The World’s Global Islamic Finance News Providerislamicfinancenews.com/sites/default/files/newsletters/v4i16.pdf · Lawyers swap derivatives Clifodrf Chance has drafed a mastt er

In this issue

News Briefs

Capital Markets .......................................... 1The ever popular MurabahahIslamic Covered Card

more inside...

Ratings ......................................................... 6Nucleus Avenue rated

Highway on trackmore inside...

Japan’s no Longer a Sleeping Beauty ..... 7

The Dawn of Islamic Finance in Japan .... 9

Separating the Myth from the Meltdown: The US Mortgage Market and its Intersec-tion with Islamic Finance, Part 1 ...........11

London: The New Souk for Sukuk ..........13

Islamic Syndicated Finance – Together We Stand ...................................14

Islamic Finance in the Netherlands .......16

Meet the Head .......................................... 17Zafar Sareshwala, Parsoli Corporation

Termsheet ..................................................18Bank Asya Syndicated Murabahah

Takaful News .............................................19Trading resumedCashing in on catastrophe

more inside...

Takaful Interview ......................................20Atsuhiko Ayabe, Hong Leong Tokio Marine Takaful

Moves ........................................................ 22

Deal Tracker NEW ........................................23

Eurekahedge .............................................24

Dow Jones Islamic Indexes .....................25

Bondweb ....................................................26

Dealogic – League Tables .......................27

Events Diary...............................................30

Subscriptions Form ..................................31

Country Index ............................................31

Company Index .........................................31

Vol. 4, Issue 16 20th April 2007

T h e W o r l d ’ s G l o b a l I s l a m i c F i n a n c e N e w s P r o v i d e r

UK/UAELawyers swap derivativesClifford Chance has drafted a master agreement for its Shariah compliant International Swaps and Derivatives Associations (ISDA). The agreement is believed to provide a boost to the fi rm’s Islamic fi nance practice.

The fi rm will formally draft the agreement, with contributions from selected banks and law fi rms. Clifford Chance partner Habib Motani

affi rmed: “This is very important because it will help liquidity in the market and should have a real impact on the volume of Islamic fi nance transactions.”

The document is a collaborative effort between ISDA and the International Islamic Financial Market. It is expected to be ready by the end of 2007.

SAUDI ARABIASeeking bank with large sum of cashMaan Al-Sanea, the owner of Saad Group, is seeking to borrow US$5 billion to fi nance investments, including a US$6.63 billion stake in HSBC Holdings.

The construction and real estate company currently owns 3.1% of HSBC (360 million shares are held via Singularis Holdings, an investment company based in the Cayman Islands). Saad Group unit Saad Trading & Contracting also plans to raise Sukuk exceeding US$500 million, which is expected to go through before the end of 2007.

Pricing of the fi ve-year Sukuk will be comparable with 80–90 basis points over the London Interbank Offered Rate, according to BNP Paribas, the Sukuk’s arranger.

Saad Trading will use proceeds from the bonds to fund real estate and other investments, and to refi nance debt.

The Sukuk currently has a preliminary rating of BBB+ from Standard & Poor’s and a Baa1 rating from Moody’s Investor’s Services. (See Ratings News, page 6.)

MALAYSIAMaybank attracts global investorsA total of US$2.4 billion has been garnered by Maybank for its maiden overseas Shariah compliant bonds. This is an oversubscription of eight times of its original US$300 million offer for sale.

This Sukuk is also thought to be the fi rst Islamic subordinated debt sale by a bank in Asia. Maybank’s fl oating-rate notes, which will

mature in 2017, were sold at 33 basis points above than the six-month dollar London interbank offered rate (LIBOR), according to Sean Henderson, who is head of debt syndication at HSBC in Hong Kong.

Maybank mandated HSBC, Aseambankers and UBS as joint bookrunners and joint lead managers for the issuance.

www.islamicfi nancenews.comNEWS BRIEFS

Page 2 20th April 2007©

Editor’s NoteIn the modern world, the businessman who has promising inspiration and innovation is bound to face challenges, a key issue often being linked to capital.

Islam aims to establish a social order where all individuals are united by bonds of brotherhood and affection, like members of one single family. This brotherhood is universal and not cut and dry; and spreads across geographical boundaries. In the world of fi nance, the concept of brotherhood or partnership and the equal treatment of all individuals before the law is not meaningful unless it is accompanied by economic justice so that everyone gets his dues for his contribution to society and there is no exploitation of one individual by another. What is required for a business partnership to work is essentially that a business, which is ongoing, has a capability of generating a profi t.

The compensation received by a partner in a business is determined automatically by the fortunes of the business. There is no need to compute an interest rate and there are no fi xed costs of debt – the partner will receive his profi ts only if and when earned.

Partnership and spreading risks essentially go hand in hand. However, when 40 banks got together just to raise US$175 million, this seems to be spreading too thin. In this issue we take a look at some of the syndicated Islamic fi nance transactions: from the largest by value so far in 2007 (Aldar Properties’ US$2.53 billion Sukuk Mudarabah), to the biggest number of participating banks (syndicated Murabahah fi nancing facility, Asya Katilim Bankasi – better known as Bank Asya).

After the near collapse of its fi nancial system following the burst of its economic bubble in the early 1990s, things are again looking up in Japan. What is intriguing is that the country is now taking an unsullied look at Islamic fi nance. Islamic fi nance is thought to be an effective tool to fi rm up an international fi nancial infrastructure and to promote economic and social development in the country. Despite the potential legal issues in relation to Islamic fi nance transactions for Japanese fi nancial institutions at present, some Japanese corporations are already demonstrating their commitment to the sector, with the endorsement of the government.

Nora Salim, Editor

BAHRAINIIFM initiativesThe International Islamic Financial Market (IIFM), in co-ordination with the Central Bank of Bahrain (CBB), will organize a high level technical workshop on the 26th April 2007. The workshop is set to gauge industry opinion on risk management and regulatory reporting systems for Islamic fi nancial institutions and secondary Sukuk market products, such as Islamic repurchase agreements.

IIFM is also assessing the need for a Shariah compliant trade, operational risk matching and a regulatory reporting tool, TRAX2. Additionally, it is deliberating the development of an Islamic Master Repo Agreement.

A Treasury Murabahah Master Agreement and projects relating to Islamic capital and money markets are also in the pipeline.

BAHRAINThe ever popular MurabahahArcapita Bank has doubled the size of its Murabahah facility to US$1.1 billion from its previous US$500 million. This is in line with a demand excess of US$1.3 million. More than 80% of demand for the Murabahah originated from outside the Middle East, allowing the bank to benefi t from a lower cost capital for its expansion.

The deal’s underwriters include Barclays Capital, DBS Bank, European Islamic Investment Bank, Standard Bank, Standard Chartered Bank and WestLB. Abdul Aziz Hamad Aljomaih, vice-chairman of Arcapita, commented: “The fi nancing coincides with the opening of Arcapita’s offi ce in Singapore, a steady increase in average transaction size, and the ongoing extension of its alternative investment products.”

Proceeds from the facility will be used to refi nance Arcapita’s outstanding US$210 million multi-currency Sukuk, which is due in 2010, as well as for general corporate purposes.

MALAYSIAHealthy Public operationsPublic Bank Group charted a 23% growth in net profi t to RM476 million (US$138.76 million) for the fi rst quarter of 2007. This growth is attributed to net income from Islamic banking, net interest income and other operating income. The bank also saw lower loan loss allowances for the quarter.

Public Bank’s Islamic banking operations increased by 14% to RM868 million (US$253.05 million), driven by healthy expansions in group lending and deposit-taking, as well as strong asset quality. Its other operating income expanded by 53% to RM353 million (US$102.94 million), supported by higher income sales of trust units, higher unit trust fund management fees, increase in brokerage and commissions from stockbroking and higher foreign exchange income.

The bank’s loan loss allowances fell by RM5.4 million (US$1.57 million), despite a higher general allowance of RM12.6 million (US$3.67 million), due to robust loan growth in the fi rst quarter of 2007.



UAEIslamic Covered CardDubai Bank has launched its Islamic Covered Card. Valid at any merchant outlet around the world, the card allows its customers payback fl exibility according to a percentage of their choice.

The Dubai Bank’s Islamic Covered Card’s profi t rate is set at 1.5% per month, compared to 24–30% for conventional cards.

In related news, Dubai Bank, which made the transition from being a conventional fi nancial institution to become Shariah compliant at the beginning of 2007, plans to outsource its IT projects to fortify its internal computing resources.

Faizal Eledath, head of IT at Dubai Bank, said the bank planned to hand out an unspecifi ed number of contracts to external companies over the next few years.

SINGAPORE/QATAROptimistic about Lion CityQatar National Bank (QNB) has established its representative offi ce in Singapore after having been granted approval to do so in August 2006. Liew Chee Seng will head QNB’s representative offi ce.

Speaking exclusively to Islamic Finance news, assistant general manager of QNB’s international banking division Yousef Al-Neama revealed the reason behind QNB’s Singaporean endeavor. “There are many reasons why we selected Singapore to set up an offi ce; among which include the fact that Singapore is a major destination for Qatar exports, there is suffi cient liberalization of regulations, it covers the South Asia and the Far East markets, and we view Singapore as at the heart of oil and gas fi nancial centers,” he elucidated.

Yousef also outlined QNB’s Singapore plan, which includes serving South-East Asian markets, establishing its trade business and delving into government, semi-government and foreign investment businesses.

Although offi cially open, QNB’s Singaporean representative offi ce will not actually commence operations until the end of April.

KUWAITWhopping profi tsKuwait Finance House (KFH)’s profi ts for the fi rst quarter of 2007 totaled US$369.39 million – 42% higher than the same period in 2006. The bank’s shareholders contributed to 38% of the profi t – US$177.65 million.

KFH’s profi t per share for the fi rst quarter rose to US$0.12, compared to US$0.09, marking a 38% increase. Total assets reached US$23.642 billion, up from the previous US$6.522 billion. The bank’s deposits amounted to US$14.728 billion, an increase of US$2.97 billion, while its return on assets reached 3.1 % per year and return on equity per year saw a 31% boost.

Bader Abdul Mohsen Al-Mukhaizeem, chairman and managing director of KFH elucidated: “During the fi rst quarter of this year, KFH has been rewarded with positive ratings and appreciation certifi cates, all of which commended its achievements, its vital role in the Islamic fi nancial transactions market, as well as its net worth and expertise in both regional and global levels. In addition, we capitalized on the fl exibility, seized profi table opportunities, and moved in the market with a vision aiming to maximize profi t for depositors and shareholders alike,” he added. Bader also highlighted enhanced Kuwaiti–Turkish relations, stating: “We are focused on furthering intercountry trade and entering into joint investments.”

KFH was awarded two accolades by Islamic Finance news, including Best Islamic Bank in Kuwait and Best New Islamic Bank in 2006.

UAEGamut of fundsThe United Bank of Pakistan (UBL) has launched UCIF, its Shariah compliant fund. UCIF will be offered via its subsidiary UBL Fund Managers, and will invest in a mix of equities, fi xed income instruments and other asset classes.

UBL is also offering up USF, an equity fund for Pakistani stock exchanges, and UGIF, focused primarily on fi xed income securities in Pakistan and overseas.

SWITZERLANDAlpine versionGeneva and Zurich are competing to be the venue for 2007’s International Islamic Finance Forum (IIFF) Europe, scheduled for the 12th–15th November.

The rivals were announced at the recently concluded 12th IIFF, which was held in Dubai. A customized program for IIFF Europe is currently being put together, and it is expected that it will follow up on many of the global topics discussed at the Dubai event.



AUSTRALIA/BAHRAINAussie RulesAustralia is seeking Islamic fi nance expertise from major Bahraini Islamic banks and fi nancial institutions. The Australian market is looking to tap Shariah compliant structured fi nance, retail banking and trade fi nance. Bahrain was selected based on its robust Islamic market.

Australian Trade Commissioner, Gary Kennedy, elucidated: “Australia is a stable and growing economy which offers a stable political and economic environment to investors and this has led to a major surge in fl ow of foreign direct investments (FDIs) in all vital sectors. We are very keen to have a free trade agreement with the GCC as the Australian embassy in Saudi Arabia has appointed a consultant to prepare the groundwork for this landmark treaty, which we see as a benefi cial for both sides. The process will gain momentum shortly.”

As at the end of 2006, Australia had attracted US$247 billion in FDIs, marking a 120% increase from 2001, and a 20% gain from 2005. The country is looking to focus on oil and gas, petroleum and information communication technology (ICT) in 2007. Australia has chartered US$800 billion in total outstanding investments in funds at end of 2006.

KUWAITBattle of the banksGulf Finance House (GFH) is targeting to become the world’s prime provider of Islamic investment products, it has stated.

Chief executive Esam Janahi affi rmed: “GFH aims to be the undisputed leader in Islamic investment banking in the GCC and the Middle East and Northern African region, to be number one in our home markets. We will build on our strengths by expanding our capabilities into Europe and Asia.”

Janahi unveiled the bank’s fi ve-year growth plan, which includes developing its funding model, expanding its business and extending its international reach. “Given the medium-term outlook for our markets and products, the board is confi dent that these actions will produce strong growth in earnings over the next fi ve years. This confi dence allows GFH to reiterate its commitment to continuing to pay dividends which are commensurate with its earnings growth.”

GFH has clearly established that it is bent on developing its economic model while adhering to its core goals.

TURKEYCould it get any bigger? Asya Katilim Bankasi (Bank Asya) of Turkey has closed a US$175 million syndicated Murabahah fi nancing facility with 40 international banks. The facility was structured as a dual one and two-year tranche facility, with proceeds going towards Bank Asya’s general fi nancing activities.

ABC Islamic Bank, Standard Chartered Bank and Unicredit Markets & Investment Banking (acting through Bayerische Hypo-und Vereinsbank) were the deal’s mandated lead arrangers. The syndication was oversubscribed to US$175 million, with strong support from both regional and international banks.

As at the end of 2006, Bank Asya enjoyed a market share of 28% in deposits and a 30% share in domestic fi nancing. The bank’s balance sheet grew by 62% with total assets of TRY4.2 billion (US$3.11 billion) and shareholders’ equity of TRY632.5 million (US$469.76 million) – a 115% increase from 2005. Bank Asya’s net income accrued by 55% from end of 2005 to TRY146 million (US$108.44 million). (See Termsheet on page (18) for more details.)

www.IslamicFinanceTraining.com

FOR MORE INFORMATION, contact: Andrew Tebbutt Tel: 603 2143 8100;

Email: [email protected]

CALENDAR 2007

Risk Management in Islamic Banking & Finance

7 – 10 May, KUALA LUMPUR

Islamic Treasury Simulation13 – 15 May, DUBAI

Structured Islamic Real Estate Finance & Investment

28 – 30 May, KUALA LUMPUR

Islamic Capital Markets & Structuring Products Workshop Series

4 – 6 June, BAHRAIN

Islamic Financial Engineering and Advanced Products

11 – 14 June, KUALA LUMPUR

Essentials of Islamic Finance & Banking25 – 28 June, HONG KONG

Structuring Islamic Financial Products9 – 12 July, ZURICH

Legal & Documentary Issues in Islamic Financial Products

25 – 28 July, KUALA LUMPUR

Post-Conference Workshop Series15 – 16 August, KUALA LUMPUR

Structuring Islamic Financial Products20 – 23 August, JOHANNESBURG

Undertaking Effective Shariah Control for Islamic Banking

27 – 29 August, KUALA LUMPUR

presents



The Central Bank of Egypt (CBE) has rejected an Abu Dhabi Islamic Bank (ADIB)-led consortium’s bid for Egypt’s National Bank for Development (NBD). ADIB’s head of marketing and media relations, however, declined to comment on the news to Islamic Finance news.

The rejection is premised upon the consortium’s bid of US$1.93 per share being deemed too low. The bid, which was 33.3% lower than NBD’s market price, was the only bid received by the NBD. Successful bidders will have to take on the task of raising NBD’s capital to US$87.84 million.

The Egyptian government currently holds 17.86% of NBD, with the remainder under private jurisdiction. The country’s Central Bank wants to see the government reducing its stake in banks and also for the banking sector to consolidate.

EGYPT/UAEThe Sphynx has spoken

UAEKazakhstan likely investmentDeyaar Real Estate has signed a Dh600 million (US$163.39 million) Mudarabah facility with Dubai Islamic Bank (DIB). The facility marks Deyaar’s debut in non-project fi nancing.

Proceeds from the facility will be used to fund new developments and acquisition of land, with the company having identifi ed Saudi Arabia, India, Turkey and Kazakhstan as potential markets for investment. Deyaar is the fi rst GCC company to enter Kazakhstan.

Saad Abdul Razak, group CEO of DIB, commented: “The bank’s decision to provide the Mudarabah facility was driven by Deyaar’s strong credentials and its effective management and execution of real estate projects in the region. The facility is indicative of the great potential of Islamic fi nance structure in meeting the growing demand for corporates.”

Deyaar posted 192% growth in net profi ts at Dh412 million (US$112.19 million) in 2006, and an accretion of year-on-year return on capital to 41% from 28% in 2005.

KUWAITNew Sukuk centerMunshaat Real Estate Projects Company plans to establish a Sukuk trading center in Bahrain, which will function like an investment bank.

The company also has plans to establish a corporation dealing with information technology and a company to manage hotels and resorts in Egypt.

MALAYSIAEast meets East?Affi n Holdings (Affi n) is in talks with the Hong Kong-based Bank of East Asia (BEA) to offer up to 25% of Affi n’s shares. The deal, which is still in the negotiation phase, is aimed to be concluded by the end of 2007.

Malaysia’s Lembaga Tabung Agkatan Tentera (military fund) currently holds 36.88% of Affi n, while Boustead Holdings owns 20.76%. As at the 28th February 2007, BEA had a 4.92% stake in the group.

Lodin Wok Kamaruddin, managing director of Affi n, also revealed that the company is considering off-letting a maximum of 49% of its Islamic subsidiary Affi n Islamic Bank (AIB), in line with expansion. AIB is looking to grow to fi ve branches from its current one, at a cost of RM1 million (US$291,092) per branch.

BRUNEIKingdom on a rollBrunei Darussalam has issued its sixth short-term Sukuk Ijarah. Priced at BND70 million (US$46.24 million), the issue will mature on the 12th July 2007. Its rental rate has been set at 2,700%.

This issuance brings the total Sukuk issued by the Brunei government to BND730 million (US$482.27 million) since its fi rst offering on the 6th April 2006.

Market RumoursDavid Vicary (Daud Abdullah) of Hong Leong Islamic Group (HLIG) is moving to Asian Finance Bank, possibly as chief op-erating offi cer or head of investment banking.

Khalid Bhaimia, who used to be at RHB Islamic and was rumored to have returned to London and his old company, is in fact moving to replace David at HLIG.

www.islamicfi nancenews.comRATINGS NEWS


MALAYSIAHighway on trackRating Agency Malaysia (RAM) has reaffi rmed Konsortium Lebuhraya Butterworth-Kulim (KLBK)’s RM247 million (USS$72.12 million) Bai Bithaman Ajil Islamic Debt Securities (BaIDS) at AA3, with a stable outlook.

The ratings are premised upon KLBK’s position as a subsidiary of MMC Corporation, which holds the 17km stretch toll concessions for a duration of 32 years. KLBK is also expected to maintain its strong debt-servicing ability throughout the tenure of the BaIDS with a pro-jected average of 3.96 times and minimum fi nance service cover of 2.9 times.

As at the 31st December 2006, KLBK saw a 4.06% increase in traffi c volume to 19.81 million, from 19.04 million in 2005. The increase

BAHRAINGolden Belt glimmersGolden Belt 1’s proposed US dollar denominated Sukuk has been assigned a preliminary rating of BBB+ by Standard & Poor’s (S&P). The size of the Sukuk has yet to be determined. The ratings have not been confi rmed by S&P, and will only be issued upon the receipt and satisfactory review of the transaction documentation and legal opinions.

Moody’s has also rated this issuance, assigning it a Baa1 rating with a stable outlook. This rating is also subject to receipt of fi nal documentation.

Proceeds from the Sukuk will be used to fi nance an initial head lease payment to Maan Al-Sanea for leasing land parcels domiciled mainly in Al-Khobar, Saudi Arabia. The proceeds will additionally be used for the general funding purposes of Saad Trading, Contracting and Financial Services Co (STCFSC), which is subject to a sub-lease agreement with Golden Belt. (See News Briefs story on page 1.)

THIS TIME LAST YEAR

MALAYSIANucleus Avenue ratedRating Agency Malaysia (RAM) has assigned an A2 rating with a stable outlook to Nucleus Avenue’s RM1.7 billion (US$469.7 million) cumulative non-convertible Islamic junior Sukuk. RAM has confi rmed that deferred payments of the junior Sukuk will result in a rating downgrade.

Nucleus Avenue is a funding vehicle for MMC Corporation’s leveraged buyout (LBO). MMC Corporation in turn holds 22% of Malakoff, whose primary activities include power generation. Malakoff will be de-listed subsequent to the LBO. The ratings are moderated by Nucleus Avenue’s highly leveraged position vis-a-vis the company’s RM7.9 billion (US$2.3 billion) debt.

RAM, however, highlights that the junior Sukuk represent the cornerstone of Nucleus Avenue’s capital structure, as it provides some of the advantages and fl exibility offered by equities.

The Sukuk has a 50-year tenure, and is highly subordinated to the company’s senior private debt securities; therefore missed profi t payments under the junior Sukuk will not result in a default.

Should it be necessary, Nucleus Avenue has the option of redeeming the junior Sukuk after 10 years, or every six months after that. This feature is set to cushion any possible fi nancial constraints faced by the company.

in traffi c contributed to a 13% hike in toll revenue to RM27.27 mil-lion (US$7.94 million) in 2006, excluding the company’s government compensation for the year.

KLBK and the Government of Malaysia had agreed on a supplemental concession agreement in 2005, to restructure toll rates and compen-sate KLBK for the lower rates. However, KLBK has not yet signed the agreement – posing legal and contractual risks to the company. KLBK has, however, confi rmed that the signing will take place in mid-2007, hence eliminating its legal risk and minimizing contractual risk.

•Qatar International Islamic Bank saw profi ts of US$27.88 million in the fi rst quarter of 2006.

•The International Investment Bank launched a short-term commercial real estate investment offering.

•Dubai International Financial Center Authority’s investment arm acquired more than 1% of Euronext.

•The Bahrain Monetary Agency announced the oversubscription of the monthly issue of its short-term Islamic leasing Sukuk securities.

•Merrill Lynch was accepted as a general clearing and trading member fi rm to trade securities by the DIFX.

•Gulf Finance House obtained approval from the Emirates Securities and Commodities Authority to list its shares on the Dubai Financial Market.

•Moody’s Investors Service announced its plans to establish an offi ce in Dubai.

•Shamil Bank reported a 10% hike in profi ts for the fi rst quarter of 2006.

•Kuwaiti investors took up 32% of the total capital of the proposed Al-Sham Bank in Syria.

•Abu Dhabi Commercial Bank was appointed to provide sub-custodian services on the DIFX.

•The Qatar Financial Center Regulatory Authority was admitted as an associate member to the Islamic Financial Services Board.

•The National Commercial Bank signed a US$193 million Islamic fi nance contract supported by assets with the Abdul Latif Jameel Company.

www.islamicfi nancenews.comCOUNTRY REPORT


Japan has characteristically emerged from an extended period of economic stagnation following the collapse of the asset price bubble. The current expansion is on track to become the longest in Japan’s post-war era at the end of 2007. This sustained up-swing is attributable to fi scal and monetary policies. Japan’s real gross domestic product (GDP) growth continued into its fi fth year, from almost zero year-on-year (y-o-y) in 2001 to 2.1% y-o-y in 2006. The weakening yen and the end of its near-zero interest rate policy have also provided further impetus for growth. Japan’s longest economic recovery since 1945 was sustained by fi xed investment and exports, which continued to be Japan’s principal growth drivers as private consumption decreased during the year.

In the fourth quarter of 2006, Japan – as the world’s second largest economy – saw its real economy expand at an annualized rate of 4.8%, from approximately 0.3% in the previous quarter. This was propped up by a sharp rebound in private consumption – up by 1.1% in the fourth quarter of 2006 from the 1.1% contraction in the third quarter of 2006. Further confi rmation of economic activities picking up was provided by business spending, which grew by 2.2% in the fourth quarter of 2006. The better than expected performance of the corporate sector is evidenced by record profi ts earned in 2006 on the back of a cheap yen. To illustrate this, Toyota Motor Corporation and Sony Corporation each received a ¥30 billion (US$251.38 million) boost to their third quarter of 2006 operating income due to foreign exchange effects. In addition, it is estimated that 5% of the forecasted 7% y-o-y earnings growth for Japan Inc. in the fourth quarter of 2006 was essentially derived from currency effects.

The Japanese economy is set to continue its fi fth year cruise, albeit at a slower but still respectable pace of 1.7% y-o-y in 2007. This is against a backdrop of increasing domestic private demand – high corporate profi ts feed into the household sector and rising corporate profi ts and increasing business investment fuel growth – and broad-based improvement in the employment situation upholding wage gains.

Banking on the private sectorJapanese banks are slowly waking up after having been knocked out by the burst in the Japanese economic bubble in the early 1990s, exacerbated further by the Asian fi nancial crisis in 1997. While outstanding bank loans at the end of 2006 were lower – at just above ¥400 trillion (US$3.35 trillion) compared to about ¥480 trillion (US$4.02 trillion) in 2000 – lending has started climbing since February 2006.

As fi rms increase their spending, especially on business fi xed investment and dividend payments, there has been a gradual rise in private sector credit demand. Nevertheless, bank lending remained fairly stagnant with a 1.7% y-o-y increase in January 2007 – primarily supported by mergers and acquisition activities since December 2006 – where 0.3% of the rise in January is accounted for by one single takeover. The only bright spot is loans growth to individuals, which remains in positive territory due to housing loans. Loans to corporations and small enterprises only began moving positively in 2006.

Carry tradesThe yen has been pressured by the prevalence of carry trades. In simple terms, carry trade denotes purchasing higher yielding assets overseas – American, Australian or emerging market bonds – through yen-denominated fi nancing with lower interest rate charges. This strategy by international investors weakens the yen, as the borrowed yen is sold back in the market and converted into other currencies. The actual value is diffi cult to gauge, as most transactions are off-balance sheet and not part of offi cial data. Estimates range from US$200 billion (based on the short-term net foreign lending of Japanese banks) to US$1 trillion (based on the net “short” positions in yen futures on the Chicago Mercantile Exchange).

Low interest, which fuels a cheaper yen, will no doubt underpin yen carry trades. There is, however, concern should there be an unexpected spike in the yen: investors will unwind their carry trades, causing fi nancial turmoil triggered by the sudden rise in the yen. Given that interest rate differentials remain signifi cant, carry trade activities are unlikely to quell any time soon. The recent slump in global stock markets was made worse by the unwinding of carry trades as investors sold off assets, including stocks, to reverse their carry trades.

Capital market prospects Stock market growth in 2007 is expected to be driven by foreign funds buying, higher consumer spending on the back of better corporate earnings, increased wages, expected 10% higher dividend payments and the possibility of takeovers by foreign companies. Effective from May 2007, overseas businesses are allowed to create Japanese subsidiaries to make buy-out offers through stock swaps.

Overall, we expect the stock market to perform better this year, with the Topix and Nikkei 225 indices to post gains of 9%. In the sovereign debt market, Japan has the largest government bond market in the world, with ¥765 trillion (US$6.5 trillion) in marketable securities as at

Japan’s no Longer a Sleeping BeautyBy Kuwait Finance House Malaysia

“The Japanese economy is set to continue its fi fth year cruise, albeit at a slower but still respectable pace of 1.7% y-o-y in 2007”

continued...

“In the sovereign debt market, Japan has the largest government bond market in the world, with ¥765 trillion (US$6.5 trillion) in marketable securities as at the end of 2006”



the end of 2006. This is approximately 51% more sovereign bonds outstanding than the US, which has the second largest market at US$4.3 trillion (US$36.03 billion). Japan’s long-running fi scal defi cit was fi nanced by government bond issues resulting in surging national debt, approximately 153.5% of GDP in 2006 (2005: 165%).

Bonds slackeningNevertheless, the national debt showed a declining trend from 5.9% y-o-y in 2005 to 2.3% y-o-y in 2006. For the fi scal year beginning in April 2007, the government indicated that total government debt issuance will be reduced to ¥143.8 trillion (US$1.2 trillion), or ¥21.6 trillion (US$161 billion) lower than this fi scal year. In view of the rising interest rates, the government also plans to issue longer tenure bonds with fi xed coupons.

We expect Japan’s government bonds to fall this year as yields go up with interest rates. This will make it the fi fth year of decline since 2003, when yields hit a record low for a major industrialized country. However, the recent rate hike led to an increase in bond prices on the

back of market expectation that the interest rate will remain low in the near future.

To deepen the bond markets, the government intends to pave the way for Islamic fi nance in Japan by issuing its fi rst Shariah compliant bond by the second quarter of 2007. This will enable the Japanese corporates to follow suit and tap into an alternative source of funds. Japan’s sovereign ratings were downgraded in a series of reductions by the rating agencies from 1998 up to 2002 following the defl ation period and the increase in the national debt.

The boom in the Japanese corporate bond market was spurred by deregulation in 1996 when the “issue standards” allowing only limited fi rms to issue bonds, were removed. It should be noted that Japanese corporate bonds, have been sliding as companies paid off debt and new issues declined. Contributing factors were the robust cash fl ows of companies – after a period of high corporate earnings – on top of readily available loans at low interest rates.

ConclusionIn summary, the Japanese economy is forecast to continue on its path of recovery. This recovery is also dependent on the acceleration and deepening of the economic, fi scal management and structural reforms. A joint effort from the government and the Bank of Japan will further secure the trend of price stability and ensure the sustainable economic growth led by private sector demand.

Japan’s no Longer a Sleeping Beauty (continued...)

For any enquiries or comments please contact Kuwait Finance House Malaysia on: +603 2055

7777 or fax: +603 2163 0093.

“To deepen the bond markets, the government intends to pave the way for Islamic fi nance in Japan by issuing its fi rst Shariah compliant bond by the second quarter of 2007”

Mark your calendars this year! Join us at the acclaimed

Experience the industry’s best Islamic fi nance event at the Mandarin Oriental Kuala Lumpur on 13th & 14th August 2007

REGISTER NOW!www.malaysianislamicfi nance.com

13th and 14th August 2007 Mandarin Oriental Kuala Lumpur



One of the major characteristics of the recent development of Islamic fi nance is that non-Muslim western fi nancial institutions are becoming more actively involved in this rapidly growing industry. The UK, the US, Germany and other Organization for Economic Co-operation and Development (OECD) countries have major fi nanciers that are expanding Shariah compliant businesses. Unfortunately, this is not the case with Japan, which has only a small Muslim population at the moment. However, Asia’s largest economy will not be silent for much longer. Islamic fi nance in Japan has now begun to dawn.

Growing knowledgeThe fi scal year of 2006 (April 2006 – March 2007) marked a new epoch in the history of Japan’s fi nancial industry. During this period, Japanese bankers and investors gradually deepened their familiarity with Islamic fi nance. Before 2006, the Japanese’s knowledge of Islamic fi nance came mainly from the fi eld of investment. They came to know a little about Islamic investment when the skyrocketing growth of petrodollars was said to be the major source of the continuous rise of the Nikkei Stock Index, especially in late 2005. In the same year, some Japanese paid attention to the news of an infl ux of Islamic money into the country. The investment was transacted by a property fund ARCAPITA, which was established jointly by CapitaLand, a real estate developer in Singapore, and a Bahraini Islamic investment bank.

Islamic fi nance became more popular in June 2006 when the former Bahrain Monetary Agency (now the Central Bank of Bahrain) hosted an Islamic fi nance conference in Tokyo. It became even more familiar when the Financial Times reported in August 2006 the possible issuance of Sukuk by Japan Bank for International Cooperation (JBIC), the government’s fi nance arm for enhancing international trade and investment.

In addition, on the 22nd January this year, a seminar on Islamic fi nance was held in Tokyo, jointly hosted by Islamic Financial Services Board (IFSB) and JBIC. Originally, the number of attendees had been expected to be around 150, but eventually more than 250 took part in the fi rst ever international event on Islamic fi nance in the country. Also, the NIKKEI, the most popular business paper in Japan, has occasionally published articles on Shariah compliant fi nance on the front page of its daily issues. Japanese business magazines have also discussed Islamic economies and their fi nancial industries.

Banking actionIn such circumstances, where increasing numbers of people in Japan are showing their strong interest in fi nancial services that comply with Shariah principles, JBIC is taking the lead among Japanese fi nancial institutions and government bodies. First, JBIC initiated the above-mentioned seminar, with strong support from IFSB. Secondly, the bank has made a strategic decision to issue Sukuk regularly, with the fi rst issue in the fi rst half of 2006. Thirdly, four eminent Shariah scholars became advisors to JBIC last year. With their help, JBIC organizes a study group on religious fi nance with other major fi nancial institutions in Japan. Fourthly, a memorandum of understanding (MoU) was signed this year between JBIC and Bank Negara Malaysia, one of the leading regulators in this fi eld. Under this MoU, JBIC will collaborate with and

contribute to the sound development of Islamic fi nance, especially in the Asian region.

JBIC has taken such action in order to enhance the stability of the international fi nancial order, as well as to promote economic and social development in developing countries. JBIC strongly believes that Islamic fi nance can be an effective key for fulfi lling these objectives. Non-conventional fi nance can encourage investment from the Gulf into Asia, giving variety in terms of types of funds, from which we can expect more fi nancing to a wider range of people in the region. Higher liquidity and more diversity can also contribute to fi nancial stability, which is a lesson we learned from the Asian fi nancial crisis in 1997.

In this sense, the authorities in Asian nations, including Japan, should co-operate to promote this from a regional perspective. This idea is in line with the vision known as the Asian Bond Markets Initiative, an attempt by Asian fi nancial ministries to promote the accumulation and circulation of funds within the region, and which was established as one of the measures for coping with possible crises. The issuance of Sukuk by the World Bank and International Finance Corporation partly intended this point; JBIC’s plan to issue Sukuk can be interpreted likewise.

Although JBIC has taken the lead in consolidating the environment for Islamic fi nance in Japan, it is not alone. The Malaysian subsidiary of Bank of Tokyo-Mitsubishi UFJ (BTMU) and Mizuho Corporate Bank both took up observer memberships at IFSB this March. Bank of Japan, the nation’s Central Bank, has also applied for membership.

On the business side, Sumitomo Mitsui Banking Corporation (SMBC) set up a branch in the Dubai International Financial Center this March, to encourage regional transactions in the Middle East, including Islamic business. Other banks are reportedly planning to follow SMBC. Also, the Malaysian BTMU made a strategic alliance with CIMB Group last year, aiming at strengthening local business, including Islamic fi nance. With regard to Islamic investment, some asset management houses in Japan already provide Shariah compliant investment funds. A Japanese hedge fund based in Singapore has already set up an Islamically structured property fund, with assistance from a Shariah scholar.

The Dawn of Islamic Finance in JapanBy Tadashi Maeda

continued...

“Non-conventional fi nance can encourage investment from the Gulf into Asia, giving variety in terms of types of funds, from which we can expect more fi nancing to a wider range of people in the region”



TakafulTurning to the area of Takaful, the situation in Japan is more advanced. Tokio Marine and Nichido Fire Insurance Co. (Tokio Marine) launched a Takaful business targeting local customers in the Kingdom of Saudi Arabia in 2001. Seeing the tremendous opportunities available in the Takaful business, Tokio Marine then opened a Takaful branch under the existing Tokio Marine Indonesia in 2004. In addition, it created a re-Takaful company in Singapore in the same year. In 2006, Tokio Marine established a joint Takaful operation in Kuala Lumpur in collaboration with Malaysia’s Hong Leong Group. With the exception of the re-Takaful company, those businesses are all targeting local retail markets in the respective countries.

Tokio Marine’s success suggests that a Japanese fi nancial institution managed by non-Muslim Japanese could successfully enter into Islamic fi nance business. It is highly possible that other fi nancial institutions in Japan, not only insurers, but also banks and securities companies, may be inspired by the success of Tokio Marine. (See the interview with Atsuhiko Ayable of Hong Leong Tokio Marine Takaful on page20.)

Regulatory diffi cultiesJapanese fi nancial institutions, including JBIC, are eager to commit themselves further to Islamic fi nance. When pursuing the initiation and expansion of Shariah compliant business, however, Japanese banks may face legal diffi culties, since the existing Banking Act in Japan restricts the non-fi nancial activities of a bank. In this regard, the Japanese government should refer to the measures taken by the Monetary Authority of Singapore, which explicitly approve a bank to buy goods on behalf of its customers under the Murabahah concept, so that now a bank based in Singapore can legitimately offer Murabahah-based fi nancing services.

ConclusionIn conclusion, the status quo of Islamic fi nance in Japan is still in the incipient stages in terms of actual development.

However, with policy measures as well as the involvement of private institutions, including the commitment from JBIC, Japanese Islamic fi nance will surely mature and grow from dawn into a bright day.

The Dawn of Islamic Finance in Japan (continued...)

Islamic TreasurySimulation

Understanding the changes and techniquesrequired to trade in the Islamic treasury markets

13th - 15th May 2007,Traders Hotel, DUBAI

Visit www.IslamicFinanceTraining.com today or call +603 2143 8100 for more information

Islamic Capital Markets & Structured Products

Workshop Series

4th - 6th June 2007Crowne Plaza Hotel, BAHRAIN

Presented by:

Abdulkader ThomasPresident & CEO

Shape Financial Corporation

Day 1Sukuk & Islamic Capital Market

Day 2 Islamic Project Finance

Day 3Islamic Derivatives

SeparatelySeparatelyBOOKABLE!BOOKABLE!

The author is the director general of the planning and coordination division, energy and natural resources fi nance department, at the Japan Bank for International Cooperation (JBIC). For further enquiries please email: [email protected].

“Before 2006, the Japanese knowledge of Islamic fi nance came mainly from the fi eld of investment”



I have started getting calls from people asking me how Devon Bank’s Islamic fi nance program is doing amidst “the meltdown in the US mortgage market.” Just fi ne, thanks for asking. What these calls tell me is that the popular media is not leaving people with an accurate impression of what is happening, and that there are lessons that can be learned that apply to the Islamic fi nance industry. Hopefully, the lessons boil down to simple ones that are already well known. Fraud, greed, poor underwriting, abbreviated due diligence and selling complex products to the wrong people for whom the products were not designed are maps leading to a world of hurt.

Economic backgroundWhile the US economy appears to be growing, and consumer confi dence is declining (but from a fi ve-year high), many consumers are nonetheless nervous. The news regularly contains items about mass lay-offs. Salary increases are not as high as in some previous years. There is talk of recession. Consumer savings levels are at an all-time low and consumer debt is at an all-time high. Mortgage foreclosures are up, by some estimates more than 50% from last year. Home prices generally are growing beyond the reach of many, although the National Association of Realtors is predicting in 2007 a slight drop in the median home price for the fi rst time since at least 1968 (when it began tracking such statistics) and housing inventories are reaching a 16-year high. Cancellation of contracts for newly built homes at some major builders last year reportedly reached as high as 30%. There is continuing discussion of a real estate bubble (although many believe it to be more isolated “froth,” than a single large bubble).

At the same time, with an inverted yield curve, where short-term rates are more expensive than long-term rates with their presumed greater risk, fi nancial institutions are feeling their margins being pinched, and are needing to evaluate carefully their asset/liability allocation strategies. With fi nancial institutions worrying about default increases and potentially dropping home prices, many institutions are tightening their standards. Rising interest rates (17 consecutive prime rate increases) are resulting in many mortgage brokerages that were once doing a thriving business during the “refi nance boom” now laying off staff or closing their doors entirely. A number of mortgage lenders have recently ceased operations, and others, such as the giant New Century Mortgage Corporation, have been forced into bankruptcy.

This is the economic backdrop behind the discussion of the mortgage market. However, this economic picture is not the true story, and it paints an inaccurate picture of where the points of failure resulting in the current news really lie.

US mortgage market backgroundThe traditional benchmark US mortgage product is the conventional fi xed-rate fully amortized 30-year mortgage. Although the mortgages

may be 30 years in duration, the average pay-off, generally due to refi nancing or sale of the home, has been 6–8 years. The bulk of these mortgages, sold to “prime” or “A” customers, are arranged by banks or mortgage brokers and sold to government sponsored entities (GSEs), such as Fannie Mae and Freddie Mac. Most people have no idea of the size of these GSEs, which have books of business straddling either side of the US$2 trillion mark – larger than the national economy of some countries. Because of the size of these institutions, it is them who largely establish the market’s prices. In its April 2007 Economic Outlook, the Freddie Mac chief economist’s offi ce forecasts the average benchmark 30-year mortgage rate to be 6.2% in 2007 and 6.4% in 2008. (This number does not incorporate customers paying “points” upfront in order to “buy down” the rate.) Once a GSE buys a mortgage, it packages that mortgage into a pool and sells it off into the bond market, often to fi nancial institutions and overseas investors, as a mortgage-backed security.

Because longer mortgages have more interest rate risk, and because, as mentioned, most 30-year mortgages are really only 6–8-year mortgages, adjustable rate mortgages (ARM) are used either to lower the rate for customers and/or to decrease the risk to the fi nancial institution that may be keeping such a mortgage in its portfolio instead of selling it into the bond market. An ARM will generally be fi xed for three, fi ve, seven, or 10 years, and then adjusted annually to a benchmark afterwards over the next 20–27 years. Thus a customer who expects to buy a condominium, have two kids in the next fi ve years, and then need to move to a bigger house, may take a 5/1 ARM and get a better rate, and hopefully be out of the house before it adjusts after the initial fi ve years, or if it does adjust, the amount of the adjustment is often capped to something the homebuyer believes he/she can manage. Freddie Mac estimates that in 2007 11% of mortgages will be ARMs.

In addition to these standard products, creative minds have come up with all sorts of variations in order to accommodate home buyers with specifi c needs (including customers who want to buy homes, but don’t want to pay interest while doing it). This is where “exotic” mortgage products entered the picture, and where “sub-prime” (also referred to as “non-prime or “B and C paper”) and “Alt-A” mortgages started to develop.

An Alt-A mortgage is a mortgage made to someone who has something “non-standard” but not necessarily bad in their fi le. It generally refers to someone who is of “A” grade credit quality, but cannot produce suffi cient documentation to prove this to a lender’s satisfaction. For instance, someone who is self-employed or has unpredictable income, or someone who has had fi nancial problems in the past, but has cleaned up his or her credit since. This may be referred to as a “low doc” or “no doc” mortgage (also known as “stated” or “no income” and/or “no

Separating the Myth from the Meltdown: The US Mortgage Market and its Intersection with Islamic Finance

By David Loundy

This article is the fi rst of a three-part feature on mortgages in the US, this week describing the economic backdrop to the US mortgage market, and how that market operates. Subsequent

installments of this article will be published in forthcoming issues of the newsletter.

continued...



asset” mortgage). In such cases, the borrower is not required to show proof of income or proof of assets in order to qualify for a mortgage. Underwriting may be done only on the basis of tax returns or credit scores, rather than full, verifi ed, written documentation.

An Alt-A customer is distinguished from a sub-prime customer who has continuing credit blemishes, or someone who has sub-standard credit and poor documentation as well. Unfortunately, the line between Alt-A and sub-prime is not always a clear one. A “standard” mortgage for an Alt-A or sub-prime customer is usually a fi xed rate mortgage or an ARM with a higher rate and a two or three-year pre-payment penalty. The customer gets a mortgage and makes payments that result in better credit, at which point the customer may be able to refi nance as an “A” mortgage customer at a lower rate (as long as rates have remained fl at or decreased) – after the pre-payment penalty period expires.

An exotic mortgage is usually referring to either an “interest-only” mortgage or a “payment option ARM” mortgage. An interest-only mortgage gives a customer, say, a 30-year mortgage, but only requires payment of interest, without a payment towards the principal for an initial period. After the initial period, the mortgage amortizes down over the remaining term of the loan. Often, this is coupled with a “teaser rate” – a low initial rate of, say 1.99%, and then after three months to a year or so, depending on when the borrower received the quote in the rate-raising cycle, the mortgage adjusts to a market rate. The ideal candidate for an interest-only mortgage is someone who intends to move in a reasonably short amount of time and is living in an area with stable or increasing home values, or a savvy investor who believes there are market opportunities better than putting money into a 6.5% home mortgage. It is a small and distinct market segment.

A payment option ARM goes one step further in offering fl exibility. It generally provides for an initial teaser rate. It also, however, gives the option of paying either a minimum payment (which may or may not be suffi cient to cover the interest due), an interest-only payment, a payment based on a fully amortized 30-year mortgage, or a payment based on a 15-year fully amortized mortgage. The ideal candidate for a payment option ARM is a customer with an unpredictable income

stream, such as a commissioned salesperson, who has good months and bad, but is on average able to handle the costs of buying a home.

When someone wants to buy a home, he or she will go to either a bank or a mortgage broker and apply, usually after having identifi ed the desired home. A bank will either make the mortgage and keep it in the bank’s portfolio, or will sell it off into the secondary market to a GSE or to a real estate investment trust (REIT) or similar entity that specializes in buying mortgages. These entities then pool the mortgages and sell them off as bonds. A mortgage broker generally does not have much of its own money, and either puts together small pools of mortgages to sell into the secondary market with bulk pricing, or it sells them into the secondary market on a “fl ow” basis to whichever secondary market source will provide the best deal.

The customer applies for a mortgage, the bank or broker then collects information about the customer and his/her income, assets and liabilities, and orders an appraisal of the property to make sure the property is worth its represented value. The transaction is then underwritten to the end lender’s standards, and, if acceptable, is closed and then either kept in a bank’s portfolio, if it is the end lender, or sold to the committed secondary market buyer.

In the next installment of this article we will move on to look at how these elements can add up to a problem worthy of global media attention.

Separating the Myth from the Meltdown: The US Mortgage Market and its Intersection with Islamic Finance (continued...)

The author is a director and corporate counsel for Devon Bank in Chicago, where he also leads the bank’s Islamic fi nance strategy (more information is available

at: http://www.devonbank.com/Islamic). He is also the chairman of Devon Real Estate Asset Management, a Shariah compliant real estate and real estate fi nance company now in formation. He can be contacted at: [email protected], or at: (773) 465 2500, extension 1317.

Copyright 2007 by Devon Bank.

is now

on

Type IFNS<GO>*Only some content is available



Islamic fi nance is now the buzz topic in the City of London. While the Middle East’s economies thrive and prosper, the enormous funds being generated are seeking out the best opportunities for investment the markets can offer. The UK Chancellor, Gordon Brown, has been key to the debate; last month, he announced in his Budget that Sukuk were to be given equivalent tax treatment to traditional interest-bearing bonds. The intention is that the City should eventually compete with Dubai and Kuala Lumpur in the development of new fi nancial instruments which comply with Shariah law.

In addition, the London-based International Capital Market Association and the Bahrain-based International Islamic Financial Market have signed a MoU that which will focus on the Sukuk market, which is increasingly attracting non-Islamic fi nancial institutions and fi rms. Sukuk worth US$20 billion are currently outstanding.

Islamic bonds in the UKSukuk trades in the London market are estimated to have risen from a mere trickle before November 2006 to about US$2 billion in January 2007, spurred on by the world’s largest Sukuk issue: a US$3.52 billion issuance from the Dubai property developer the Nakheel Group.

London has already seen the issuance of Islamic bonds of huge value. The two latest deals, from UAE property giant Aldar Properties and the Dubai Islamic Bank, will help to propel the amount of outstanding Sukuk in the world past the US$70 billion mark. Aldar Properties issued a mighty US$2.5 billion Sukuk on the London Stock Exchange. The Dubai Islamic Bank bond, which is yet to be priced but will be of benchmark size, suggesting more than US$1 billion, is likely to list in London soon after a roadshow. It will also list on the Dubai exchange.

Ford Motors recently agreed to sell prestige car company Aston Martin for £479 million (US$962.32 million) to a leveraged buy-out (LBO) consortium organized out of London by motor-racing entrepreneur Dave Richards. The consortium will fi nance the purchase according to strict Islamic principles. The Islamic fi nancial focus has arisen partly because two key fi nanciers behind the LBO – Kuwaiti Group Investment Dar and Adeem Investment Company – only make investments that are Shariah compliant. The control of the luxury performance carmaker has now moved from the US to Kuwait after the two Middle East investment fi rms promised to generate the majority portion of the funding for the acquisition of the business from Ford.

West LB, Germany, has been appointed to arrange £225 million (US$452.04 million) of quasi-debt fi nance to back the LBO of Aston Martin according to Shariah principles. An executive director at West LB believes that this may be the fi rst time that Islamic fi nance has been used for an LBO in the UK and possibly in the western world.

Impact of the Budget on Islamic bondsIt is well known that Sukuk are certifi cates which entitle the holder to the economic return arising from a portfolio of assets held by the issuer. The assets, and the arrangements relating to their holding and disposal, are such that the returns received by Sukuk holders are equivalent to the returns that they would receive on an interest-bearing debt security. The main tax problem with such arrangements is that a UK resident issuer is taxable on the profi ts received in respect

of the assets, but will not be entitled to any deduction for payments it makes to the Sukuk holders in respect of those profi ts.

Under the proposals laid out in the March Budget, in future Sukuk will be taxed in the same way as conventional bond transactions and it will therefore be possible to issue, hold and trade Sukuk in the UK on that basis. If companies that issue Sukuk meet the necessary conditions, they will also be able to qualify for the special tax regime that applies to securitization companies. Before this change was proposed, there was much uncertainty as to how capital gains tax, income tax and capital allowances would apply to Islamic bonds.

As outlined by Gordon Brown, income payments will be treated as if they were interest payments, so that the issuer will get a deduction in computing the tax liability. In addition, there are provisions which equate Sukuk to traditional debt securities for other tax purposes, such as the “qualifying corporate bond” regime and the tax treatment of discounts. By treating Sukuk in the same way as corporate securitizations, a level playing fi eld is being created, which will facilitate the issuance and trading of Sukuk in the UK. This will widen the choice of products for all investors, including those businesses that want to diversify their investor base and tap into the immense pool of Islamic funds in the Middle East.

However, concerns that these proposals may open the door to tax avoidance schemes is almost justifi ed. A number of conditions will have to be met for such arrangements to fall within the scheme, including:

• payments to the Sukuk holders must not exceed a reasonable commercial return on the amounts subscribed;

• arrangements must legitimately be treated as a fi nancial liability of the issuer under International Accounting Standards;

• the Sukuk must be listed on a recognized stock exchange.

ConclusionThe market for Sukuk is growing and their attraction as an alternative to conventional methods of saving and investment has appeal for an increasing investor base. Although different Sukuk structures have emerged, most of the Sukuk issuances to date have tended to be Ijarah Sukuk; since they are based on the undivided pro rata ownership of the underlying leased asset and they are freely tradable at par, premium or discount.

According to Standard & Poor’s Rating Services, Dubai has been the most active trading center for Sukuk notes so far. However, London clearly has a head start in the race to become the Islamic fi nancial center of the west. This is partly because of its geographical location and time zone, which gives it an advantage over New York, and partly because the government and banks in the UK have been more willing to promote Islamic fi nance than the US. However, it is the recently proposed amendment to the tax laws in the UK which may really boost London’s chances as a credible rival. So, can London be the new Souk for Sukuk? A share of a market with a predicted value of US$100 billion certainly seems worth playing for.

London: The New Souk for SukukBy Ben McFarlane

The author is principal of B J MacFarlane & Co, a UK law fi rm specializing in insurance, re-insurance, shipping and trade matters.

www.islamicfi nancenews.comSECTOR REPORT


Last year, globally a total of 47 Islamic deals worth US$14.16 billion were transacted, a threefold increase from 2004 and an overwhelming eight times larger than transacted in 2003, according to Jerome Ongtiapco of information provider Thomson Corporation. “In the fi rst three months of 2007, there are already eight Islamic fi nancing deals worth US$4.37 billion.”

As more corporations in the Gulf and Middle East go on a capital spending spree, we witness the emergence of an important method of fi nancing for large-scale, high risk projects globally. Islamic fi nance has taken the world by a storm, emerging as a rapidly growing means for fi nancing large projects.

The Middle East has become the world’s biggest market for funding infrastructure projects. The Kingdom of Bahrain is an example of where infrastructural development has been the focus of the government diversifying its economic base. For example, the Bahrain Financial Harbour (BFH) development will cost US$1.3 billion and another US$1 billion has been planned for an additional 1,200mw power generation by 2010.

Meanwhile, several projects in Qatar are coming up in different sectors, with the power and water sectors as the backbone of any industrial or infrastructure project. To meet the likely growth in demand, Qatar has announced several projects in the power sector, which are part of a future strategy to meet the country’s domestic power needs until 2015. Qatar alone will spend about US$130 billion across various sectors over the coming six or seven years, its fi nance minister Yousuf Hussain Kamal has indicated. Of this proposed investment, around 50% will come through project fi nance. Current projects in the oil and gas sector in Qatar currently amount to more than US$60 billion.

An ideal funding method?Such projects obviously require a huge amount of funding, and for the fi nancial institutions arranging the funds for these mega bucks projects, it would be in their best interests to split or spread the risks and form a “syndicate” with other banks. About half of the GCC loan market is in project fi nancing and these projects have typically been funded with syndicated loans and bonds, but the market for Islamic bonds is also growing. Syndicated credits are without doubt a very signifi cant source of international fi nancing.

Blaise Gadanecz, an economist at the Bank of International Settlements (BIS) commented: “Syndicated loans are essentially hybrid instruments combining features of relationship lending and publicly traded debt. They allow the sharing of credit risk between various fi nancial institutions without the disclosure and marketing burden that bond issuers face.”

Blaise further added: “Senior banks may have several reasons for arranging a syndication. It can be a means of avoiding excessive single-name exposure, in compliance with regulatory limits on risk concentration, while maintaining a relationship with the borrower. Or it can be a means to earn fees, which helps diversify their income. In essence, arranging a syndicated loan allows them to meet borrowers’ demand for loan commitments without having to bear the market and credit risk alone.”

Recent dealsThe biggest Islamic transaction so far this year has come from Aldar Properties. The lead arrangers for its US$2.53 billion exchangeable trust certifi cates (Sukuk Mudarabah) – maturing in 2011 – were Barclays Capital, Credit Suisse and National Bank of Abu Dhabi.

Another syndicated fi nance transaction was the US$750 million Dubai Islamic Bank (DIB) Sukuk Musharakah, maturing in 2012. For this Barclays was the mandated arranger, together with Citigroup Global Markets and Standard Chartered Bank. This was the fi rst ever Sukuk concurrently listed on the Dubai International Financial Exchange (DIFX) and the London Stock Exchange (LSE) and it has been given an A1 rating by Moody’s. The special purpose vehicle (SPV) for this transaction, DIB Sukuk Limited, was incorporated in the Cayman Islands by DIB. Proceeds from the sale of the Sukuk certifi cates will be used by the SPV to acquire co-ownership interest in a portfolio of assets comprising equity participations and profi t and loss sharing from DIB, with the two parties becoming co-owners in these assets.

Another Islamic fi nancing agreement worth US$2.87 billion was signed by Mobily in what is beliveved to be the world’s largest ever syndicated Islamic loan, with banks involved including Samba and Saudi French Bank, with Calyon, Saudi Hollandi Bank, ABN Amro, National Commercial Bank and National Bank of Abu Dhabi. Mobily says that the loan will be used to pay short-term debt and also fi nance operations and infrastructure expansion.

Last month DIB agreed to take part in a US$2.6 billion syndicated Islamic fi nancing deal between the Saudi Bin Laden Group and a number of Saudi, Egyptian and UAE banks. DIB will put up US$107 million. The funds are being used to expand the Prophet Mohammed Mosque in Medina.

Meanwhile, the Ras Al Khaimah Investment Authority also plans to borrow, along with partners, US$1.4 billion in a syndicated bank loan this year to build a US$2 billion aluminum smelter and refi nery in India, chief executive Khater Massaad said. Credit Suisse has been selected to arrange the Sukuk, which, says Khater, will “tap growing demand among the region’s Muslims for bonds that comply with their religious beliefs.”

A syndicated loan is one of the most common types of collateral for collaterized debt obligations (CDOs); CDOs backed by loans are referred to as collateralized loan obligations (CLOs). At a recent symposium for the credit markets, governor of the US Federal Reserve Bank (Fed) Randall Krozsner said: “The growth of CLOs has certainly had an effect on the market for syndicated loans. Of course, syndicated loans are not a new instrument. They have been around since the 1970s. But recently, the secondary market liquidity of syndicated loans has improved dramatically, in part because of the demand for loans by CLOs.”

When Malaysia’s SKS Power (now known as Tanjung Bin) needed to raise RM5.57 billion (US$1.62 billion), it too was advised to arrange a syndicated loan. Tanjung Bin – part of SKS Ventures under Malaysian Syed Mukhtar Al Bukhary – is an independent power producer (IPP)

Islamic Syndicated Finance – Together We Stand By Nora Salim

continued...

www.islamicfi nancenews.comSECTOR REPORT


that has been granted a 25-year license to develop, fi nance, construct, commission and operate and maintain a 2100mw coal-fi red power plant, together with its ancillary facilities, located in the robust southern state of Johor in Malaysia. CIMB Islamic was mandated to lead manage the fundraising exercise, together with fi ve others as joint lead managers.

According to Badlishyah Abdul Ghani, head of CIMB Islamic, as the lead manager the bank plays many roles: to coordinate the funding exercise, structure the funding structure, liaise with the Shariah advisors regarding approved structure, carry out the due diligence process and go over the information memorandum, review legal documentation and determine how the funding is allocated and distributed.

SKS’s syndicated fi nance objectives are to secure bridging fi nance, achieve cost-effi cient long-term fi nancing, maximize access to investors and most importantly to meet the funding timeline.

CIMB initially used the Istisnah–Ijarah Sukuk structure, where Istisnah was the fi nancing structure used during the construction, and when the plant is ready for implementation, fi nancing will be switched to the Ijarah or leasing structure, SKS used such a structure to take advantage of the tax incentives for Ijarah structures as allowed by the government. Badlisyah admitted to being challenged when he fi rst initiated the structure as at that time SKS was skeptical regarding the untested funding structure. SKS suggested transacting according to the Bai Bithaman Ajil (BBA) bonds structure. There were additionally legal and tax issues. SKS and CIMB also found themselves challenged on Shariah aspects. The Shariah board was not agreeable to the then-new structure and uncertainty regarding payment obligations in the funding structure were reasons given for inability to securitize the share price.

The Sukuk was initially sold through private placements and subsequently to a gamut of investors – pension funds, insurance

companies, asset management companies, as well as fi nancial institutions.

The rating for the RM5.57 billion (US$1.62 billion) Isitisnah contract was last January reaffi rmed as AA3 by Rating Agency Malaysia (RAM). Tanjung Bin Power has strong project economics, according to RAM, as well a robust debt-servicing ability, despite being the fi rst IPP to bear an element of demand risk under its power purchase agreement (PPA) with Tenaga Nasional. Tanjung Bin Power’s healthy cash-generating ability is underscored by favorable tariff rates under its PPA. RAM further analyzed that Tanjung Bin Power is projected to generate an annual net operating cashfl ow of about RM1 billion (US$291.6 million). Notably, the principal redemption sums have been structured to ensure proper matching of outfl ows with projected revenue, to establish a stable debt repayment profi le.

Syndicated fi nancing put together for emerging market borrowers tends to be dominated by foreign lenders, with the exception of in Asia. Interestingly, for all emerging market borrowers, but especially in the MENA and Asia-Pacifi c regions, domestic banks – those from the same geographical area as the borrower – are more likely to be present as junior fund providers than as senior arrangers. It would appear typical for a major international bank to arrange the syndication and then allocate the credit to regional lenders.

The presence of a reputable major foreign arranger has a certifi cation effect for banks that are ranked lower in the syndicate, according to BIS’s Blaise, as this makes cross-border investment in a junior funds provider capacity easier than the provision of screening and monitoring services as a senior arranger. Finally, the lead manager of a syndicated fi nance not only plays the role of helping issuers to fi nd a solution to funding issues, but no less importantly helps to make available various options in fundraising to manage risks and to make all involved understand the objective, the process and the underlying rationale behind the deal structure.

Islamic Syndicated Finance – Together We Stand (continued...)

Islamic Financing so far in 2007

Issue Date Issuer NationProceeds raised

(US$ million)Description Bookrunners

31/1/2007 AEON Credit Service(M) Japan 21.7 3.000% Gtd MTN due 2010

Commerce International Merchant Bank, Aseambankers Malaysia, Bank of Tokyo-Mitsubishi UFJ

16/2/2007 Cagamas Malaysia 100.3 3.800% Islamic fi nance due 2009

Cagamas

9/3/2007 Rantau Abang Capital Malaysia 571 4.100% Islamic fi nance due 2012

Commerce International Merchant Bank, RHB Investment Bank, OCBC Bank (Malaysia)

29/3/2007 Kuala Lumpur Sentral Malaysia 207.9 4.440% Islamic fi nance due 2008

HSBC Bank Malaysia, Kuwait Finance House

2/4/2007 MTD Infraperdana Malaysia 173.4 5.180% Islamic fi nance due 2018

Commerce International Merchant Bank, AmInvestment Bank Group, United Overseas bank Malaysia

20/2/2007 Aldar Properties UAE 2,530 Zero Cpn Convertible Bds due 2011

Barclays Capital, Credit Suisse, National Bank of Abu Dhabi

14/3/2007 DIB Sukuk UAE 750 Islamic fi nancedue 2012

Barclays Capital Group, Citigroup, Standard Chartered Bank

31/3/2007 Sui Southern Gas Pakistan 16.4 Islamic fi nance due 2012

Standard Chartered Asia, Dubai Islamic Bank Pakistan



Agriculture, water technology, international fi nance, international transport and trade as global investments are just some of the specialities of the Netherlands, although some people may still only view the country in terms of windmills, cheese, dikes, tulips, bicycles, international law courts and social tolerance.

A key characteristic of the Netherlands is that it is used to working with money. The oldest stock exchange in the world is considered to be in Amsterdam. This was established in 1602 by the Dutch East India Company, which issued the fi rst shares on the Amsterdam Stock Exchange. Today, in 2007, there are many prime international banks and major multinationals in the Netherlands. And we mustn’t forget the many investment companies (e.g. Robeco) and large pension funds (e.g. ABP, Europe’s largest pension fund). Last year the Dutch economy grew by 2.9% in real terms. In the top 20 economies in the world, the Netherlands ranks 16th, with US$36,620 gross national income per capita (Atlas method, World Bank 2005). The fi nancial services industry is one of the most important sectors in the country. According to provisional fi gures, Dutch banks recorded net earnings of €14 billion in 2006, a small increase on 2005, when earnings totaled €13.2 billion.

So, innovation and creativity is required for profi table growth or … (while writing this article, the news came to me that ABN AMRO is going to be taken over by Barclays).

Islamic fi nance in the NetherlandsThe growth of Islamic fi nance globally has been impressive during the past decade, making it a dynamic growth sector in international fi nance. Islamic fi nancial institutions the world over have shown higher growth than conventional banks.

“Financial circumstances can change, Islamic principles never!” is the slogan of Bilaa-Riba, launched last year, which claims to be the fi rst Dutch Islamic institute for Islamic investments and mortgages. The actual status is that Bilaa-Riba only offers investment plans in their Bilaa-Riba Index, which is approved by the world-renowned Shariah Supervisory Board. In relation to its Islamic mortgages, it is still having conversations with the Dutch Tax offi ce on the topic.

How has the Dutch fi nancial services industry reacted to Islamic fi nance?All major banks in the Netherlands are currently considering introducing Islamic banking products, or at least this is what they tell the media. The Rabobank has taken a step further and is presently in conference with a study group of the new Government. Arend Stolk of the Rabobank said: “We see a major important target group with lots of entrepreneurs to provide with a halal mortgage. It is indistinct in which way we’ll develop the construction, but everything is depending on if the government will facilitate an Islamic mortgage.”

A Dutch Islamic bank in the Netherlands?In 2007 there are more than 16.3 million inhabitants in the Netherlands; the Dutch Statistics Agency (CBS) estimates that 6.1% of this total is Muslim. This equates to nearly 1 million people. There are over 500 mosques situated in the Netherlands and the CBS has estimated an increase in the Muslim population of nearly 20,000 a year. According

to the Dutch Ministry of Internal Affairs, Islam is the fastest growing religion in the Netherlands.

But of course not only Muslims will become clients of a forthcoming Dutch Islamic bank. For instance, the supporters of the Socialistic Political Party is growing fast. The majority of the party’s supporters do not approve of investments in industries that harm society, and what about interest rates of 18% on debts? They say: “the rich are getting richer and the poor are getting poorer.”

Through the lack of any alternative, Muslims in the Netherlands currently do business with conventional banks. Today, many Dutch Muslims look at their western neighbours in the UK, where there are many Islamic fi nancial institutions. So why not in the Netherlands? I have heard tell of people in the Netherlands phoning Islamic banks in the UK to ask whether they could open a savings account or get a halal mortgage. Lloyds TSB now even has business accounts that comply with Islamic law, which are available at all their 2,000 branches in the UK.

Of course there are many reasons why the UK cannot be compared with the Netherlands. However, it is positive news that there will be a conference on Islamic banking on the 13th and 14th June 2007 in the Netherlands. With speakers coming from Dutch universities, mosques, the Ministry of Economic Affairs, PwC and HSBC Amanah (UK), discussions will cover the possibilities for Islamic fi nancial products in the Netherlands, as permitted by Dutch fi scal law and Shariah law. Why Islamic banking has had such success in the UK will also be analyzed. A license application to start up a Dutch Islamic bank will keep people waiting.

The future of Islamic fi nance in the NetherlandsOn the 22nd February 2007 Queen Beatrix swore in the fourth Balkenende government. So there is now a new cabinet with a new Minister of Finance. From a European perspective, full mortgage interest deductibility is not desirable, so changes in the fi scal regime are bound to take place, which brings the possible introduction of a halal mortgage closer. The only question is when.

The population of the Netherlands is physically the tallest in the world, with an average height of 1.83m (6 ft) for adult males and 1.70m (5 ft 7 in) for adult females. I hope the members of the new cabinet are not off their heads, and can see the many prospective opportunities in the fi eld of Islamic fi nance. Where there’s a will there’s a way.

Luxembourg, Germany and Belgium have already shown interest in Islamic fi nance, mainly with capital market transactions, and I expect that the fi nancial services industry players in the Netherlands will not hang around for long. Although Dutch Islamic fi nance does exist, it still has a long road to travel, with many challenges to meet. However, this will lead to big opportunities as long as providers deliver Islamic fi nancial products in a manner that shows respect and understanding of the importance of Islam to all Muslims in the Netherlands.

Islamic Finance in the NetherlandsBy Nordien Chalhi

The author is based in The Hague in the Netherlands, is a student of fi nancial services management and can be contacted by email on: islamic-fi [email protected].

www.islamicfi nancenews.comMEET THE HEAD


Islamic Finance news talks to leading players in the industry

Could you provide a brief journey of how you arrived where you are today?

I decided to enter the Bombay Stock Exchange (BSE) in 1989. I was the fi rst Muslim to stand on the fl oor of the BSE. People were surprised to fi nd a Muslim in the exchange then, as it was a taboo for Muslims to trade in stocks.

Five years later I decided to go to the UK and subsequently settled down there. From my experience at BSE, I saw huge market potential for an Islamic fi nancial product in the west. This was the time when Islamic fi nance institutions were setting up Islamic banking windows. But there was hardly anything available for small retail investors. The struggle was worthwhile in making me what I am today – the managing director of Parsoli Corporation, a Rs100 crore company.

What does your role involve?I would like to clear the confusion in the minds of Muslims as far as investing in stock markets are concerned. Most Muslims are still apprehensive, as they link it with speculation, which is prohibited in Islam.

What is your greatest achievement to date?To have revived the company after the total collapse due to the communal riots that took place in Ahmedabad in 2002.

Which of your products/services deliver the best results?

Stockbroking and portfolio management are the best for Parsoli. We concentrate on identifying companies where key success factors are present; factors which our long experience in the industry has shown to be necessary conditions for sustained outperformance.

What are the strengths of your business?A very large number of Muslims in India are not aware of Shariah compliant guidelines. Conducting educational seminars is a way of

increasing this awareness. Parsoli offers a range of services tailored to investors’ individual needs, such as individual scrips search, ongoing fund monitoring, asset class strategy study or full service consulting.

What are the factors contributing to the success of your company?

Honesty and treating all employees as partners of growth are crucial. Another important factor is our relentless effort towards achievement. Looking at the growing popularity and impressive performance of the overall group, Parsoli plans to develop new Shariah complaint Islamic fi nancial products.

We also intend to increase our presence both globally and domestically by opening up subsidiary branches in various parts of the world to reach out to a higher number of Muslims and service a larger portion of the global Muslim society.

In addition, we aim to bring the Muslim population into the mainstream fi nancial sector and channel its surpluses into the economy, by providing Muslims with better returns and uplifting Muslim society as a whole.

What are the obstacles faced in running your business today?

I do not believe there are obstacles, but you need to create a niche and if you carve yourself to the requirement, you will never face any obstacles. Obstacles open new avenues of growth.

Where do you see the Islamic fi nance industry, maybe in the next fi ve years?

In the next fi ve years, Islamic fi nance will be a US$7 trillion industry.

Name one thing you would like to see change in the world of Islamic fi nance?

For Islamic fi nance to be successful, players should fi rst be committed to the Islamic principles of social and economic justice. There should also be fair and equitable distribution of wealth.

In addition, the system of zakat and other Islamic charitable deeds must be structured so as to actually reach the poor. The distance between the haves and have nots should also be reduced. Unless we see these changes, the pursuit of Islamic fi nance will just be a distant dream.

Name:

Position:

Company:

Based:

Age:

Nationality:

Zafar Sareshwala

Managing director

Parsoli Corporation

Mumbai

43

Indian

Parsoli is a non-banking fi nance company approved by the Reserve Bank of India. The prime motivation to set up the company was to draw on the vast and untapped potential of

Muslims in India who require Shariah compliant fi nancial products.

www.islamicfi nancenews.comTERMSHEET


INSTRUMENT Syndicated Murabahah Financing Facility

ISSUER Asya Katilim Bankasi (Bank Asya), Turkey

PRINCIPAL ACTIVITIES

Asya is one of four “participation banks” currently operating in Turkey, and is subject to the Turkish Banking Act, the regulations of the Banking Regulation and Supervision Agency, and the Savings Deposit Insurance Fund regulations. Bank Asya was the fi rst private fi nance house to be awarded the ISO 9001 Quality Management System Certifi cate.

As of the 31st December 2006, Bank Asya’s balance sheet grew by 62%, with total assets amounting to YTL4.2 billion (US$3.09 billion). Following its IPO in May 2006, shareholders’ equity at the end of 2006 stood at YTL632.5 million (US$466.1 million), recording a gain of 115% from 2005. The bank’s net income stood at YTL146 million (US$107.59 million), with a 55% accretion from 2005.

BOARD OF DIRECTORS Tahsin Tekoglu (chairman), Mustafa Şevki Kavurmaci (vice-chairman), A. Selçuk Berksan, Salih Sarigul, Ünal Kabaca, Tacettin Negis and Cemil Özdemir.

ISSUE SIZE US$175 million

CLOSING DATE 16th April 2007

TERM Tranche A – 1 yearTranche B – 2 years

REPAYMENT SCHEDULE

Bullet

MANDATED LEAD ARRANGERS

ABC Islamic Bank, Standard Chartered Bank and Unicredit Markets & Investment Banking (acting through Bayerische Hypo-und Vereinsbank).

LEAD ARRANGERS Abu Dhabi Islamic Bank, Commercial Bank of Qatar and Denizbank.

CO-ARRANGERSAl Amin, Banca UBAE SpA, Commercial Bank of Kuwait, Denizbank, Emirates Bank International, Landesbank Baden-Württemberg, Landesbank Rheinland-Pfalz, Mashreqbank, Natixis and Zurcher Kantonalbank.

LEAD MANAGERSAl Salam Bank, Arab African International Bank, Banca Lombarda, British Arab Commercial Bank, Capital Bank of Jordan, Dexia Bank, Doha Bank, Finansbank (Holland), HSH Nordbank, National Bank of Oman, National City Bank, Oberbank, Sovereign Bank, Tunis International Bank, Türkiye Halk Bankası and Vakifbank International.

MANAGERSZiraat Bank International, American Express Bank, Banca Monte dei Paschi, Bank of Beirut (UK), Dubai Bank, Habib Bank AG Zurich, Jordan International Bank and WGZ-Bank.

BOOKRUNNERSABC Islamic Bank, Standard Chartered Bank and Unicredit Markets & Investment Banking (acting through Bayerische Hypo- und Vereinsbank).

INVESTMENT AGENT ABC Islamic Bank

INFORMATION MEMORANDUM

Standard Chartered Bank

DOCUMENTATION Standard Chartered Bank

PUBLICITY ABC Islamic Bank

PURPOSE OF SYNDICATION

For Bank Asya’s general fi nancing activities.

RATINGS Bank Asya is rated B by Fitch Ratings with a stable outlook.

For more term sheets visit www.islamicfinancenews.com

Bank Asya Murabahah

www.islamicfi nancenews.com


Takaful International has resumed trading on the Bahrain Stock Exchange (BSE) as of the 16th April.

The resumption was based on a recommendation forwarded by the Capital Directorate at the Central Bank of Bahrain, and the handing in of Takaful International’s audited fi nancial data for the year ending on the 31st December 2006.

BAHRAINTrading resumed

The Qatar Financial Center Regulatory Authority (QFCRA) has signed a memorandum of understanding with the Department of Insurance of the state of Delaware, US, to establish a framework for cooperation.

There has been increasing interest from US entities in establishing operations in Qatar. Phillip Thorpe, chairman and CEO of QFCRA, affi rmed: “We will continue to ensure that there is in place an effective regulatory framework within which those fi rms can operate, and this includes developing cooperative relationships with those international regulators that share responsibility for supervision of the fi rm.”

The MoU will provide a framework to increase the fl ow of information between Delaware-based regulators and fi rms looking to set up in the Qatar Financial Center.

US/QATARTakaful to reach American shores?

According to Standard & Poor’s (S&P), Islamic insurance premiums written in Saudi Arabia and Kuwait are growing 16 times faster than global conventional insurance.

Takaful premiums are currently witnessing an annual 40% growth, compared to the 2.5% global average for conventional premium growth in 2005. The Gulf Takaful market could reach US$4 billion if it matched global averages for insurance spending, with conventional insurance contributing an additional US$16 billion.

S&P analyst Jelena Bjelanovic commented: “A sizeable, underinsured population means that there are substantial prospects for further development of personal lines cover.”

MIDDLE EASTHyper premiums

Amana Takaful Insurance (ATI) has posted a 57% growth in premiums for 2006. The company, which is listed on the second board of the Colombo bourse, achieved gross written premiums of LKR679.9 million (US$6.16 million), with general Takaful growing by 53.4% to LKR589 million (US$5.34 million), and life Takaful by 85% to LKR90.8 million (US$823,231).

On the re-Takaful side, ATI charted a profi t of LKR220 million (US$1.99 million), up by LKR76 million (US$689,042) from 2005. The company has also paid out surplus refunds to its customers totaling to LKR4.77 million (US$43,245). However, despite possessing an issued capital of LKR125 million (US$1.13 million), the company’s net assets only reached LKR44 million (US$389,912) due to carried forward losses.

SRI LANKATwofold growth

Pakistan currently has only 0.28% life insurance penetration, one of the lowest levels in Asia. In a bid to increase premiums by a minimum of 1% within three years, Shaukat Aziz, prime minister of Pakistan, has approved a new insurance policy for the country, which includes the introduction of Takaful and regulatory changes.

This policy will increase penetration, remove obstacles to the industry’s development and fuse the public sector’s role with best international practices. Shaukat commented that improved coverage and outreach in the general, health and micro-insurance sectors should be the industry’s main focus.

Shaukat proposed the strengthening of marketing strategies and the restructuring of boards to increase professionalism. The prime minister also proposed the opening of insurance of public property to private companies, and the elimination of bogus third party insurance policies.

“Life insurance is an excellent way of increasing savings, risk mitigation and has direct impact on capital formation and investment levels,” Shaukat stated.

PAKISTANSmoothing the process

Swiss Re and the Insurance Australia Group (IAG) have called for aggressive measures by the government and community to combat climate change. Insurance premiums are set to rise as the weather becomes more extreme.

Insurers are also awaiting the approval of initiatives including a A$345 million (US$287.1 million) fi ve-year framework for the creation of an Australian Center for Climate Change Adaptation, research programs and fi sheries studies. Insurers are now subject to information on changing weather, water fl ows and coastal and inland erosion patterns to calculate possible risks.

It was also announced at a Sydney climate change forum that the cash value of homes could decline by 80% in the event of severe weather events caused by global warming.

AUSTRALIACashing in on catastrophe

ISM Insurance Services Malaysia has received the ISO/IEC 27001:2005 from SIRIM QAS International. ISM, a shared services provider for insurance and Takaful, is the fi rst Malaysian company to receive such certifi cation for its entire operations.

The company spent a total of RM300,000 (US$87,478) – inclusive of consultancy and re-engineering costs – throughout the 14-month certifi cation process. The certifi cation is recognized by international standards to assure the confi dentiality, integrity and availability of an organization’s information assets.

MALAYSIACertifi ed and good to go

www.islamicfi nancenews.comTAKAFUL INTERVIEW


There is tremendous potential for Takaful business to take off in the MENA and GCC regions, Atsuhiko Ayabe believes: “While the per capita income of the region is in the league of industrialized nations such as the UK, Japan and Hong Kong, insurance penetration is too far behind.”

The general manager of research and product development at Hong Leong

Tokio Marine Takaful (HLTMT) measures this performance in terms of the ratio of life premiums to gross domestic product (GDP) in relation to the per capita GDP of a country. Recently, Standard & Poor’s published a report forecasting that the GCC Takaful market could potentially expand by up to 24 times to US$4 billion, from the current US$170 million.

Atsuhiko believes that the current uninspiring penetration rate for the MENA region is largely due to religious concerns among the public, who perceive buying conventional insurance products to be haram.

Atsuhiko recalls that the idea behind Tokio Marine & Nichido Fire Marine (TMN) operating a Takaful business was fi rst mooted in February 1999. TMN had already been providing insurance cover to Japanese corporations operating in the Middle East for more than 35 years by then. Sheikh Yousef Abdul Latif Jameel, chairman of Abdul Latif Jameel Company Group, shared with Mizuto Shiozawa (former senior managing director of Tokio Marine) a vision to develop a family Takaful business. The Arab Eastern Insurance Company (AEIC) subsequently established its family Takaful unit in April 2001 and launched its fi rst Takaful business in November of the same year.

The company’s success in Saudi Arabia – where the number of participants has now exceeded 250,000, up from 150,000 in 2004 – sparked another idea for TMN’s parent, Millea Holdings Inc. It formed another alliance and opened a Takaful window in the largely Muslim-populated Indonesia in 2004. Within the same year, Millea Holdings, the parent company of TMN, established Tokio Marine Nichido Retakaful (later renamed as Tokio Marine Retakaful) in Singapore.

The opportunity to expand into Malaysia came in 2005, following the announcement of several measures by the Malaysian Central Bank to further strengthen the institutional infrastructure of the Takaful industry

and accelerate the expansion of Takaful business. “What inspired us to venture in to Malaysia was the Central Bank’s requirement that the applicants must be fi nancially sound fi nancial institutions, preferably with experience in Islamic banking, Takaful or insurance business,” reveals Atsuhiko. Moreover, the country’s shareholding policy allowed new Takaful operators to have foreign equity interest of up to 49%.

When asked why Hong Leong was chosen as the equity partner for Tokio Marine Takaful, he teases: “It’s like a marriage, where we both were looking for the compatible partner.”

As a non-Muslim player in the Takaful industry, Atsuhiko says that the main challenge faced by Tokio Marine Takaful when it started business in the Middle East was to help potential customers get over their misconception that insurance is not acceptable in Islam. “In Malaysia, the key challenge was that Tokio Marine – as a foreign player – has to compete with the established local Takaful operators, Syarikat Takaful Nasional and Takaful Malaysia, who are already entrenched among the locals.” The market share of these companies in 2005 was Syarikat Takaful Nasional at 51% and Takaful Malaysia at 37%.

According to Bank Negara Malaysia’s latest report, last year total insurance premiums grew by 6.8% to RM26.6 billion (US$7.76 billion). Of this, Takaful contributions increased by 17.9% to between RM1.7 billion (US$495.97 million) and RM1.3 billion (US$379.28 million) family Takaful, with the remainder being general Takaful. Popular distribution channels are agencies and bancassurance (accounting for 44.8% and 44.2%, respectively, of contributions).

How then is HLTMT overcoming this challenge? “By being the fi rst to introduce to the Malaysian market a composite long-term life and fi re Islamic insurance,” declares Atsuhiko. The Comprehensive Mortgage Takaful program combines mortgage reducing term Takaful and house owner Takaful (long-term). He explains: “The unique product attribute is its single contribution plan that provides protection based on the tenure of the participant’s mortgage fi nancing.”

What this means is that in the event of death, benefi ts over the long term are paid from a risk fund, where the payable amount matches the outstanding mortgage. Moreover, the certifi cate holder or the nominee is paid any excess from the accumulated participants’ fund. Should

Islamic Finance news speaks exclusively with Atsuhiko Ayabe, General Manger of Research and Product Development at

Hong Leong Tokio Marine Takaful

“We are not here to capture the petro-dollars, but to provide the Muslim customers with what they are comfortable with”

continued...

“Takaful is a fair, transparent and effective measure of risk mitigation and investment”

www.islamicfi nancenews.comTAKAFUL INTERVIEW


the risk fund prove insuffi cient to cover the benefi ts, HLTMT provides a benevolent loan (know as qard hassan) to ensure the solvency of the risk fund. This loan will be repaid over time from the surpluses that arise in subsequent periods.

There are criticisms that bancaTakaful has not really worked. An example cited in support of its failure is that often one partner is not willing to reveal its entire customer base to the other partner in the joint venture company to operate the Takaful business. Atsuhiko commented: “Bancassurance – or bancaTakaful – is the bank’s strategy and not the insurance/Takaful company’s strategy. For insurance/Takaful companies, a bank is one of a range of potential distribution channels to effectively reach out to the market. As long as a bank such as Hong Leong shows strong commitment to promote any insurance/Takaful products, then there will not be any issues – it works!”

Tokio Marine is proud of its many bancassurance alliances – even in Brazil, India and China – “And all of them go well,” claims Atsuhiko.

Millea Holdings acquired Real Seguros SA, a non-life insurer in Brazil in 2005, and TMN acquired a stake in Tianan Insurance, a major property and casualty insurer in China.

However, Atsuhiko strongly objects when asked about Tokio Marine’s apparent aggressiveness in expanding in Asia and forming partnerships with other insurance providers. “More accurately our mission is to serve all people, especially Muslims in all parts of the world, by our customer-oriented Takaful products with high quality services. We also want to promote that Takaful is a fair, transparent and effective measure of risk mitigation and investment. The fact is that we started the Middle East Takaful operation even before the overfl ow of the petro-dollars started.”

What, then, is his mission for the next half-decade? “We target to be in the top three in Malaysia. We would like to see the establishment of a solid [Islamic fi nance] infrastructure and for HLTMT to be at par with conventional insurance companies, as well as to provide quality services.”

On where he sees HLTMT on the global Islamic fi nance map, Atsuhiko asserts: “We are not here to capture the petro-dollars, but to provide the Muslim customers with what they are comfortable with.”

If what he says becomes a reality, then it will not be long before Tokio Marine, or its parent Millea, seriously considers opening up new markets for its Takaful products in any part of the world, maybe even the UK or Europe.

Islamic Finance news speaks exclusively with Atsuhiko Ayabe, General Manger of Research and Product Development at Hong Leong Tokio Marine Takaful (continued...)

Atsuhiko Ayabe with his research team

The 2nd International Islamic Financial Markets Conference BahrainDiplomat Radisson SAS Hotel

This year’s focus will be on six key areas notably:

FREE TO ATTEND SO REGISTER NOW!

Full Name*:_________________________________________________________________________________________________________* As your name would appear on your event badgeJob Title: ____________________________________________________Company: ____________________________________________Address: ___________________________________________________________________________________________________________________________________________________________________________________Country: ___________________________________Company Email*: __________________________________________________________________________________________________* We do not accept registrations with personal emailTel: _________________________________________________________ Fax: __________________________________________________

RETURN FAX TO +603 2141 5033 or Visit http://www.islamicfi nanceevents.com/bahrain07 today

• Islamic Liquidity Management • Islamic Interbank Market • Uniformity in Islamic Capital Markets

• Islamic Investment Opportunities • Islamic Real Estate Investment Trusts • Islamic Unit Trusts

www.islamicfi nancenews.comMOVES


Next Forum Question

Much has been written and said about the importance of innovation of Islamic fi nancial products. However, is it not the case that what the industry really needs is predictability in terms of product offerings?

If you would like to air your views on the next Islamic Finance Forum Question, please email your response of between 50 and 300 words to Christina Morgan, Forum Editor, at: [email protected] before Wednesday 25th April 2007.

KING & SPALDING – Saudi Arabia

King & Spalding has expanded its Middle East practice by making an affi liation agreement with the Law Offi ces of Mohammed Al-Ammar in Riyadh, Saudi Arabia.

The fi rm has also announced the appointment of Tariq Abbadi, who specializes in corporate and Saudi regulatory work and has been practising in Riyadh for three years. He comes to King & Spalding from Baker Botts.

King & Spalding now has seven lawyers in the UAE, and the fi rm expects to add fi ve more lawyers to its Dubai offi ce shortly.

ABN AMRO – Global

Raphael Kassin has been appointed ABN Amro’s head of emerging markets fi xed income for the asset management business. He will report to Paul Griffi ths, who heads up fi xed income for Credit Suisse’s asset management class.

Mr Kassin was previously head of global emerging markets debt portfolio at ABN Amro Asset Management in London.

FIRST BAHRAIN – Bahrain

Amin Al Arrayed has been appointed First Bahrain Real Estate Development Company’s general manager.

Mr Al Arrayed was the founding member of Reef, Real Estate Finance Company’s executive team, and head of retail and placement. He was also responsible for structuring innovative Shariah compliant real estate fi nancing products and services. He has previously worked as senior manager of retail banking for the Bank of Bahrain and Kuwait, and worked with the Central Bank of Bahrain and the International Monetary Fund in Washington DC.

Mr Al Arrayed is an Economics and International Relations graduate, and earned his Masters in Business Administration from DePaul University in Chicago, US.

PAK-QATAR – Pakistan

Mr Vaqaruddin is now the chief executive offi cer of Pak-Qatar General Takaful. He brings with him 27 years’ experience in general insurance operations, sales and marketing.

Mr Vaqaruddin has held senior positions in various insurance companies spanning Britain, the US and Pakistan, and served as general manager of Commercial Union Assurance during its merger with New Jubilee Insurance in 2003. Mr Vaqaruddin, a chartered insurer, graduated in science and holds an MBA.

DLA PIPER – Middle East

In its bid to boost its Islamic fi nance services, law fi rm DLA Piper has poached Abdulaziz Al Bosaily from Clifford Chance and has also hired Adil Hussain and Saqib Aqwan.

Mr Hussain will join DLA Piper in June as a senior consultant. He was previously part of Norton Rose’s Islamic fi nance team, and has undertaken projects involving Calyon and Gulf International Bank.

Mr Aqwan is slated to join DLA Piper in May as a consultant. He will be leaving the Saudi Arabia-based Alliance. Mr Abdulaziz joined the fi rm in March 2007 as legal director.

All three lawyers will work under Oliver Agha’s wing, who joined the fi rm in February this year to build the fi rm’s global Islamic fi nance practice.

NOTTINGHAM BUILDING SOCIETY – UK

Ashraf Piranie – formerly Islamic Bank of Britain (IBB) head of fi nance – has joined the Nottingham Building Society. He will be replacing Andrew Milner. There, he will head the company’s property services division, and strive to introduce and develop Islamic banking.

Mr Piranie was also previously with Alliance and Leicester as director of fi nance for retail banking.

www.islamicfi nancenews.comDEAL TRACKER


Islamic Finance newsAdvisory Board:

Mr Daud Abdullah (David Vicary)Managing Director

Hong Leong Islamic Bank

Dr Mohd Daud BakarChief Executive Offi cer

International Institute of Islamic Finance

Prof Dr Mohd Masum BillahAssociate Professor

International Islamic University of Malaysia

Dr Humayon DarManaging Director

Dar Al Istithmar

Mr Badlisyah Abdul GhaniChief Executive Offi cer

CIMB Islamic

Ms Baljeet Kaur GrewalChief Economist

Kuwait Finance House

Mr Sohail JafferPartner & Chief Executive Offi cer

FWU Group

Dr Monzer Kahf Consultant/Trainer/Lecturer

Private Practice

Mr Mohd Ridza bin Mohammed Abdullah

Managing PartnerMohamed Ridza & Co

Prof Bala ShanmugamDirector of Banking & Finance Monash University Malaysia

Mr Muhammad Nejatullah SiddiqiAuthor, Scholar, Speaker, Trainer

Mr Rushdi SiddiquiGlobal Director

Dow Jones Islamic Indexes

Mr Dawood TaylorHead of Takaful Taawuni Division

Bank Aljazira

Mr Abdulkader ThomasPresident & CEO

SHAPE – Financial Corp.

Mr Paul WoutersOf Counsel

Bener Law Offi ce

Prof Rodney WilsonDirector

Durham University

Mr Sohail ZubairiVice President & Head Shariah

Coordination Dubai Islamic Bank

Another Islamic Finance news exclusive

ISSUER SIZE (million) INSTRUMENT

Saudi Electric Company US$4,000 Sukuk

MTC US$1,200 Sukuk

Prolintas US$170.70 Senior Ijarah/Junior Musharakah

Tomei Consolidated US$28.50 Islamic Commercial Papers

Sui Southern Gas Co. US$49 Islamic Commercial Papers

JBIC US$250 – US$350 Sukuk

Dynamic Communication US$143.40 Istisnah/MTN program

GLOMAC US$50.18 Murabahah MTN program

Indonesia Comnets Plus US$11.02 Sukuk Murabahah

Karachi Shipyard US$69.19 TBA

Kwantas US$69.19 Murabahah/Off CP/MTN program

Malaysia International Shipping

US$286.30 Sukuk Murabahah

Gamuda US$256 ICPs/IMTNs

Islamic Development Bank

US$142.40 Ringgit denominated Sukuk

AMMB Holdings US$114.20 Sukuk

ADIB US$408.50 Sukuk

Moccis US$108.80 Sukuk Murabahah/2 Tranches/6 Series

Moccis US$51.50 TBA

MTD Infraperdana US$71.50 Murabahah (CP/MTN program)

Sabah Ports US$22.90 Bai Bithaman Ajil

Sabah Ports US$20 MTN Murabahah

Orient Technology Indonesia

US$120 Islamic and conventional bonds (TBA)

Tiong Toh Siong Holdings US$24.20 Sukuk Ijarah

FACB Industries US$22.80 Murabahah

FACB Industries US$42.80 Bai Bithaman Ajil

Tiong Nam US$83.40 Sukuk Ijarah

Indonesia TBA (in IDR) Sukuk Ijarah

Lahore SunCity US$250 Sukuk Musharakah

Polytama US$21,725 Sukuk Ijarah

Prasarana US$568.70 TBA

Tele-fl ow US$25.60Murabahah partially underwritten Islamic MTN

For more details on these deals visit

www.islamicfi nancenews.com

Deal trackerKeeping you abreast of the world’s upcoming Shariah compliant deals

www.islamicfi nancenews.comFUNDS PAGE


Sharpe ratio for all funds (as of 19th April 2007)

FUND MANAGEMENT COMPANY Sharpe Ratio (%) FUND DOMICILE

1 Amwal Islamic Money Market FundKuwait & Middle East Financial Investment Company

20.47 Kuwait

2 PNM Amanah Syariah Terproteksi PNM Investment Management 6.89 Indonesia

3 Insight I-Hajj Syariah Fund Insight Investments Management 4.92 Indonesia

4 Al-Hilal Islamic Fund Kuwait Investment Company 4.75 Kuwait

5 Crescent Global Property Equity FundOasis Global Management Company (Ireland)

4.74 Ireland

6 Al Dar Money Market Fund ADAM 4.46 Kuwait

7 AlAhli Emerging Markets Trading Equity Fund The National Commercial Bank 3.06 Saudi Arabia

8 Asia Pacifi c Adil Fund CIMB-Principal Asset Management 2.87 Malaysia

9 Al Dar Real Estate Fund ADAM 2.76 Kuwait

10 Al Muthanna Islamic Money Market Fund First Investment Company 2.57 Kuwait

Eurekahedge Islamic Fund Index* 0.59

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.

Contact EurekahedgeTo list your fund or update your fund information: [email protected]

For further details on Eurekahedge: [email protected] Tel: +65 6212 0900

Eurekahedge Islamic Fund Index

YTD returns for all funds (as of 19th April 2007)

FUND MANAGEMENT COMPANY 12 Month Return (%) FUND DOMICILE

1 CMS Islamic Fund CMS Trust Management 27.59 Malaysia

2 Apex Dana Al-Faiz-i Apex Investment Services 20.93 Malaysia

3 ING Ekuiti Islam Fund ING Funds 18.63 Malaysia

4 CMS Islamic Balanced Fund CMS Trust Management 15.51 Malaysia

5 MAAKL Al-Faid Fund MAAKL Mutual 15.32 Malaysia

6 Al Danah GCC Equity Trading Fund Banque Saudi Fransi 14.86 Saudi Arabia

7 Pacifi c Dana Aman Pacifi c Mutual Fund 14.62 Malaysia

8 RHB Islamic Growth Fund RHB Unit Trust Management 13.98 Malaysia

9 SBB Dana Al-Ikhlas SBB Mutual 13.39 Malaysia

10 SBB Dana Al-Ihsan 2 SBB Mutual 13.09 Malaysia

Eurekahedge Islamic Fund Index* 0.76

90.0092.0094.0096.0098.00

100.00102.00104.00106.00108.00110.00112.00114.00116.00118.00120.00122.00124.00

Mar-04

May-04

Jul-04

Sep-04

Nov-04

Jan-05Mar-0

5

May-05

Jul-05

Sep-05

Nov-05

Jan-06Mar-0

6

May-06

Jul-06

Sep-06

Nov-06

Jan-07Mar-0

7

Index

Valu

es

* Based on 87.13% of the funds reporting their March 2007 returns as at 19th April 2007.

www.islamicfi nancenews.comMARKET INDEXES


0

2

4

6

8

10

12

14

DJIM Titans 100 DJIM Asia/Pacif ic Titans 25

0

5

10

15

20

25

DJIM World DJIM Asia/Pacif ic DJIM Europe DJIM US

DESCRIPTIVE STATISTICS Market Capitalization (US$ billions) Component Weight (%)

IndexComponent

numberFull

Float adjusted

Mean Median Largest Smallest Largest Smallest

DJIM World 2377 18027.67 15259.22 6.42 1.58 445.22 0.01 2.92 0

DJIM Asia/Pacifi c 946 3294.1 2347.43 2.48 0.61 88.8 0.01 3.78 0

DJIM Europe 358 4859.75 3882.25 10.84 3.15 223.08 0.28 5.75 0.01

DJIM US 732 8410.23 8005.77 10.94 3.06 445.22 0.31 5.56 0

DJIM Titans 100 100 7646.06 6949.02 69.49 48.07 443.47 1.3 6.38 0.02

DJIM Asia/Pacifi c Titans 25 25 928.69 643.62 25.74 18.54 72.47 7.61 11.26 1.18

Mean, median, largest, smallest and component weights are based on fl oat adjusted market capitalization, not full market capitalization.

Anthony YeungRegional Director

[email protected]: +852 2831 2580

Learn more about the Dow Jones Islamic Market Indexes

Data as of the 18th April, 2007

INDEX PRICE RETURN (%)

1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD

DJIM World 1.92 2.56 4.75 4.89 5.64 11.51 12.6 7.01

DJIM Asia/Pacifi c 0.52 1.6 3.34 4.67 5.74 10.61 8.43 5.92

DJIM Europe 2.27 3.45 6.04 7.16 7.94 14.62 19.8 8.58

DJIM US 2 2.19 4.08 3.32 3.8 9.44 10.47 5.95

PERFORMANCE OF DJ TITANS INDEXES

PERFORMANCE OF DJ INDEXES

INDEX PRICE RETURN (%)


DJIM Titans 100 2.4 2.86 4.68 4.6 3.11 7.46 12.22 4.32

DJIM Asia/Pacifi c Titans 25 0.25 0.99 2.62 3.5 4.28 9.18 12.23 5.12

PRIC

E R

ETU

RN

(%)

PRIC

E R

ETU

RN

(%)



www.islamicfi nancenews.comMALAYSIAN SUKUK UPDATE


AS AT 18th April 2007

Key Benchmarks Trend (by volume) Rating This week close (RM) 11 April 07 (RM) 4 April 07 (RM) 28 March 07 (RM)

Private Debt Securities

RANTAU IMTN 15.03.2011 – MTN 1 AAA (RAM) 102.41 102.24 102.10 102

RANTAU IMTN 0% 15.03.2012 – MTN 3 AAA (RAM) 101.55 101.29 101.02 100.89

MTD INFRA IMTN 5.28% 02.10.2019 – Tranche 3 AA ID (MARC) 106.19 100.27 100.27 N/A



Government Investment Instruments

PROFIT-BASED GII 3/2006 15.11.2016 N/A 102.6 102.53 102.24 101.81



Quasi Government

KHA1/05 1B 0-CP 5Y 18.01.2010 N/A 90.63 90.62 90.56 90.44

KHA3/03 1B 0-CP 5YR 18.12.2008 N/A 94.37 94.25 94.21 94.07

KHAZANAH 0% 08.12.2016 N/A 70.51 70.40 69.97 69.43

RINGGIT ISLAMIC DEBT MARKET: WEEKLY SNAPSHOT

SPREAD VS GII (in b.p.)

MYR ISLAMIC DEBT YIELD CURVESYTM Curves 5 YEAR YTM Historical Charts (weekly closing, over last 6 months)

TENURE

1Y 2Y 3Y 5Y 7Y 10Y

GII 3.35 3.39 3.41 3.44 3.47 3.51

Cagamas 0.13 0.18 0.21 0.25 0.28 0.31

Khazanah 0.05 0.06 0.09 0.12 0.14 0.15

AAA 0.24 0.3 0.38 0.47 0.56 0.7

AA1 0.34 0.42 0.52 0.66 0.8 0.97

A1 1.3 1.51 1.71 2.08 2.45 2.86

www.islamicfi nancenews.comLEAGUE TABLES


For all enquires regarding the above information, please contact: Catherine Chu Email: [email protected] Phone: +852 2804 1223; Fax: +852 2529 4377

TOP ISSUERS OF ISLAMIC BONDS APRIL 2006 – APRIL 2007

Issuer or Group Nationality Instrument Amt US$ m Iss. % Manager

1 Nakheel Development UAEConvertible Sukuk Ijarah

3,520 2 20.2 Barclays Capital, Dubai Islamic Bank

2 Malaysia Malaysia Sukuk 2,638 3 15.1 Malaysian Government bond

3 Aldar Funding MalaysiaExchangeable Sukuk Mudarabah

2,530 1 14.5Barclays Capital, Credit Suisse Securities (Europe), Abu Dhabi International Bank

4 Rantau Abang Capital MalaysiaSukuk Musharakah MTN

975 2 5.6 CIMB, AmMerchant

5 ADIB Sukuk UAE Sukuk Ijarah 800 1 4.6 HSBC

6 Dubai Islamic Bank UAE Sukuk Musharakah 750 1 4.3Barclays Capital, Citigroup, Standard Chartered Bank

7 Raffl esia Capital MalaysiaPeriodic Payment Exchangeable Trust Certifi cates

750 1 4.3 CIMB Investment, HSBC Amanah, UBS

8Projek Lebuhraya Utara Selatan (PLUS)

MalaysiaSukuk Musharakah MTN

743 18 4.3 CIMB Investment

9 Cagamas MalaysiaBithaman Ajil Islamic Securities

510 10 2.9 Cagamas, AmMerchant, Aseambankers

10 Aabar Sukuk UAEExchangeable Sukuk Mudarabah

460 1 2.6 Deutsche Bank

11 Maybank MalaysiaBai Bithaman Ajil Subordinated Bonds

416 1 2.4 Aseambankers

12 Jimah Energy Ventures Malaysia Istisnah MTN 308 20 1.8AmMerchant, Bank Muamalat Malaysia, MIMB, RHB Sakura

13 Segari Energy Ventures Malaysia Sukuk Ijarah 258 6 1.5 Aseambankers Malaysia

14 SIB Sukuk UAE Musharakah Sukuk 225 1 1.3 HSBC

15 Putrajaya Holdings Malaysia Murabahah MTN 221 5 1.3 Alliance Merchant, CIMB, RHB Sakura

16 Kuala Lumpur Sentral Malaysia Sukuk Musharakah 208 7 1.2 HSBC Bank Malaysia

17 Tabreed 06 Financing Corp UAE Sukuk Istisnah 200 1 1.1CIMB, HSBC, Dresdner Kleinwort Wasserstein

18 KMCOB Capital Malaysia Murabahah MTN 178 4 1.0CIMB Investment, United Overseas Bank (Malaysia)

19 MTD InfraPerdana Malaysia Murabahah MTN 174 8 1.0AmInvestment, CIMB Investment, United Overseas Bank (Malaysia)

20 East Cameron Gas US Asset-backed Sukuk 168 1 1.0 Merrill Lynch International

Total of issues used in the table 17,462 263 100.0



TOP ISSUERS OF ISLAMIC BONDS OCTOBER 2006 – APRIL 2007

Issuer or Group Nationality Instrument Amt US$ m Iss. % Manager

1 Nakheel Development UAE Convertible Sukuk Ijarah 3,520 2 30.9 Barclays Capital, Dubai Islamic Bank

2 Aldar Funding MalaysiaExchangeable Sukuk Mudarabah

2,530 1 22.2Barclays Capital, Credit Suisse Securities (Europe), Abu Dhabi International Bank

3 Malaysia Malaysia Sukuk 1,821 2 16.0 Malaysian Government bond

4 ADIB Sukuk Co UAE Sukuk Ijarah 800 1 7.0 HSBC

5 Dubai Islamic Bank UAE Sukuk Musharakah 750 1 6.6Barclays Capital, Citigroup, Standard Chartered Bank

6 Rantau Abang Capital Malaysia Sukuk Musharakah MTN 570 1 5.0 CIMB

7 Kuala Lumpur Sentral Malaysia Sukuk Musharakah 208 7 1.8 HSBC

8 Jimah Energy Ventures Malaysia Istisnah Islamic MTN 208 10 1.8RHB Sakura, MIMB, Bank Muamalat Malaysia, AmMerchant

9 KMCOB Capital Malaysia Murabahah MTN 178 4 1.6CIMB Investment, United Overseas Bank (Malaysia)

10 MTD InfraPerdana Malaysia Murabahah MTN 174 8 1.5AmInvestment, CIMB Investment, United Overseas Bank (Malaysia)

11 AmIslamic MalaysiaSubordinated Sukuk Musharakah

113 1 1.0 AmMerchant

12Syarikat Pengelar Air Sungai Selangor (SPLASH)

Malaysia Murabahah MTN 103 19 0.9 United Overseas Bank (Malaysia)

13 Cagamas MalaysiaBithaman Ajil Islamic Securities

100 4 0.9Cagamas, AmMerchant, Aseambankers

14 Mukah Power Generation Malaysia Sukuk Mudarabah 83 10 0.7 RHB Islamic

15 OCBC Bank (Malaysia) Malaysia Mudarabah Islamic Bond 55 1 0.5 OCBC Bank (Malaysia)

16 Glomac Regal Malaysia Murabahah MTN 31 2 0.3 Alliance Investment

17 Sarawak Power Generation Malaysia Sukuk Musharakah 30 11 0.3 RHB Islamic

18 Sabah Ports MalaysiaBithaman Ajil Islamic Debt Securities

23 8 0.2Bank Muamalat Malaysia, MIDF Amanah Investment Bank

19 Aeon Credit Service (M) MalaysiaBank Guaranteed Musharakah MTN

17 2 0.2Aseambankers Malaysia, Bank of Tokyo-Mitsubishi UFJ (Malaysia), CIMB Investment

20 Sui Southern Gas Co Pakistan Sukuk 16 1 0.1Dubai Islamic Bank, Standard Chartered Bank (India)


ARE YOUR DEALS LISTED HERE?

Catherine ChuEmail: [email protected]

Telephone: +852 2804 1233

If you feel that the information within these tables is inaccurate, youmay contact the following directly:



ISLAMIC BONDS BY CURRENCY OCTOBER 2006 – APRIL 2007

Amt US$ m Iss. %

US dollar 7,600 66.8 5

Malaysian ringgit 3,768 33.1 105

Pakistan rupee 16 0.1 1

Total 11,385 100.0 111

ISLAMIC BONDS BY CURRENCY APRIL 2006 – APRIL 2007

Amt US$ m Iss. %

US dollar 9,521 54.5 12

Malaysian ringgit 7,885 45.2 248

Pakistan rupee 35 0.2 2

Indonesian rupiah 21 0.1 1

Total 17,462 100.0 263

ISLAMIC BONDS APRIL 2006 – APRIL 2007

Manager or Group Amt US$ m Iss. %

1 Barclays Capital 2,853 4 16.3

2 Malaysian Government bond 2,638 3 15.1

3 CIMB 1,905 49 10.9

4 Dubai Islamic Bank 1,768 3 10.1

5 HSBC 1,502 14 8.6

6 AmInvestment Bank 1,028 49 5.9

7 Aseambankers 849 25 4.9

8 Abu Dhabi Investment Co 843 1 4.8

9 Credit Suisse 843 1 4.8

10 Deutsche Bank 460 1 2.6

11 Standard Chartered Bank 409 19 2.3

12 United Overseas Bank 340 44 1.9

13 RHB 277 54 1.6

14 Citigroup 250 1 1.4

15 UBS 250 1 1.4

16 Merrill Lynch & Co 168 1 1.0

17 Kuwait Finance House 154 8 0.9

18 Bank Muamalat Malaysia 135 39 0.8

19 Alliance Investment Bank 120 11 0.7

20 EON 114 30 0.7


ISLAMIC BONDS BY COUNTRY APRIL 2006 – APRIL 2007

Amt US$ m Iss. %

Malaysia 8,635 49.5 249

UAE 8,485 48.6 8

US 168 1.0 1

Kuwait 100 0.6 1

Pakistan 35 0.2 2

Indonesia 21 0.1 1

Saudi Arabia 18 0.1 1

Total 17,462 100.0 263

ISLAMIC BONDS OCTOBER 2006 – APRIL 2007

Manager or Group Amt US$ m Iss. %

1 Barclays Capital 2,853 4 25.1

2 Malaysian Government bond 1,821 2 16.0

3 Dubai Islamic Bank 1,768 3 15.5

4 HSBC 910 9 8.0

5 Abu Dhabi Investment Co 843 1 7.4

6 Credit Suisse 843 1 7.4

7 CIMB 731 19 6.4

8 Standard Chartered 258 2 2.3

9 United Overseas Bank 250 31 2.2

10 Citigroup 250 1 2.2

11 AmInvestment 232 20 2.0

12 RHB 165 31 1.4

13 Kuwait Finance House 104 7 0.9

14 Cagamas 100 4 0.9

15 Bank Muamalat Malaysia 64 18 0.6

16 Oversea-Chinese Banking Corp 55 1 0.5

17 EON 52 10 0.5

18 Alliance Investment 31 2 0.3

19 MIDF-Sisma Securities 20 7 0.2

20 MIDF Amanah Investment 12 8 0.1


ISLAMIC BONDS BY COUNTRY OCTOBER 2006 – APRIL 2007

Amt US$ m Iss. %

UAE 7,600 66.8 5

Malaysia 3,768 33.1 105

Pakistan 16 0.1 1

Total 11,385 100.0 111

For all enquires regarding the above information, please contact:

Catherine Chu

Email: [email protected]: +852 2804 1223; Fax: +852 2529 4377

www.islamicfi nancenews.comEVENTS DIARY


EDITORIAL TEAM

Managing Editor Frances O’Sullivan [email protected]

Editor Nora Salim [email protected]

Deputy Editor Nazneen Abdul Halim [email protected]

Features Editor Shabnam Mokhtar [email protected]

Correspondents Kamal Bairamov, Seelan Sakran Shirene Shan

Forum Manager Christina Morgan [email protected]

Production Hasnani Aspari Manager [email protected]

Production Mahadir Mohamed Executive [email protected]

SALES TEAMNew Business Charles PhilipManager [email protected] Tel: +603 2143 8100 x 13

Subscriptions Musfaizal Bin Mustafa Manager [email protected] Tel: +603 2141 8100 x 24

MARKETING TEAM

Assistant Dhana Dorasamy [email protected]

Associate Geraldine Chan Publisher [email protected] Tel: +603 2141 6024

Financial Faizah Hassan Controller [email protected]

Managing Director Andrew Tebbutt [email protected] Tel: +603 2141 6022

Managing Director Andrew Morgan & Publisher [email protected] Tel: +603 2141 6020

Individual Annual Subscription Rate: US$525Company-Wide Subscription Rate: US$2,250

DISCLAIMER

All rights reserved. No part of this publication may be reproduced, duplicated or copied by any means without the prior consent of the holder of the copyright, requests for which should be addressed to the publisher. While every care is taken in the preparation of this publication, no responsibility can be accepted for any errors, however caused.

Islamic Finance news team

Published By: Suite C, Level 10 Bangunan Angkasa Raya, Jalan Ampang, 50450 Kuala Lumpur, Malaysia Tel: +603 2143 8100

Fax: +603 2141 5033

Published every Friday (50 issues per year)

DATE EVENT VENUE ORGANIZER

April

17th – 19th Inclusive Islamic Financial Sector Development Brunei IRTI

19th Seminar on Regulation of Islamic Capital Markets Kuala Lumpur IFSB

24th – 26th Enhancing Islamic Financial Services for Micro and Medium Sized Enterprises

Brunei CSM

24th – 26th Structured Products World 2007 London Terrapinn

25th Sukuk: Exploring the Phenomena Dubai Middle East Business Forum

May

2nd – 6th Islamic Finance Summer School Durham Durham University

6th – 7th World Islamic Funds & Capital Market Conference Bahrain Mega Events

7th – 8th World Halal Forum 2007 Kuala Lumpur Kaseh Dia

15th – 16th 4th Islamic Financial Services Board Summit: “The Need For A Cross-Sectoral Approach to the Supervision of Islamic Financial Services”

Dubai IFSB

17th – 18th 3rd International Conference on Islamic Banking, Finance and Insurance

Ottawa Ansar Financial Group

21st – 22nd Commodity Investment Week 2007 Dubai Terrapinn

22nd – 24th Islamic World Finance North America 2007 Toronto Terrapinn

27th – 29th 3rd World Islamic Economic Forum Kuala Lumpur ASLI

29th – 30th 32nd Islamic Development Bank Annual Meeting Senegal IDB

June

3rd – 6th Funds Middle East Madinat Jumeirah Terrapinn

18th – 19th The 2nd International Islamic Financial Markets Conference

BahrainIslamic Finance events/IIFM

18th – 19th International Islamic Banking & Finance Forum 2007 Singapore Marcus Evans

25th – 27th Islamic Finance and Investment World Europe 2007 London Terrapinn

25th – 27th 3rd International Islamic Finance Forum 2007 Kuala Lumpur IBC Asia

July

2nd – 6th Islamic Markets Program Kuala LumpurSecurities Commission

August

13th – 14th MIF Forum 2007 Kuala LumpurIslamic Finance events

November

27th – 28th 3rd Seminar on the Regulation of Takaful Cairo IFSB

Yes! I would like to subscribe to Islamic Finance News

*Exclusive Corporate Subscription packages are available. Contact us today!

YOUR DETAILS

Full Name

(First Name) (Surname)

Company Name Designation

Address

...................................................................................................................................

...................................................................Postal/Zip...............................................

Country......................................................................................................................

Work Email

Telephone Fax

The information you provide will be safeguarded by RedMoney, whose subsidiaries may use it to keep you informed of relevant products & services. Tick here if you do not wish to receive further Islamic Finance related information.

PAYMENT METHOD

□ By Cheque: Please make cheques payable to Red Money Sdn Bhd

□ By Telegraphic Transfer (T/T):Account Name: Red Money Sdn. Bhd.Account No: 2 14129 00 19527 7 (Malaysian Ringgit) Account No: 6 14129 00 00574 3 (US Dollars)Swift Code: RHBBMYKLBank Name & Address: RHB Bank, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia

Please send your T/T advice with this form to us either by post or fax. ALL TELEGRAPHIC TRANSFER FEES ARE BORNE BY THE SUBSCRIBER.

Suite C, 10th Floor, Bangunan Angkasa Raya,Jalan Ampang, 50450 Kuala Lumpur,Malaysia

[email protected]

+603 2143 8100 +603 2141 5033

HOW TO ORDER

INDIVIDUAL SUBSCRIPTION

1 Year at US$525 net*

2 Years at US$920 net*

COMPANY WIDE SUBSCRIPTION

1 Year at US$2,250 net*

2 Years at US$3,600 net*

(Max: 10 Individual Subscriptions)

Each subscription will receive:

• 50 issues of Islamic Finance news available every Friday. • Exclusive login details for each subscriber.• Unlimited access to the archived library of all past issues• All additional supplements, guides and reports.

NE-IFN04/16

ABC Islamic Bank 4

ABN Amro 22

ADIB 5

Affi n holdings 5

Amana Takaful 19

Arcapita Bank 2

Aseambankers 1

Bank Asya 4

Bank of East Asia 5

Barclays Capital 2

Bayerrische Hypo-und Vereinsbank 4

BNP Paribas 1

Central Bank of Bahrain 2

Central Bank of Egypt 5

Clifford Chance 1

DBS Bank 2

Deyaar Real Estate 5

DLA Piper 22

Dubai Bank 3

Dubai Islamic Bank 5

EIIB 2

First Bahrain 22

Golden Belt 1 6

Gulf Finance House 4

HSBC 1

HSBC 1

IIFM 2

Insurance Australia Group 19

ISM Insurance Services Malaysia 19

King & Spalding 22

Konsortium Lenuhraya Butterworth-Kulim 6

Kuwait Finance House 3

Maybank 1

Munshaat Real Estate Projects 5

NBD 5

Nottingham Building Society 22

Nucleus Avenue 6

Pak-Qatar 22

Public Bank 2

Qatar National Bank 3

QFCRA 19

S&P 19

Saad Group 1

Saad Trading & Contracting 1

Standard Bank 2

Standard Chartered 4,2

Swiss Re 19

Takaful International 19

UBS 1

Unicredits Markets & Investment Banking 4

United Bank of Pakistan 3

WestLB 2

Company Index

Company Page Company Page Company Page Company Page

Country Index

Australia Aussie Rules 4

Australia Cashing in on catastrophe 19

Bahrain Aussie Rules 4

The ever popular Murabahah 2

IIFM initiatives 2

Golden Belt glimmers 6

IIFM initiatives 2

Trading resumed 19

Brunei Kingdom on a roll 5

Egypt The Sphynx has spoken 5

Japan Japan’s n longer a Sleeping Beauty 7

The Dawn of Islamic Finance in Japan 9

Kuwait Battle of banks 4

Whopping profi ts 3

Kuwait New Sukuk center 5

Malaysia East meets West 5

Maybank attracts global investors 1

Certifi ed and good to go 19

Highway on track 6


Nucleus Avenue rated 6

Healthy Public operations 2


Middle East Hyper premiums 19

Netherlands Islamic Finance in the Netherlands 16

Pakistan Smoothing the process 19

Qatar Optimistic about Lin City 3

Takaful to reach American shores 19

Saudi Arabia Seeking bank with large sum of cash 1

Singapore Optimistic about Lin City 3

Sri Lanka Twofold growth 19

Switzerland Alpine version 3

Turkey Could it get any bigger 4

UAE Lawyers swap derivatives 1

Kazakhstan likely investment 5

Islamic Covered Card 3

Gamut of funds 3

UK Lawyers swap derivatives 1

US Separating the Myth from the Meltdown:

The US Mortgage Market and its Intersection with

Islamic Finance 11

US Takaful to reach American shores 19

Country Title Page Country Title Page Country Title Page

Developing the Global Islamic Financial Markets

The 2nd International Islamic Financial Market Conference Bahrain“Developing the Global Islamic Financial Markets”

18th & 19th June 2007

Participants include:H.E. Rasheed Al Maraj, Governor, Central Bank of Bahrain; First Vice-Governor, Banque Du Liban; Zarinah Anwar, Chairman, Securities Commission, Malaysia; Abdul Rahman Al Baker, Executive Director-Financial Institutions Supervision, Central Bank of Bahrain; Robert Pickel, CEO, ISDA New York; Syed Tariq Husain, CEO, Emirates Global Islamic Bank, Pakistan; John Weguelin, Managing Director, European Islamic Investment Bank, UK; Prof. Mahmood Faruqui, Vice Chairman, Institute of Islamic Banking & Insurance, UK; Mohammed Sulaiman Al-Omar, General Manager, Kuwait Finance House, Kuwait; Stella Cox, Managing Director, Dawnay Day Global Investment Ltd; Muhammad Said Abdel Wahab, CFO, Kuwait Finance House, Kuwait; Dr. Omer Marwan Kamal, Head of Strategic Investments and Acquisitions, Al Salam Bank, Bahrain; Ijlal A. Alvi, Chief Executive Offi cer, International Islamic Financial Market, Bahrain; Abdulkader Thomas, President & CEO, Shape Financial, Kuwait; Qudeer Latif, Lawyer, Clifford Chance, UAE and many others...

+603 2141 5033+603 2143 8100 [email protected]

REGISTER NOW! REGISTER NOW! http://www.islamicfi nanceevents.com/bahrain07http://www.islamicfi nanceevents.com/bahrain07

Organizer Joint Organizer Supported by

Islamic Research and Training InstituteA Member of the Islamic Development Bank Group

This forum will focus on fi ve key areas notably:• Hedging, Framework & Development• Islamic Liquidity Management & Interbank Market• Islamic REIT – Trends & Developments• Islamic Unit Trusts – Future Prospects• Uniformity in Islamic Financial Market

Platinum sponsor Gold sponsors Educational Sponsor

FREE TO

ATTEND!

Event Manager

Gold sponsors

Lead Media Partner

eventsA Product

newsA Product

Documents

The World’s Global Islamic Finance News Providerislamicfinancenews.com/sites/default/files/newsletters/v4i16.pdf · Lawyers swap derivatives Clifodrf Chance has drafed a mastt er