 2010, I relocated to Bahrain and joined Deloitt e ME’s Islamic Finance Group and led the Deloitt e IFKC.
What does your role involve? I lead inspirational thought leadership initiatives in Islamic fi nance at Deloitt e ME which eff ectively entails building strategic partnerships with industry stakeholders both regionally and internationally. What is your greatest achievement to date?Sharing Islamic fi nance knowledge, through the training of fi nance and banking professionals in the region; and contributing to ‘intellectual knowledge dialogue’ with industry stakeholders to promote and educate market participants about leading practices and professional excellence. Which of your products / services deliver the best results?Firstly, our core product – the Islamic fi nance thought leadership reports which embed Deloitt e proven skills, capabilities, methodologies and approach in business and fi nancial strategy. Secondly, our bespoke capacity building programs in Islamic fi nance which are designed to enable clients achieve their aims. What are the strengths of your business?Our commitment to clients, and the diversity of our core team of advisors’.
Most importantly Deloitt e’s regional commitment to deploy global capabilities to deliver service excellence in the region. What are the factors contributing to the success of your company?The seasoned leadership of the fi rm who have built strong business relations and delivered quality services for over 85 years in the region. Their passion for diversity of people, ethics in business and community support ensured that our fi rm delivers the timely appropriate advice.
What are the obstacles faced in running your business today? The lack of the adequate appreciation and support from some industry stakeholders — required to build a research culture in the region and in the industry. Clearly, this widens the gap between industry practices and leading internationally-accepted practices. However, what we would like to see is more homogenous support and generosity, from all the industry stakeholders, in order to build an enabled Islamic fi nance research and knowledge sharing culture that benefi t all. Where do you see the Islamic fi nance industry in the next fi ve years?One would like to see the industry building a more rigorous integrated regulatory system supported by harmonized global leading practices and industry standards. Equally true, to see the industry tapping more into real economy and commodities and assisting indigenous industries and local communities build their lives for a bett er future and welfare.
Name one thing you would like to see change in the world of Islamic fi nance.I would like to see Islamic fi nance empowering young entrepreneurs to build their business, communities and create greater impact on the society. Hence, to see Islamic fi nance expand fi nancial access in communities underserved by conventional fi nance and to develop an integrated economic society.
32© 23rd May 2012
DEAL TRACKER
IFN CorrespondentsAFGHANISTAN: Zulfi qar Ali Khanhead of Islamic banking division, fi nancial supervision department, Da Afghanistan BankAUSTRALIA: Gerhard Bakkerdirector, Madina VillageBAHRAIN: Dr Hatim El-Tahirdirector, Islamic Finance Knowledge Centre, Deloitt e & ToucheBANGLADESH: Md Shamsuzzamanexecutive vice president, Islami Bank Bangladesh BERMUDA: Belaid A Jheengoordirector of asset management, PwC
BRUNEI: James Chiew Siew Huasenior partner, Abrahams Davidson & CoCANADA: Jeff rey S Grahampartner, Borden Ladner GervaisEGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Antoine Saillonhead of Islamic fi nance, Paris EuroplaceHONG KONG & CHINA: Anthony Chanpartner, Brandt Chan & Partners in association with SNR DentonINDIA: Keyur Shahpartner, KPMGINDONESIA: Rizqullahpresident director, BNI SyariahIRAN: Majid PirehIslamic fi nance expert, SEOIRAQ: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & CoIRELAND: Ken OwensShariah funds assurance partner, PwC IrelandJAPAN: Serdar A. Basarapresident, Japan Islamic FinanceJORDAN: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & CoKAZAKHSTAN: Timur Alimarea manager, Al Hilal BankKOREA: Yong-Jae Changpartner, Lee & KoKUWAIT: Alex Salehpartner, Al Tamimi & CompanyLEBANON: Joëlle El Gemayelresearch assistant to the fi rst vice-governor, Banque du Liban LUXEMBOURG: Marc Theisenpartner, Theisen LawMALAYSIA: Nik Norishky Thanihead special projects (Islamic), PNBMALDIVES: Aishath Muneezahead of Islamic fi nance, Capital Market Development AuthorityMALTA: Reuben Butt igiegpresident, Malta Institute of ManagementMAURITIUS: Sameer K Tegallyassociate, Conyers Dill & PearmanNEW ZEALAND: Dr Mustafa Faroukcounsel member for Islamic fi nancial institutions, FIANZOMAN: Anthony Watsonsenior associate, Al Busaidy Mansoor Jamal & CoPAKISTAN: Bilal Rasuldirector (enforcement), SEC of PakistanQATAR: Amjad Hussainpartner, K&L GatesSAUDI ARABIA: Nabil Issapartner, King & SpaldingSOUTH AFRICA: Amman Muhammadmanaging director, Absa Islamic BankSINGAPORE: Yeo Wico,partner, Allen & GledhillSRI LANKA: Roshan Madewaladirector/CEO, Research Intelligence UnitSWITZERLAND: Khadra Abdullahiassociate of investment banking, Faisal Private Bank TANZANIA: Khalfan Abdallahhead of product development and Sharia compliance, Amana BankTURKEY: Ali Ceylanpartner, Baspinar & PartnersUAE: Moinuddin MalimCEO, Mashreq Al IslamiUK: Dr. Natalie Schoonprincipal consultant, FormabbUS: Saeid HamedanchiCEO, ShariahSharesYEMEN: Moneer Saifhead of Islamic banking, CAC Bank
IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports.For more information about becoming an IFN Correspondent please contact [email protected]
ISSUER SIZE DATE ANNOUNCED
Amer Group Holding EGP2.7 billion 14th May 2012
Qatar sovereign TBA 9th May 2012
Emirates NBD US$500 million 7th May 2012
Malaysian Airline System TBA 3rd May 2012
Dana Infra RM2 billion 2nd May 2012
Epmex RM1.35 billion 25th April 2012
Noor Islamic Bank US$1 billion 19th April 2012
Encorp RM1.58 billion 18th April 2012
Banque Saudi Fransi US$2 billion 18th April 2012
Islamic Development Bank RM400 million 17th April 2012
Indosat IDR2.5 trillion 17th April 2012
Johor Corp Group RM3 billion 13th April 2012
Citra Marga IDR1.2 trillion 12th April 2012
Nakheel AED240 million 11th April 2012
State Bank of Pakistan TBA 2nd April 2012
Saudi Aramco TBA 2nd April 2012
Development Bank of Kazakhstan US$500 million 30th March 2012
Ethical Asset Management TBA 30th March 2012
National Australia Bank US$500 million 29th March 2012
Jebel Ali Free Zone AED2.4 billion 21st March 2012
Indonesia sovereign TBA 20th March 2012
Yemen sovereign US$232 million 20th March 2012
Saudi Electricity Company TBA 19th March 2012
Noble Group, Hong Kong RM3 billion 15th March 2012
Kiler Group US$100 million 12th March 2012
Dubai Investments US$200 million 12th March 2012
Kazakhstan sovereign US$1 million 8th March 2012
First Community Bank KES2 billion 8th March 2012
Pakistan sovereign TBA 7th March 2012
Syarikat Prasarana Negara RM4 billion 6th March 2012
CIMB Singapore SG$100 million 2nd March 2012
Kingdom Holding TBA 1st March 2012
Qatar Petroleum TBA 27th February 2012
Acwa Power US$800 million 27th February 2012
South Africa sovereign US$500 million 23rd February 2012
Maybank RM7 billion 22nd February 2012
Oman Arab Bank OMR10 million 20th February 2012
Yemen sovereign TBA 20th February 2012
Kuwait Finance House, Turkey TBA 18th February 2012
Maxis RM2.45 billion 17th February 2012
Egypt sovereign TBA 6th February 2012
Development Bank of Kazakhstan TBA 6th February 2012
Turkey sovereign TBA 3rd February 2012
Musteq Hydro RM80 million 24th January 2012
General Authority for Civil Aviation TBA 24th January 2012
Indonesian fi nance ministry IDR2 trillion 24th January 2012
Albaraka Turk Katilim Bankasi US$200 million 23rd January 2012
AirAsia X US$200 million 17th January 2012
33© 23rd May 2012
SHARIAH INDEXES
SAMI Halal Food Participation (All Cap) 6 months
REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months
REDmoney GCC 6 Months REDmoney Global 6 Months
REDmoney MENA 6 Months REDmoney US 6 Months
1300
1475
1650
1825
2000
May-2012Apr-2012Mar-2012Feb-2012Jan-2012Dec-2011Nov-2011Oct-2011
All Cap Large Cap Medium Cap Small Cap
650
742
834
926
1018
1110
MayAprMarFebJanDecNov600
670
740
810
880
950
MayAprMarFebJanDecNov
All Cap Large Cap Medium Cap Small Cap
500
556
612
668
724
780
MayAprMarFebJanDecNov
All Cap Large Cap Medium Cap Small Cap
680
784
888
992
1096
1200
MayAprMarFebJanDecNov
All Cap Large Cap Medium Cap Small Cap
500
550
600
650
700
750
MayAprMarFebJanDecNov
All Cap Large Cap Medium Cap Small Cap
800
974
1148
1322
1496
1670
MayAprMarFebJanDecNov
All Cap Large Cap Medium Cap Small Cap
34© 23rd May 2012
SHARIAH INDEXES
For further information regarding REDmoney Indexes contact:
Andrew MorganManaging Director, REDmoney Group
Email: [email protected] +603 2162 7800
RED
REDmoney Global Shariah Index Series
REDmoney Global Shariah Index Series (All Cap) 6 Months REDmoney Global Shariah Index Series (Large Cap) 6 Months
REDmoney Global Shariah Index Series (Medium Cap) 6 Months REDmoney Global Shariah Index Series (Small Cap) 6 Months
Utilities2%Telecomunication Services
2%
Technology14%
Basis Materials15%
Non-CyclicalConsumer Goods Services
7%
Energy8%
Financials4%
Healthcare11%
Industrials22%
Consumer Goods Services15%
REDmoney Global Shariah
Equities are considered eligible for inclusion into the REDmoney Global Shariah Index Series only if they pass a series of market related guidelines related to minimum market capitalization and liquidity as well as country restrictions.
Once the index eligible universe is determined the underlying constituents are screened using a set of business and fi nancial Shariah guidelines.
The REDmoney Global Shariah Index Series powered by IdealRatings consists of a rich subset of global listed equities that adhere to clearly defi ned and transparent Shariah guidelines defi ned by Shariyah Review Bureau in Jeddah, Saudi Arabia.
The REDmoney Shariah Indexes provides Islamic investors with an accurate and Shariah-specifi c equity performance benchmark with optimized compliance credibility due to the intensive research conducted to ensure that index constituents do not confl ict with the defi ned Shariah requirements.
IdealRatings™ is the leading provider of Shariah investment decision support tools to investors globally, including asset managers, brokers, index providers, and banks to empower them to develop, manage and monitor Shariah investment products and Shariah compliant funds. IdealRatings is headquartered in San Francisco, California. For more information about IdealRatings visit: www.idealratings.com
REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC
REDmoney Global REDmoney MENA REDmoney US
500
620
740
860
980
1100
MayAprMarFebJanDecNov 450
560
670
780
890
1000
MayAprMarFebJanDecNov
REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC
REDmoney Global REDmoney MENA REDmoney US
500
740
980
1220
1460
1700
MayAprMarFebJanDecNov
REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC
REDmoney Global REDmoney MENA REDmoney US
500
690
880
1070
1260
1450
MayAprMarFebJanDecNov
REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC
REDmoney Global REDmoney MENA REDmoney US
35© 23rd May 2012
LEAGUE TABLES
Most Recent Global Sukuk
Priced Issuer Nationality Instrument Market US$ (mln) Managers
15th May 2012 BSF Sukuk Saudi Arabia Sukuk Euro market public issue
750 Deutsche Bank, Citigroup, Credit Agricole
10th May 2012 Encorp Systembilt Malaysia Sukuk Domestic market public issue
514 Hong Leong Bank, Kenanga Investment Bank, CIMB Group
25th Apr 2012 Dubai DOF Sukuk UAE Sukuk Euro market public issue
1,250 HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Citigroup
28th Mar 2012 SABB Saudi Arabia Sukuk Domestic market private placement
400 HSBC
28th Mar 2012 Aman Sukuk Malaysia Sukuk Domestic market public issue
441 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank
27th Mar 2012 Saudi Electricity Saudi Arabia Sukuk Euro market public issue
1,750 Deutsche Bank, HSBC
21st Mar 2012 Cagamas Malaysia Sukuk Domestic market public issue
163 RHB Capital, AmInvestment Bank
12th Mar 2012 DRB-HICOM Malaysia Sukuk Domestic market private placement
123 Maybank Investment Bank
7th Mar 2012 Almarai Saudi Arabia Sukuk Domestic market private placement
267 HSBC
7th Mar 2012 Tanjung Bin Energy Issuer
Malaysia Sukuk Domestic market private placement
1,089 HSBC, OCBC, RHB Capital, DRB-HICOM, CIMB Group, Affi n Investment Bank, Maybank Investment Bank
22nd Feb 2012 DRB-HICOM Malaysia Sukuk Domestic market private placement
232 Maybank Investment Bank
31st Jan 2012 MAF Sukuk UAE Sukuk Wakalah Euro market public issue
400 Standard Chartered Bank, HSBC, Dubai Islamic Bank, Abu Dhabi Islamic Bank
17th Jan 2012 General Authority for Civil Aviation
Saudi Arabia Sukuk Domestic market private placement
4,000 HSBC
12th Jan 2012 Tamweel UAE Sukuk Euro market public issue
300 Standard Chartered Bank, Dubai Islamic Bank, Citigroup
11th Jan 2012 FGB Sukuk UAE Sukuk Wakalah Euro market public issue
500 Standard Chartered, HSBC, National Bank of Abu Dhabi, Citigroup
11th Jan 2012 Sarawak Energy Malaysia Sukuk Domestic market public issue
796 RHB Capital, Kenanga Investment Bank, AmInvestment Bank
10th Jan 2012 EIB Sukuk UAE Sukuk Euro market public issue
500 Standard Chartered, HSBC, RBS, National Bank of Abu Dhabi, CitigroupEmirates NBD
16th Dec 2011 Projek Lebuhraya Usahasama
Malaysia Sukuk Domestic market private placement
6,155 RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank
16th Dec 2011 Projek Lebuhraya Usahasama
Malaysia Sukuk Domestic market private placement
3,455 CIMB Group, AmInvestment Bank, Maybank Investment Bank
5th Dec 2011 Gulf International Bank
Bahrain Sukuk Euro market private placement
300 JPMorgan
Global Sukuk Volume by Month Global Sukuk Volume by Quarter
01 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4
2011 2012
US$ bn
0
200
400
600
800
1200
1000
US$ mValue (US$ bn) Avg Size (US$ m)
2
4
6
8
10
12
02468
1012141618
1Q 2Q 3Q 4Q
2007 2008 2009 2010 2011 2012
US$ bn US$ mValue (US$ bn) Avg Size (US$ m)
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q0
100
300
200
400
500
600
36© 23rd May 2012
LEAGUE TABLES
Top 30 Issuers of Global Sukuk 12 Months
Issuer Nationality Instrument Market US$ (mln) Iss Managers1 Projek Lebuhraya
UsahasamaMalaysia Sukuk Domestic market
private placement9,610 2 RHB Capital, CIMB Group,
AmInvestment Bank, Maybank Investment Bank
2 General Authority for Civil Aviation
Saudi Arabia
Sukuk Domestic market private placement
4,000 1 HSBC
3 Pengurusan Air SPV Malaysia Sukuk Domestic market private placement
2,057 2 CIMB Group, Maybank Investment Bank
4 Wakala Global Sukuk Malaysia Sukuk Euro market public issue
2,000 1 HSBC, CIMB Group, Citigroup, Maybank Investment Bank
5 Sarawak Energy Malaysia Sukuk Domestic market public issue
1,783 2 RHB Capital, Kenanga Investment Bank, AmInvestment Bank
6 Saudi Electricity Saudi Arabia
Sukuk Euro market public issue
1,750 1 Deutsche Bank, HSBC
7 Manjung Island Energy Malaysia Sukuk Ijarah Domestic market public issue
1,545 1 Lembaga Tabung Haji, CIMB Group
8 Dubai DOF Sukuk UAE Sukuk Euro market public issue
1,250 1 HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Citigroup
9 Tanjung Bin Energy Issuer Malaysia Sukuk Domestic market private placement
1,089 1 HSBC, OCBC, RHB Capital, DRB-HICOM, CIMB Group, Affi n Investment Bank, Maybank Investment Bank
10 Perusahaan Penerbit SBSN Indonesia II
Indonesia Sukuk Ijarah Euro market public issue
1,000 1 Standard Chartered, HSBC, Citigroup
11 Aman Sukuk Malaysia Sukuk Musharakah Domestic market public issue
812 2 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank
12 ANIH Malaysia Sukuk Domestic market private placement
786 1 CIMB Group, Maybank Investment Bank
13 Kingdom of Bahrain Bahrain Sukuk Euro market public issue
750 1 Standard Chartered, BNP Paribas, Citigroup
13 BSF Sukuk Saudi Arabia
Sukuk Euro market public issue
750 1 Deutsche Bank, Citigroup, Credit Agricole CIB
15 Syarikat Prasarana Negara Malaysia Sukuk Ijarah Domestic market public issue
667 1 CIMB Group, Maybank Investment Bank
16 First Gulf Bank UAE Sukuk Wakalah Euro market public issue
650 1 Standard Chartered, HSBC, Citigroup
17 DRB-HICOM Malaysia Sukuk Domestic market private placement
561 4 Maybank Investment Bank
18 HSBC Bank Middle East UK Sukuk Euro market public issue
500 1 HSBC
18 FGB Sukuk UAE Sukuk Wakalah Euro market public issue
500 1 Standard Chartered, HSBC, National Bank of Abu Dhabi, Citigroup
18 EIB Sukuk UAE Sukuk Euro market public issue
500 1 Standard Chartered, HSBC, RBS, National Bank of Abu Dhabi, Citigroup, Emirates NBD
18 Abu Dhabi Commercial Bank UAE Sukuk Euro market public issue
500 1 Standard Chartered, JPMorgan, Abu Dhabi Commercial Bank, Bank of America Merrill Lynch
18 ADIB Sukuk UAE Sukuk Euro market public issue
500 1 Standard Chartered, Nomura, HSBC, National Bank of Abu Dhabi, Abu Dhabi Islamic Bank, Citigroup
23 Saudi International Petrochemical
Saudi Arabia
Sukuk Domestic market public issue
480 1 Deutsche Bank, Riyad Bank
24 Encorp Systembilt Malaysia Sukuk Domestic market public issue
470 1 Hong Leong Bank, Kenanga Investment Bank, CIMB Group
25 MAF Sukuk UAE Sukuk Wakalah Euro market public issue
400 1 Standard Chartered, HSBC, Dubai Islamic Bank, Abu Dhabi Islamic Bank
26 Saudi British Bank Saudi Arabia
Sukuk Domestic market private placement
400 1 HSBC
27 Cagamas Malaysia Sukuk Domestic market public issue
393 3 CIMB Group, Maybank Investment Bank, RHB Capital
28 Putrajaya Holdings Malaysia Sukuk Musharakah Domestic market private placement
360 3 CIMB Group, AmInvestment Bank, Maybank Investment Bank, RHB Capital, Alliance Investment Bank
29 Kuveyt Turk Katilim Bankasi Turkey Sukuk Euro market public issue
350 1 Standard Chartered, HSBC, KFH, Abu Dhabi Islamic Bank, Commerzbank Group
30 Telekom Malaysia Malaysia Sukuk Domestic market public issue
345 4 CIMB Group, AmInvestment Bank, Maybank Investment Bank, RHB Capital
Total 41,001 108
37© 23rd May 2012
LEAGUE TABLES
Top Managers of Sukuk 12 Months
Manager US$ (mln) Iss %
1 HSBC 8,109 16 19.8
2 Maybank Investment Bank 7,197 34 17.6
3 CIMB Group 7,058 29 17.2
4 AmInvestment Bank 4,827 22 11.8
5 RHB Capital 2,869 24 7.0
6 Citigroup 2,254 10 5.5
7 Standard Chartered Bank 1,487 10 3.6
8 Deutsche Bank 1,365 3 3.3
9 Lembaga Tabung Haji 935 3 2.3
10 National Bank of Abu Dhabi 604 4 1.5
11 Dubai Islamic Bank 513 3 1.3
12 JPMorgan 425 2 1.0
13 Kenanga Investment Bank 422 2 1.0
14 OCBC 303 5 0.7
15 DRB-HICOM 286 6 0.7
16 Hong Leong Bank 265 4 0.7
17 Abu Dhabi Islamic Bank 253 3 0.6
18 Credit Agricole 250 1 0.6
18 BNP Paribas 250 1 0.6
20 Riyad Bank 240 1 0.6
21 Affi n Investment Bank 233 3 0.6
22 Bank of America Merrill Lynch 125 1 0.3
22 Abu Dhabi Commercial Bank 125 1 0.3
24 KFH 109 2 0.3
25 Public Bank 98 2 0.2
26 RBS 83 1 0.2
26 Nomura 83 1 0.2
26 Emirates NBD 83 1 0.2
29 Commerzbank Group 70 1 0.2
30 Malaysian Industrial Development Finance
40 1 0.1
Total 41,001 108 100.0
Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months
Legal Advisor US$ (million) No %1 Allen & Overy 4,198 2 23.92 Skadden Arps Slate Meagher &
Flom3,281 1 18.7
2 White & Case 3,281 1 18.74 Al-Jadaan & Partners Law Firm 1,200 1 6.84 Baker & McKenzie 1,200 1 6.84 Cliff ord Chance 1,200 1 6.87 Baker Bott s 917 1 5.27 Chadbourne & Parke 917 1 5.29 Afridi & Angell 267 1 1.59 Herbert Smith Gleiss Lutz Stibbe 267 1 1.59 Latham & Watkins 267 1 1.5
Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months
Mandated Lead Arranger US$ (million) No %
1 Samba Financial Group 592 4 6.2
2 Public Investment Fund 463 2 4.9
3 Arab National Bank 463 2 4.9
4 HSBC Holdings 447 3 4.7
5 Sumitomo Mitsui Financial Group 404 2 4.2
6 Banque Saudi Fransi 386 2 4.1
7 KfW Bankengruppe 369 2 3.9
8 Mitsubishi UFJ Financial Group 360 1 3.8
9 Saudi British Bank 324 1 3.4
10 Australia & New Zealand Banking Group
289 1 3.0
10 Mizuho Financial Group Inc 289 1 3.0
Sukuk Volume by Currency US$ (billion) 12 Months
Sukuk Volume by Issuer Nation US$ (billion) 12 Months
Global Sukuk Volume by Sector 12 Months
Global Sukuk Volume - US$ Analysis
US$ bn US$ Non-US$
02468
1012141618
1Q 2Q 3Q 4Q
2007 2008 2009 2010 2011 2012
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q
22.3
9.4
4.7
0.0
US dollar
Malaysian ringgit
Saudi riyal
Singapore dollar
UK
24.0
0.5
1.0
1.1
3.8
5.5
0.4
Malaysia
UAE
Saudi Arabia
Indonesia
Turkey
Bahrain
Construction
Utility & EnergyTransportation
GovernmentFinance
Other
17%
20%
6%
28%
8%
21%
38© 23rd May 2012
LEAGUE TABLES
Top Islamic Finance Related Loans Mandated Lead Arrangers Ranking 12 Months
Mandated Lead Arranger US$ (mln) No %
1 SABB 1,054 4 10.62 Samba Capital 924 4 9.33 Banque Saudi Fransi 904 3 9.1
4 Al-Rajhi Banking & Investment 753 3 7.6
5 Saudi National Commercial Bank 459 2 4.6
6 Saudi Hollandi Bank 444 1 4.56 Riyad Bank 444 1 4.58 HSBC 295 3 3.08 Deutsche Bank 295 3 3.010 Citigroup 290 7 2.911 Barwa Bank 266 2 2.712 Maybank Investment Bank 264 2 2.713 Noor Islamic Bank 236 2 2.414 Arab National Bank 219 1 2.215 Abu Dhabi Islamic Bank 219 5 2.216 CIMB Group 216 2 2.217 Qatar Islamic Bank 213 1 2.2
17 Qatar International Islamic Bank 213 1 2.217 Masraf Al Rayan 213 1 2.220 Standard Chartered Bank 199 4 2.0
21 RHB Capital 164 1 1.7
21 Lembaga Tabung Haji 164 1 1.7
21 AmInvestment Bank 164 1 1.724 Emirates NBD 160 3 1.625 Bank of America Merrill Lynch 126 3 1.3
26 Arab Banking Corporation 111 3 1.127 Bank of China 93 1 0.928 Al Hilal Bank 70 2 0.7
29 Bank Al-Jazira 68 1 0.7
29 Alinma Bank 68 1 0.7
Top Islamic Finance Related Loans Mandated Lead Arrangers12 Months
Bookrunner US$ (mln) No %
1 Citigroup 309 6 3.1
2 Abu Dhabi Islamic Bank 267 5 2.7
3 Standard Chartered Bank 165 3 1.7
4 Emirates NBD 122 2 1.2
5 Maybank Investment Bank 100 1 1.0
6 Bank of China 93 1 0.9
7 National Bank of Kuwait 87 1 0.9
8 HSBC 72 1 0.7
8 Dubai Islamic Bank 72 1 0.7
8 Deutsche Bank 72 1 0.7
Top Islamic Finance Related Loans Deal List 12 Months
Credit Date Borrower Nationality US$ (mln)
13th Dec 2011 Barzan Gas Qatar 5,442
12th Feb 2012 Mobily Saudi Arabia 2,667
2nd Dec 2011 Hajr for Electricity Production
Saudi Arabia 1,981
14th Feb 2012 Power & Water Utility for Jubail & Yabbu - Marafi q
Saudi Arabia 1,200
15th Oct 2011 Maaden Bauxite & Alumina
Saudi Arabia 929
15th Sep 2011 Dubai Ports World UAE 850
18th Jul 2011 Pembinaan BLT Malaysia 822
23rd Jun 2011 Salik One Spc UAE 800
27th Feb 2012 Government of Dubai UAE 675
23rd May 2011 Natrindo Telepon Seluler
Indonesia 450
Top Islamic Finance Related Loans by Country 12 Months
Nationality US$ (mln) No %
1 Saudi Arabia 5,377 5 54.32 UAE 1,272 6 12.93 Malaysia 926 2 9.44 Qatar 850 1 8.65 Indonesia 601 4 6.16 Turkey 384 3 3.97 Pakistan 203 4 2.18 China 93 1 0.99 Kuwait 87 1 0.910 Russian Federation 60 1 0.6
Top Islamic Finance Related Loans by Sector 12 Months
Global Islamic Loans - Years to Maturity (YTD Comparison)
Are your deals listed here?If you feel that the information within these tables is inaccurate, you may contact the following directly: Mandy Leung (Media Relations) Email: [email protected] Tel: +852 2804 1223
0US$ bln 1 32 4
Oil & Gas
Construction/Building
Finance
Telecommunications
Utility & Energy
0% 20% 40% 60% 80% 100%2005200620072008
200920102011
0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs
39© 23rd May 2012
EVENTS DIARY
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28th — 30th May 2012Islamic Finance East AfricaKenya (IIR)
29th — 30th May 2012The 8th Annual Middle East Project Finance Forum, Dubai (Fleming Gulf)
5th — 6th June 2012The 3rd Annual World Islamic Banking Conference: Asia SummitSingapore (MEGA Events)
5th — 6 June 2012Oman Islamic Banking and Finance Conference 2012Oman (OITE)
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11th — 12th June 2012The 3rd Annual World Takaful Conference: Family Takaful SummitKuala Lumpur (MEGA Events)
13th June 2012World Takaful Conference: Asia Leader Summit, Kuala Lumpur (MEGA Events)
13th — 14th June 2012The 1st International Forum for Islamic Banks and Financial InstitutionsAmman, Jordan (Strategy for Business Development & CIBAFI)
21st June 2012IFN Roadshow Japan Tokyo (REDmoney events)
27th June 2012 IFN Roadshow Hong Kong Hong Kong (REDmoney events)
29th June — 1st July 2012International Conference of Islamic Economics and Business Melaka, Malaysia (UiTM (Johor) & Universitas Indonesia)
10th — 11th July 2012The 3rd Annual Asia Islamic Banking ConferenceKuala Lumpur (Fleming Gulf)
10th — 12th July 2012The International Takaful Summit London (Afk ar Consulting Ltd)
17th July 2012 The 4th Sri Lanka Islamic Banking & Finance Conference (SLIBFC) Sri Lanka (UTO EduConsult)
4th September 2012IFN Roadshow PakistanKarachi, Pakistan (REDmoney Events)
6th September 2012IFN Roadshow Sri LankaColombo, Sri Lanka (REDmoney Events)
1st – 2nd October 2012IFN Asia Forum 2012Kuala Lumpur (REDmoney events)
10th – 11th October 2012The 2nd Annual International Summit on Islamic Corporate FinanceAbu Dhabi (MEGA Events)
14th — 16th October 2012The International Islamic Finance Con-ference 2012Abu Dhabi (UAE Emerad Group)
30th – 31st October 2012IFN Europe Forum 2012London, UK (REDmoney events)
12th – 13th November 2012IFN Saudi Arabia Forum Riyadh (REDmoney events)
20th — 21st November 2012International Islamic Accounting and Finance Conference 2012Kuala Lumpur (Accounting Research Institute)
26th November 2012IFN Roadshow BruneiBrunei (REDmoney events)
3rd December 2012IFN Roadshow EgyptCairo (REDmoney events)
COMPANY INDEX
Company PageAAIOFI 10,12,31ABC Islamic Bank 6,8Abu Dhabi Islamic Bank 8Akard Street Partners 24Al Baraka Islamic Bank 8Al Hilal Bank 7Al Jazira Capital 24Al Rajhi Bank 24Al Ramz Securities 24Al Yaqoub Att orneys and Legal Advisors 21Albaraka Banking Group 1Albaraka Turk Participation Bank 7,24Allied Bank 7Amana Bank 12AmInvestment Bank 9AmIslamic Bank 3,9AMMB Holdings 3,9Asian Development Bank 7Asiya Investments 24Association of Superannuation Funds of Australia 13Asuransi Ekspor Indonesia 29ATCHISON CONSULTANTS 13Bahrain Financial Exchange 8Bait Al Bursa 8Bangkok Bank 6Bank Albilad 12Bank AlJazira 24Bank Asya 7,9,24Bank Islam 3Bank Muamalat Malaysia 3Bank Negara Malaysia 3,10Bank Nizwa 7Bank of London and the Middle East 9,10,16Bank Rakyat 3Bank Sarasin 10Bank Simpanan Nasional 8Bank Victoria Syariah 9Banque Saudi Fransi 6Bapepam 9Barclays Bank 12Barwa Bank 19,20,24Baspinar & Partners Law Firm 22Bizim Menkul Değerler 24Blackstone Group 7BNI Syariah 8Bursa Malaysia 9Capinnova Investment Bank 12Capital Market Authority 21Capital Market Development Authority Maldives 16Center for Islamic Banking, Finance and Management 8Central Bank of Bahrain 6,18,24Central Bank of Qatar 19,20Central Bank of Turkey 10Cerulli Associates 13Chartered Institute of Securities and Investments 16Chevron Oil Company 31CIMB Group 3,5,6Citigroup 6Credit Agricole 6
Crescent Petroleum 7Dallah Albaraka Group 6Dana Gas 7Deloitt e & Touche (ME) 31Deutsche Bank 6,7,20DIFC Investments 7Dubai Islamic Bank 7,11El Rashad Holding 24Elaf Bank 8Emerging Markets Private Equity Association 14Emirates NBD 7Exotix Holdings 7,12Faisal Finance 18Faisal Private Bank 18Faysal Bank 7,18Financial Services Authority of the UK 28First Islamic Modaraba 8Fitch 11Formabb 16Gatehouse Bank 16Gemalto 12Global Investment House 6Goldman Sachs 6Gulf Sukuk I Company 11Hines International Real Estate Holdings 24Hogan Lovells 21Hong Leong Bank 8Hong Leong Islamic Bank 8Hong Leong MSIG Takaful 12Housing Development Finance Corporation 16HSBC 6,10,20IDB 6,7,10,12IIBOR 4Ilyas & Mustafa Galadari Group 7IMF 19INCEIF 12International Bank of Qatar 19Islamic Bank of Britain 16Islamic Bank of Thailand 6,9Islamic Interbank Benchmark Rate 12Islamic Research and Training Institute 10ISRA 8,12Istanbul Stock Exchange 24Ithmaar Bank 18K&L Gates 20Karachi Stock Exchange 8Kencana Petroleum 11KFH Research 4,5,23Khaleeji Commercial Bank 8KPMG 9Kuala Lumpur Kepong 11Kuveyt Türk Katılım Bankası 24Kuwait Finance House Malaysia 10Labuan Off shore Financial Services 4Latham & Watkins 7Liquidity Management Center 9Malaysian Venture Capital and Private Equity Association 24MARC 10Mashreq Bank 7Maybank Islamic 3
Meezan Bank 7,25Methaq Takaful Insurance Company 29Middle East Dredging Company 19Moody’s 19Morningstar 23Multimedia Universtiy 4National Bank for Development 8National Bank of Abu Dhabi 7National Bank of Pakistan 7National Industries Group Holding 7National Institute of Banking & Finance 4Noor Islamic Bank 6,7,10Norton Rose 28Public Islamic Bank 3,15Qatar International Islamic Bank 20Qatar Islamic Bank 11,19Qatar National Bank 19QInvest 20RAM 11Ridge Capital 24S&P 11,20SALAMA - Islamic Arab Insurance Company 29SapuraCrest Petroleum 11SapuraKencana Petroleum 11Saudi Arabian General Investment Authority 21Securities and Exchange Organization of Iran 15Segari Energy Ventures 11Shariah Shares 14Siam Commercial Bank 6Siyam Capital 30South African Absa Islamic Bank 2Standard Chartered 1,6,7,9,20State Bank of Pakistan 4Swiss Financial Market Supervisory Authority 18Tadawul 24Tadhamon Capital 8TAIB Bank 8Taylor Wessing 12The First Investor 24The Royal Bank of Scotland 6Thomson Reuters 12TMB Bank 6TriLyn Investment Management 24Türkiye Finans Katılım Bankası 6,7,24UBS 12United Bank 7Venture Capital Bank 12Vinson & Elkins 14
NE-IFN09/20
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