Sunday, October 18, 2009

BBA judgement erroneous, rules Court of Appeal

By Habhajan Singh
The Court of Appeal, in a written judgement on the Bai Bithaman Ajil (BBA) case presided earlier by High Court judgde Datuk Justice Abdul Wahab Patail, had found that the judge had erred when equating profit with riba, misinterpreted a key definition in the Islamic banking regulations and had side stepped earlier rulings made by the Supreme Court.

The written judgment is for the March 31 unanimous decision when the Court of Appeal reversed the earlier High Court decision that BBA contracts were contrary to Malaysia's Islamic banking regulations, providing a relief to local Islamic banks that had earlier feared a potential spike in defaults of Islamic contracts, especially for home financing.

In the judgment dated Aug 26 and signed off by Justice Datuk Md Raus Sharif, he wrote that "judges in civil court should not take upon themselves to declare whether a matter is in accordance to the Religion of Islam or otherwise", further adding "whether the bank business is in accordance with the Religion of Islam, it needs consideration by eminent jurists who are properly qualified in the field of Islamic jurisprudence."

The judgment by Justice Md Raus, who sat together with justices Datuk Abdull Hamid Embong and Datuk Ahmad Maarop in a three-men panel, brings to closure the much-debated Abdul Wahab's judgment in 2008 which probably triggered Bank Negara Malaysia (BNM) into making it mandatory for the courts to refer to the central bank's Shariah Advisory council (SAC) when deciding on Shariah matters in Islamic banking and finance cases.

In the new Central Bank of Malaysia Act (CBA) 2009, which was gazetted on Sept 3, it now makes it mandatory for courts to refer to SAC for rulings concering Shariah matters.

Section 56 provides states that where 'in any proceeding relating to Islamic finance business before any court or arbitrator any question question arises concering a Shariah matter', the court or the arbitrator shall take into consideration SAC published rulings or refer such questions to the council for its ruling.
On top of that, CBA's Section 57 makes it clear that SAC rulings shall be binding on the Islamic financial institutions, the court or the arbitrator.

The judgment, in favour of plaintiff Bank Islam Malaysia Bhd (BIMB), was for nine BBA contract cases, including the case of Bank Islam Malaysia Bhd v Ghazali Shamsuddin & 2 Others.

The Malaysian Reserve first reported on Abdul Wahab's judgment on Sept 8, 2008.

In one of the salient points in the 31-page judgment, Justice Md Raus said that Justice Abdul Wahab was plainly wrong when he equated the profit earned by BIMB as being similar to riba or interest.
"We have no hesitation in accepting that riba or interest is prohibited in Islam. But the issue at hand is whether such comparison between a BBA contract and conventional loan agreement was appropriate.
"With respect, we do not think so. This is because the two instruments of financing are not alike and have different characteristics. BBA contract is a sale agreement whereas a conventional loan agreement is a money lending transaction. The profit in BBA contract is different from interest arising in a conventional loan transaction. The two transactions are diversely different and indeed diametrically opposed," he writes.

He also noted that the law applicable to BBA contracts is no different from the law applicable to loan given under the conventional banking.
"The law is the law of contract and the same principle should be applied in deciding these cases. Thus, if the contract is not vitiated by any vitiating factor recognised in law such as fraud, coercion, undue influence, etc. the court has a duty to defend, protect and uphold the sanctity of the contract entered into between the parties," he said.

The justices also commented on Justice Abdul Wahab's attempts to replace the sale price under the Property Purchase Agreement with an 'equitable interpretation' and substituting the obligation of customer to pay the sale price with a 'loan amount' and 'profit' computed on a daily basis, as Justice Abdul Wahab had expounded in Affin Bank Bhd. v Zulkifli Abdullah (Supra).
This, in the views of the Court of Appeal, was the act of "rewriting the contract for the parties".
"It is trite law that the Court should not rewrite the terms of the contract between the parties that it deems to be fair or equitable," writes Justice Md Raus.

The judgment then commented on Abdul Wahab's interpretation of ‘Islamic banking business’ in section 2 of the Islamic Banking Act (IBA) 1983 where the High Court judge had argued that if a facility is to be offered as Islamic to Muslims generally, regardless of their mazhab, then the test to be applied by a civil court must logically be that there is no element not approved by the Religion of Islam under the interpretation of any of the recognised mazhabs.
Here, Justice Md Raus writes that it is our view that judges in civil court should not take upon themselves to declare whether a matter is in accordance to the Religion of Islam or otherwise.
"As rightly pointed out by Suriyadi J (as he then was) in Arab-Malaysian Merchant Bank Bhd [2005] 5 MLJ 210 that in the civil court ‘not every presiding judge is a Muslim, and even if so, may not be sufficiently equipped to deal with matters, which ulamak take years to comprehend’.
"Thus, whether the bank business is in accordance with the Religion of Islam, it needs consideration by eminent jurists who are properly qualified in the field of Islamic jurisprudence," he said.

The Court of Appeal judgment also noted that the questions raised by Wahab Patail on the validity and enforceability of the BBA contracts is not novel and that it had been raised in previous cases and had been ruled upon.
It cited the case of Adnan bin Omar v Bank Islam Malaysia Berhad (unreported) where the Supreme Court upheld the validity and enforceability of the BBA contract. In that case, the Supreme Court accepted as correct and affirmed the judgment of Ranita Hussein JC.

Subsequently, it added that the validity and the enforceability of BBA contracts was again decided by this court in Datuk Hj Nik Mahmud Nik Daud v Bank Islam Malaysia Bhd [1998] 3 CLJ 605, and Bank Kerjasama Rakyat Malaysia Bhd v Emcee Corporation Sdn Bhd (Supra).
"From the above cases, it is clear that the validity and enforceability of the BBA contract had been ruled upon by the superior courts. It is trite law that based on the doctrine of stare decisis, a decision of a superior court is binding on all courts below it. The importance of this principle must not be taken lightly," writes Justice Raus.

(This story appeared in The Malaysian Reserve on Oct 19, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

CIMB sets up nerve centre in Mena to tap Mideast growth

CIMB Islamic Investment House BSC is now known as CIMB Middle East BSC and will act as CIMB Group's nerve centre in the Middle East and North Africa (Mena) region.
The rebranded entity was launched by the Raja Muda of Perak Raja Dr Nazrin Shah who is Malaysia International Islamic Financial Centre (MIFC) financial ambassador and Bahrain Central Bank governor Rasheed Mohammed Al Maraj in conjunction with the MIFC road show here.
CIMB Group's head of corporate client solutions for the Mena Region and a CIMB Middle East board member, Badlisyah Abdul Ghani, said the rebranding exercise was the second phase of the firm's business transformation and growth agenda in the Middle East.
Established in 2006 and licensed in Manama, CIMB Islamic Investment House was CIMB Group's first foray into the Middle East and a joint venture with Yusuf Bin Ahmed Kanoo Holdings WLL, a reputable and wellestablished blue chip entity.
CIMB Middle East, with an initial issued and paid-up capital of US$20 million (RM67.17 million), provides advisory and arranging services as well as solutions to corporate and institutional clients in the Gulf Cooperation Council and Middle East region. Badlisyah said CIMB Middle East was in the process of applying for an advisory and arranging licence from the Saudi government and would set up an office in Saudi Arabia to support its initiatives and activities there.
Badlisyah who is also CIMB Group head of Islamic Banking, also announced the appointment of Suryono Darnor as CIMB Middle East chief executive officer and board member.
Suryono has over 18 years experience in bridging businesses in the Middle Eastern and South East Asian financial markets. — Bernama (Oct 15, 2009)

Sukuk poised to make a strong comeback in 2H09

By Bhupinder Singh
The sukuk, or Islamic bond market, looks set to make a strong comeback in the second half of the year as confidence returns to capital markets. In just the space of one week the sukuk pipeline has been strengthened by RM26 billion worth of firm and indicative proposals from local private and government owned — companies hoping to raise capital in 2009 and 2010.
The biggest of the proposal is the RM20 billion sukuk issuance programme by government — owned, Pengurusan Aset Air Bhd (PAAB). PAAB plans to use the money, to be raised progressively, to fund its water asset acquisitions, refinance debt and for the development of water assets in various states.
PAAB is expected to tap the market for RM2 billion as early as this month with its sukuk carrying an AAA rating issued by RAM Rating Services Bhd.
Analysts believe the conducive capital market environment that is awash with ample liquidity and improving sentiment among investors and corporates about a sustainable economic recovery is fuelling the strong recovery in the sukuk market.
"The funding needs are driven by real economic needs and come at a time when credit concerns are easing and interest rates are expected to be held at current levels. The market however only has the appetite for highly rated companies —AA and above," chief executive officer of Malaysian Rating Corp Bhd (MARC) Mohd Razlan Mohammed said.
"We hope that with the establishment of Danajamin Nasional Bhd, other lower rated companies will have access to the capital market," he added.

While the underlying business situation may be driving companies to issue debt, the historically low cost of capital could may turn out to be the once in a lifetime opportunity that cannot be ignored, thus feeding the sukuk pipeline as companies try to lock-in cheap funding rates.
"The low interest rate or cost of capital environment and the improving economic situation domestically and abroad could lead to companies rushing in to lock-in current low rates as they stand to see large cost savings," chief economist at RAM Dr Yeah Kim Leng said.
"The governments here and abroad have provided a supportive monetary environment since the financial crisis, and while there is still ample liquidity in the market, the lag effect of the expansionary fiscal and monetary stimulus will start to kick-in in six to nine months, after which we could be see policymakers undertake preemptive measures to quell excessiveve demand pressures. So we could start to see the withdrawal of the monetary stimulus by mid-2010," he said.

While countries like Australia have already moved to raise the cost of capital, Yeah believes the Malaysian government will want to ensure domestic demand and growth is strong enough to sustain itself before it moves to withdraw some of the monetary and fiscal measures in place.
The low cost of capital environment has already started to attract companies to market. For the first nine months of the year, new rated bonds assigned and announced totalled RM32.15 billion and about 70% of these were Islamic papers, according to MARC.
With new proposals coming out every other day, the debt market looks set to do much better than last year when a total of RM50.1 billion was raised by government and companies from the bond market in as compared to RM43.8 billion in 2007 (figure does not include Cagamas Bhd bonds) according to Bank Negara Malaysia's annual report.
The Islamic capital market abroad looks set to bloom as well. Total global sukuk issuances at the end of September stood at US$13.5 billion (RM45.77 billion) as compared to US$15.2 billion primary issues in 2008 according to data from
In the third quarter alone, sukuk issuance worldwide rose to US$6.2 billion, or 82% higher, then in the corresponding quarter. Billions more will be raised in the months to come, among which will be the US$10 billion issuance by Dubai and US$1.5 billion by Indonesia.

The robustness of the Islamic financial industry during the global financial crisis is set to attract more corporates and investors. The International Finance Corp, a World Bank unit that lends to businesses, will raise US$100 million this month while companies like Sime Darby Bhd, Pelabuhan Tanjung Pelepas Sdn Bhd (PTP) and Khazanah Nasional Bhd from Malaysia, to Sinpas Gayrimenkul Yatirim Ortakligi AS of Turkey, plan to raise billions more. However, lenders and investors are still seeking safety in quality issuers.
Most of the sukuk proposals in Malaysia will have some form of government guarantee or are government-owned companies. The market has seemed to have set the floor at AA ratings but nothing has been cast in stone. Some investors may be prepared to seek greater risks to gain higher yields. "The best way to confirm this is for the lower rated papers be made available for potential investors.
It is all in the price. If it is acceptable to both parties (buyer and seller), a market can be made.
"Unfortunately, at the moment, only highly rated papers go to market. The hypothesis whether or not there is a market for lower rated papers is pure conjecture. It has yet to be tested by the market," CEO of Bond Pricing Agency Malaysia Sdn Bhd Meor Amri Meor Ayub said.
Mohd Razlan and Yeah are hoping bond guarantee issuer Danajamin, set up this year by the government to provide credit enhancement and market access, will help bridge the expectation gap of supplier of funds and sukuk issuers.

(This story appeared in The Malaysian Reserve on Oct 12, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Unicorn eyes Dubai’s Bank Islam stake, says CEO

Bahrain's Unicorn Investment Bank is interested in buying Dubai Group's stake in Malaysia's Bank Islam Malaysia Bhd and plans to issue sukuk in Saudi Arabia before the end of the year, its chief executive said yesterday, reports Reuters (Oct 11, 2009).
Dubai Group, an investment vehicle owned by the ruler of Dubai, said in Oct 1 it is reviewing its options for the 40% stake in Malaysia's second largest Islamic bank as it shifts its focus closer to home, it said.
"We could be interested," Majid al-Sayed Bader al-Refai told Reuters in a phone interview when asked whether the Islamic investment house was interested in the stake. He didn't elaborate whether Unicorn was in talks with the Dubaibased bank.

Unicorn already tried to acquire a stake in the bank in 2006. It said in 2008 it planned to spend around US$2 billion (RM6.78 billion) on acquiring banks, including in Asia.
Al-Refai said yesterday banking valuations had dropped considerably since then, likely lowering the amount Unicorn would spend on buys. "We're in strong discussions with two to three institutions," he said. "We're interested in the Gulf and Malaysia", he said when asked where these institutions were located.
The emerging US$1 trillion (RM3.39 billion) Islamic finance industry has grown on a five-year long oil boom that ended last year and has yet to see its first wave of consolidation. It lacks lenders large enough to compete with the Islamic windows of global conventional banks in investment banking and debt arranging services.
"It is our intent to launch a sukuk in Saudi-Arabia during the fourth quarter," Refai said. He declined to provide an amount. Refai had told Reuters in April Unicorn planned to launch a US$425 million sukuk during the second or third quarter. The Gulf Arab sukuk market is slowly recovering after being hit by the global liquidity freeze with Kuwait Projects Co's (KIPCO) US$500 million sukuk issued last week being the first private sector issue to international investors from the region this year.
Refai also said Unicorn was not interested in making any private equity acquisitions in the United States at present. "The way the markets are at the moment we're not interested in making deals outside the Gulf at this time," he said.
Unicorn was part of a private equity consortium that bought Qatar Engineering and Construction in September for about US$110 million from Qatar Shipping Co. Qatar America Asia Consortium (QAAC) and The First Investor (TFI) acquired a 41% stake each in the company. Qatar First Investment Bank (QFIB) is also part of the consortium. Refai said Unicorn holds a 10% stake in the consortium.

Swiss Reinsurance gets retakaful licence in KL

By Jason Ng
SWISS Reinsurance Company Ltd received a composite licence to write retakaful business and has opened a so-called dedicated operation in Kuala Lumpur.
The licence, granted by Bank Negara Malaysia, will allow Swiss Re to offer both family and general retakaful solutions to clients worldwide, according to the company's website yesterday.
"This new licence will allow us to consolidate and enlarge the scope of our efforts by also providing general retakaful insurance," Swiss Re said in the statement, adding that the retakaful operation would be headed by Marcel Omar Papp.
The global takaful market could reach US$7 billion (RM23.75 billion) by 2015, Swiss Re said of the future prospects of the business and in 2007, some US$1.7 billion worth of takaful premium were written.
Takaful is an insurance concept based on Islamic principles, providing mutual cooperation, between groups of participants. While the Quran does not object to the concept of insurance, the conventional model of insurance involves the element of gharar (uncertainty), maisir (gambling) and riba (interest), all of which are forbidden in Islam.

(The Malaysian Reserve, Oct 9, 2009, Page 1)

Cagamas plans to sell more sukuk

By Jason Ng
Cagamas Bhd, the national mortgage corporation, expects to sell more sukuks this year amidst the low interest rate environment.
Demand for sukuk, or Shariah-compliant bonds, presently outstrips supply within the market with the credit spread narrowing between conventional and the Islamic bonds, according to Cagamas CEO Steven Choy.
"Sukuk can sell better too due to the wider investor base," he said at the sidelines of the Malaysian Capital Markets conference in Kuala Lumpur yesterday. Cagamas, the second largest issuers of debt papers after the Malaysian government, aims to sell RM3 billion worth of sukuk as well as conventional bonds to meet its target of RM12 billion by this year end.
Some RM18 billion worth of bonds were issued by Cagamas amid the global credit crunch last year, far from a record level of RM25 billion back in 1999. The market presently "is awash with liquidity" and as investors hunt for bargains, the prices of sukuk have risen to the levels of conventional bonds, according to a bond analyst.
"Despite the narrowing difference, sukuk has an edge here as investors generally feel that demand would rise as foreign funds, particularly from the Middle East, return to the market," the analyst said.
Foreign investors bought about 15% from the total bonds sold by Cagamas, Choy said.

Sukuk made up about 60% of total issuance within the Malaysian market, according to recent data from the Securities Commission.
Cagamas was reported to be looking at floating rate notes to attract investors concerned about the possible rising interest rates. "[...] we believe interest rates have plateaued and may be on the way up," Cagamas' head of treasury and capital markets Angus Salim was quoted as saying. Floating rate notes are bonds that pay out coupons plus an interest based on the accepted market benchmark rate.

(This story appeared in The Malaysian Reserve on Oct 9, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Port of Tanjung Pelepas eyes govt-guaranteed sukuk

The Port of Tanjung Pelepas plans to issue RM1 billion to RM2 billion of governmentguaranteed Islamic bonds to fund its expansion, a source familiar with the deal said yesterday. The paper will have maturities of up to 10 years, said the source, who asked not to be identified as the deal has not been publicly announced, reports Reuters (Oct 8, 2009).
It said another source said the paper would be issued by the end of the year, adding that Port of Tanjung Pelepas was not immediately available for comment.
The Port of Tanjung Pelepas Islamic bonds, or sukuk, come after an earlier RM5 billion governmentguaranteed bond issue by the Terengganu Investment Authority, the investment arm of a Malaysian state. Bankers say the Malaysian government will be raising more funds through statelinked firms as it ratchets up spending to woo foreign investment as well as to pull its trade-dependent economy out of a recession. Malaysia's economy was officially forecast to shrink 4% to 5% this year but the central bank has said this estimate would be revised, after gross domestic product fell by a smaller-than-expected 3.9% in the second quarter from a year ago. Port of Tanjung Pelepas is 70%-owned by Malaysian infrastructure group MMC Corp and is located at the southern end of the Malacca Straits, Asia's busiest shipping route. Islamic bonds are usually structured as profit-sharing or lease-based agreements to avoid paying interest, which is prohibited by the Islamic religion. Sukuk issuance plummeted 56% to US$14.9 billion (RM50.56 billion) in 2008, according to Standard & Poor's, but there are early signs that a global economic recovery is bringing some issuers back to the market.

Monday, October 12, 2009

Call to review interest in court judgements

By Habhajan Singh
The provision for High Court judges to grant interest upon judgment needs to be looked into as far as Islamic finance is concerned, a former senior Malaysian judge told an international conference. Interest is highly frowned upon in Islamic law as it is deemed to be riba, an element considered haram in Islam.
In Malaysia, the Rules of Court allows the court to make an order of interest of up to 8% from the date of judgment until the date of full payment. This also involves Islamic finance, banking and takaful cases adjudicated by the same set of courts as with conventional banking and insurance matters.
"This provision was made long before the existence of Islamic banking in Malaysia. It was meant for all judgments. No amendment has been made until today, for application to Islamic banking cases," said former chief of justice Tun Abdul Hamid Mohamad when presenting a paper at the Islamic Financial Services Industry Legal Forum 2009.
The two-day forum, which ended on Sept 29, was organised by the International Financial Services board (IFSB), the Kuala Lumpur-based international standard-setting body. IFSB aims to promote and enhance the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors. Abdul Hamid was a speaker at one of the session together with Taylor Wessing UAE partner Hasan Rizvi and UK’s Bird & Bird partner Dr Charles Proctor. It was chaired by Roberta Calares who is Dubai Financial Services Authority’s (DFSA) legislative counsel and director in policy and legal services division.

Discussing the issue, Abdul Hamid recollected that at a seminar four or five years ago, a bank officer complained that the civil court was giving interest in Islamic banking cases.
"My reply was: If you don’t want it, don’t ask for it. Don’t blame the court for giving it when you ask for it. The rules allow the court to give it, you ask for it, on what ground is the court going to refuse it?"
"But, that is not the problem, really. The real problem is this: so long as the provision is there, when the court makes an order, it is in the form of interest, which is prohibited. "If it is not asked for or is refused by the court, it may encourage the judgment debtor to delay payment of Islamic banking or a takaful judgment sum, because whether he pays it now or ten years later, he still pays the same amount," he said in his paper entitled
"Interlink/interface between civil law system and Shariah rules and principles and effective dispute resolution mechanism’.
He noted that on May 26, 2005, and Aug 24, 2006, the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) had made a ruling that it is permissible for the Islamic banking institutions to get an order of compensation of up to 8% of the judgment sum.
However, it may only take for itself an amount equivalent to the actual loss, which is calculated based on the annual average for overnight weighted rate of the Islamic money market of the preceding year. The rest should be given to charity.
"This should be made a rule of court. After all, the Central Bank of Malaysia Act 2009 has now formally recognised the dual financial system that Malaysia has been having over 40 years. It’s about time that other laws and procedures follow suit," he said. On another matter, Abdul Hamid noted that there is no effective alternative dispute resolution mechanism for Islamic banking, Islamic finance and takaful cases in Malaysia, but the civil court system remains relevant.
"But, I do not think that it really matters. I think that the present system is workable under the present circumstances and within the ambit of the existing constitutional provisions. "In fact, in my view, the civil court system remains relevant, indeed irreplaceable.
"This is more so, when we consider the various remedies that only the civil court can offer to enforce the judgments, e.g, bankruptcy, winding-up, order for sale and others. Civil court judges are familiar in this area of laws," he said.
He also said that he does not see the necessity to call for the amendment of the Constitution, "another popular response but, quite often, without really understanding the problems to be solved and what solutions to offer".

(This story appeared in The Malaysian Reserve on Oct 5, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

HSBC Bank Malaysia announces new CEO

HSBC Bank Malaysia Bhd has announced the appointment Mukhtar Hussain as its new deputy chairman and CEO subject to regulatory and board approvals.
Mukhtar will succeed Irene M Dorner, who will embark on a new role as the president and CEO of HSBC Bank USA in early 2010.
Dorner has been in Malaysia since May 2007 and a key driver in the continued business success of HSBC Malaysia.
HSBC Malaysia said in a statement on Monday that Mukhtar has been with the HSBC Group since 1982. He has held a number of senior management positions both in London and the Middle East.
His recent roles have been as the global CEO of HSBC Amanah, the Islamic financial services division of HSBC and CEO of global banking and markets, Middle East and North Africa.
In his new position, Mukhtar will retain his dual role as global CEO of HSBC Amanah and, based in Kuala Lumpur, will continue to oversee the global expansion of this important business.
It is intended with this move that HSBC Group will continue to build an Islamic banking hub in Malaysia to reflect opportunities both domestically and internationally.

(This story appeared in The Malaysian Reserve on Oct 7, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

SBI plans Islamic fund, expansion to KL

Japan's SBI Holdings Inc plans to launch an Islamic investment fund worth US$112 million (RM385 million) as early as next year and to set up an online brokerage firm in India, the financial services conglomerate's CEO said.
SBI, which generates about half of its revenues from asset management as well as from its brokerage and investment banking business, plans to shore up these core segments by accelerating investment in Asia's emerging countries, reports Reuters (Oct 6, 2009).
Speaking to reporters at the Reuters Wealth Management Summit in Tokyo, SBI CEO Yoshitaka Kitao said the company is keen to expand its presence in Islamic financial markets such as Indonesia, Malaysia and the Middle East.
"The Islamic financial industry will likely keep growing, and we would like to play a part in that," the wire agency quoted Kitao.
SBI's Islamic fund, expected to be held equally with another partner, would initially be formed with about ¥10 billion (RM385 million), the report added.
"Islamic funds with their portfolios carefully chosen by Shariah experts are highly appreciated by pious Muslim investors. By forming such a fund, we would like to attract money in and around the Middle East," Kitao said. "We would like to invite other investors once the fund is up and running," he added.
SBI, which is also planning to set up a fund in South Korea and is interested in buying companies there, had a total of ¥500 billion in assets under its asset management business as of June.

Khazanah pays RM525m for stake in Fajr Capital

Khazanah Nasional Bhd has invested US$150 million (RM525 million) for a 25% stake in a the newly-formed Islamic investment firm, Fajr Capital Ltd, which will also be jointly owned by the sovereign investment bodies of Abu Dhabi and Brunei and a Saudi-based private firm.
Khazanah said Fajr Capital has raised US$588 million after the first round of funding from its shareholders and will focus on providing Shariah-compliant financial services and complementary opportunities in major Muslim regions.
The investment firm, to be based in the Dubai Financial Centre with offices in Kuala Lumpur and London, will be an active and enabling investor in its portfolio of companies with the aim of helping to optimise performance through best-in-class products, service standards, technologies and Shariah expertise.
The move by Khazanah to participate in the Islamic investment firm signals a recent rise in the joint establishment of investment funds by Malaysia and countries in the Middle East.

Last week, the government announced it was setting up a US$2.5 billion fund with Saudi Arabia's PetroSaudi International Ltd while Minister of International Trade and Industry Datuk Mustapa Mohamed yesterday said efforts were underway by Khazanah and the Qatar Investment Authority to set up a US$1 billion joint investment fund.
For Fajr Capital, Khazanah's partners in the investment firm are the Abu Dhabi Investment Council, Brunei Investment Agency and Saudi-based The Mohammad & Abdullah Al Subeaei Investment Co (MASIC). Khazanah's managing director Tan Sri Azman Mokhtar said the venture into Fajr Capital would provide cross linkages between Malaysia and key Muslim markets and lay the foundation for a stronger economic cooperation.
"Islamic financial services is a key priority for Malaysia, and Khazanah's participation in Fajr Capital reflects our commitment to this area.
"This partnership also embodies Malaysia's deepening links with the Middle East and broader Muslim world — regions that are important sources of capital and attractive markets for us to invest in," he said in a statement yesterday.
Azman is a member of Fajr Capital's board of directors, which is chaired by Sheikh Ebrahim Khalifa Al-Khalifa, who is the chairman of the accounting and auditing organisation for Islamic Financial Institutions.
Khazanah said Iqbal Khan, formerly the founding chief executive of HSBC Amanah, has been appointed as CEO of the investment firm.
Other senior members in the company's management team include former BIMB Holdings Bhd CEO Datuk Noor Azman Aziz, while management team members include former executives at HSBC Amanah, Citigroup and ABN Amro.
"The global crisis has highlighted the need for an ethical and community-based approach to investment.
The Islamic financial services indust ry i s st rategical ly positioned to fulfill this need in our target markets.
"We see these markets as our home and wish to work with local partners and indigenous management to grow our portfolio companies and to increase the overall market share for Islamic financial services," Iqbal said in separate statement by Fajr Capital yesterday.

(This story appeared in The Malaysian Reserve on Oct 7, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

CERT to hold Islamic Finance Forum 2009 next month

The Centre for Research and Training (CERT) is collaborating with the Malaysian Takaful Association, Messrs Hisham, Sobri & Kadir and the International Institute of Islamic Finance to host the 6th Kuala Lumpur Islamic Finance Forum (KLIFF) 2009 from Nov 2-6.
KLIFF 2009 aimed to be bigger and better with more participation from local, regional and international speakers and delegates with special interest in Islamic banking and finance. Various events will also be held in conjunction with KLIFF 2009 including the 5th International Convention on Takaful & Retakaful, the 4th KLIFF Shariah Forum and the KLIFF Awards, CERT said in a statement.
Prime Minister Datuk Seri Mohd Najib Razak is expected to officiate the forum. Minister in the Prime Minister's Department Tan Sri Nor Mohamed Yakcop is scheduled to officiate the Islamic Finance Awards while Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah will launch the Shariah Forum.
CERT said KLIFF 2009 is expected to gather a pool of industry experts to share their views and experiences in developing Islamic banking and finance around the globe.
Some 20 distinguished speakers will make their presentations such as Sheikh Nizam Yaquby of Bahrain, A Rushdi Siddiqui (Global Director, Islamic Finance Thomson Reuters), Dr Aznan Hasan (Shariah Advisor, Bank Negara Malaysia) and Dr Mohd Daud Bakar who is CEO of International Institute of Islamic Finance.

(The Malaysian Reserve, Oct 7, 2007)

Khazanah, QIA to form joint investment fund

DOHA • Efforts are underway by Khazanah Nasional Bhd and the Qatar Investment Authority (QIA) to establish a joint investment fund, International Trade and Industry Minister Datuk Mustapa Mohamed said yesterday.
He disclosed that Khazanah officials were already in talks with their counterparts in Qatar and more follow-up meetings have been suggested.
"I hope Khazanah will draw up several strategies and recommendation for the further perusal with Qatar authorities. "What's certain is Qatar is very keen to invest in Malaysia.
They need concrete proposals from Malaysia and we are confident Khazanah Nasional and others are drawing up definite proposals for the consideration of the QIA," he said.
It was reported in January that Tun Abdullah Ahmad Badawi, who was then Prime Minister, on a visit to Qatar, had had indepth discussions on the establishment of a US$1 billion (RM3.43 billion) investment fund by both countries.
Datuk Seri Dr Rais Yatim, who was then Foreign Minister, was reported to have said that the fund has been agreed upon at the policy level. The aim of the fund is to get both countries to plough capital in certain investments, either in Malaysia or Qatar. Investments from Qatar in Malaysia, at present, include a 70% equity in Asian Finance Bank and a 49% stake in Pavilion Mall in Bukit Bintang, Kuala Lumpur. Mustapa is leading a weeklong trade and investment promotion mission to Qatar, Egypt and Saudi Arabia. After Doha, the delegation will depart for Cairo before making a stop-over in Jeddah and Riyadh.
In Doha, the Malaysia-Qatar Joint Trade Committee held its inaugural meeting on Monday, focusing on efforts towards enhancing trade and economic ties.
The meeting was jointly chaired by Mustapa and Qatari Acting Minister of Business and Trade and Minister of State for International Cooperation Dr Khalid Bin Muhammad Al Attiyah. — Bernama (Oct 6, 2009)

Bursa Malaysia may launch bonds trading platform

Bursa Malaysia said yesterday it plans to launch a secondary trading platform for bonds, including Islamic papers, to spur retail interest in its debt market.
Malaysia's bond market is dominated by the state pension fund and insurers, and Islamic bonds in particular are rarely traded, with limited supply prompting investors to hold their paper until maturity.
The country has the thirdlargest bond market in Asia ex-Japan after China and Korea, and traders estimate daily trading volumes average about RM2.35 billion.
Bursa Malaysia's secondary bond trading platform would boost transparency and meet demand from retail investors, said the bourse's global head of Islamic capital markets Raja Teh Maimunah Raja Abdul Aziz.
"The only way to bring retailers on would be through the exchange," she said in an interview.
"The over-the-counter market is not transparent in terms of pricing so you cannot get the retailers to come on.
"We have to have a bear and bull model. Fixed income is a defensive investment." She said retail investors now invest in bonds through unit trust funds but some players want direct access to the market, which would allow them to make their own investment selections.
The bourse is doing research and development on the platform, she said, but did not give a target date for its rollout. Head of fixed income research at CIMB Bank Lum Choong Kuan said a trading platform could tackle the problem of illiquidity.
"If there's more liquidity, you will see people issuing more Islamic bonds and the buy-and-hold mentality may not be a hindrance to market liquidity," he said.
Globally, the secondary Islamic bond market has seen thin trading volumes, due partly to theological differences on the extent to which Islam allows the sale of debt.
The Hanafi school of thought does not allow debt to be sold to third parties, but some schools sanction it under certain conditions, including that the price must be paid on the spot and that the sale must not lead to interest. — Reuters (Oct 6, 2009)

Dubai Financial snubs Bank Islam’s share offer

By Alfean Hardy
BANK Islam Malaysia Bhd's plan to raise RM540 million from the sale of Islamic convertible redeemable non-cumulative preference shares (Islamic CRNCPS) to its shareholders hit a snag following the decision by Dubai Financial Group LLC not to take up the offer. Dubai Financial holds a 40% stake in the country's oldest Islamic bank.
BIMB Holdings Bhd holds a 51% majority stake while Lembaga Tabung Haji (Tabung Haji) holds the remaining 9%. Announced in April 2009, the exercise, which qualified as Tier-1 capital, would have allowed Bank Islam to strengthen its capital base and fund the expansion of its business.
Both BIMB and Tabung Haji have accepted the offer for their entitlements amounting to RM275.4 million and RM48.6 milllion respectively, raising the bank's total Tier-1 capital by an additional RM324 million.

In a statement yesterday, Bank Islam said Dubai Financial, which is part of the Dubai Group, had not taken up the offer to subscribe to its port ion of the Islamic CRNCPS amount ing to RM216 million.
It said it would now offer the firm's portion to BIMB and Tabung Haji on a pro-rated basis.
In a press statement late yesterday evening, Bank Islam said its major shareholder has made a commitment to subscribe to the 216 million CRNCPS rejected by Dubai Financial.

Meanwhile, in a seperate statement of its own, Dubai Group said that it was in the process of reviewing its strategic options relating to its stake in Bank Islam. "Bank Islam boasts strong attributes across the Asian banking sector, and the capital raise offer came in reflection of the successful transformation plan implemented by Bank Islam since 2006.
"However, following the reassessment of its investment strategy, Dubai Group has redirected its competitive advantage closer to home, namely the GCC and the greater Middle East region. Malaysia does remain a key market for future investments," it added.
According to Dow Jones and other reports, market speculation has been rife over the past year that Dubai Financial would sell its stake to Malayan Banking Bhd's Islamic banking subsidiary Maybank Islamic Bhd. Commenting on such speculation, Bank Islam, in its media release, said it would welcome any strategic partner who can add value to the bank's business and growth plans if and when Dubai Financial sells its stake.
However, Dubai Group has routinely dismissed such talk, stating that it remained a strategic long-term investor in Bank Islam. According to media reports in the Middle East, Dubai Group itself has been hard hit by the global financial crisis and has already cut 70% of its staff since last November.
The firm, which is owned by the ruler of Dubai, Sheikh Mohammed Rashid, via Dubai Holdings, has also indicated plans to reduce its holdings that included investments in firms like Egypt's Commercial International Bank and propery developer Mazaya Saudi.
There are also plans in the pipeline, according to the reports, of consolidating the back offices of Dubai Group and Dubai Investment Capital to reduce costs. The firm has already completed the merger of its property and business park assets into two new units.

(This story appeared in The Malaysian Reserve on Oct 2, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Malaysia, Saudi Arabia to set up RM9b venture

Malaysia and Saudi Arabia are chartering a new era of economic cooperation with the setting up of a US$2.5 billion (RM8.73 billion) jointventure (JV) that will spearhead the flow of foreign direct investments (FDIs) from the Middle East.
The operations of the JV company will be undertaken by PetroSaudi International Ltd (PSI) and 1Malaysia Development Bhd (1MDB). The companies said in a joint statement issued yesterday that the JV will make strategic investments in highimpact projects in Malaysia. According to Prime Minister Datuk Seri Mohd Najib Razak in a Bernama report, Malaysia will put up US$1 billion of the fund for the joint venture, with Saudi Arabia providing the balance.
He said the government had sourced the money from a recent bond issuance.
"The money is already in place. It was confirmed by the central bank governor (Tan Sri Dr Zeti Akhtar Aziz) yesterday (Sept 29)," Mohd Najib, generate RM1 billion worth of spillover projects involving two hotels, a shopping mall and an office building from the development of LegoLand Malaysia. This mixed development will be built on 18ha of land surrounding the theme park.
"We are talking to potential partners and hope to announce three more partners by the end of this year," she said. LegoLand Malaysia, the first LegoLand theme park in Asia, which is to be built on a 22ha site, is expected to be completed by April 2012.

(This story appeared in The Malaysian Reserve on Oct 1, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

Tabung Haji deposits at RM23b; 2.25% bonus

The deposit in Lembaga Tabung Haji has come a long way, hitting RM23 billion from a mere RM152,000 donation from the government during its initial set up in 1963.
It also began with the handling of only 5,000 haj performers in 1963, but today it handles about 26,000 pilgrims a year, Prime Minister Datuk Seri Mohd Najib Razak said in Kuala Lumpur yesterday.
"Tabung Haji aims to make 50% of the Muslim population in Malaysia as depositors with the bank. I am confident Tabung Haji will make a reality of this plan in a short time," he said when officiating the new TH logo.
As of July this year, TH had 5.09 million depositors.The prime minister also called on government linked companies (GLCs) to regularly update their business strategies in order to face changes in the global business world. "Today, we are happy that Tabung Haji is launching its new logo which will reflect the dynamism of the company and its readiness to face whatever business challenges in the future," Najib said.
Meanwhile, Tabung Haji has declared a 2.25% interim bonus payout amounting to RM465 million for the first half of its financial year ending Dec 31, 2009 to eligible depositors. The interim bonus payment is the first for TH and will be credited to the accounts of eligible depositors on Oct 5.
In a statement today, TH said that last year, it announced a five percent bonus payout and in 2007, made its maiden special bonus payout of 2% in addition to a five percent bonus payment. TH started paying a bonus to its depositors in 1966 — three years after its inception. In that year, TH made a three percent bonus payment to about 22,000 depositors. — Bernama (Sept 31, 2009)