Friday, January 27, 2012

France’s First Sukuk Hampered by Debt Crisis

Jan. 25 (Bloomberg) -- France’s efforts to sell the nation’s first Islamic bonds and attract Shariah investors from the oil-rich Persian Gulf are being hindered by Europe’s debt crisis as borrowing costs rise.

The euro region’s second-biggest economy, which put in place the legal framework to allow banks and other private issuers to sell Islamic bonds in 2009, had its top AAA credit rating cut by Standard & Poor’s on Jan. 13 on concern policy makers are failing to address the effects of the debt crisis. Yields on two-year French government notes have climbed 10 basis points since the one-step reduction, according to data compiled by Bloomberg.

“Just because the legal framework is in place doesn’t mean the economic and financial situation is conducive to an issuance of sukuk in France,” Jawad Ali, the Dubai-based global deputy head of the Islamic finance practice at law firm King & Spalding, said in a Jan. 19 interview. “Investors aren’t looking at Europe and saying there are a lot of opportunities. They are looking at Europe and saying there is a lot of uncertainty.”

The cost to protect France’s debt from default is almost twice that of Germany, the largest economy in the euro area and the only one to retain a stable outlook on its AAA status from, S&P.

[By Khalid Qayum and Dana El Baltaji, Bloomberg]

Fitch:Sukuk demand still outweighs supply

Jan 23 - Fitch Ratings says plans by sovereigns outside the Middle East and other largely Islamic regions to tap the sukuk market could meet pent-up demand from Islamic institutional investors and banks to diversify their bond holdings, making the sukuk market a useful source of additional funding over time.

The opportunity to buy shariah-compliant debt from investment grade sovereigns that have not yet tapped the market would be likely to generate strong investor appetite.

Supply has got off to a strong start in 2012, with the General Authority for Civil Aviation of Saudi Arabia bringing a government-guaranteed deal that could pave the way for more issuance from the Kingdom, including the sovereign.

Issuers from outside the Islamic world could contribute more eventually to the increase in supply as they diversify their investor base. Sovereigns would be well placed to tap demand, as they are unlikely to have to struggle to find assets that qualify to back shariah-compliant bond issuance. Savings in the oil-exporting countries of the Middle East will continue to grow at current oil prices, supporting greater demand from investors.

South Africa invited banks to pitch for a government sukuk advisory and structuring mandate in December. Bloomberg reported in mid-January that Ireland, which is due to return to the bond market in 2013 under the terms of its EU/IMF assistance package, is considering sukuk issuance.

Sukuk supply from sovereigns outside the Middle East and South-East Asia would be a much-anticipated development. In 2004, the German state of Saxony-Anhalt issued EUR100mn sukuk, and in 2009, France amended its civil code to develop Islamic finance. Anticipated issuance from France, the UK and Luxembourg has not materialized.

The sukuk market is growing rapidly. 2011 issuance was USD84.4bn, a 62% increase on 2010, according to Zawya Sukuk Monitor. But supply is still overwhelmingly from Muslim countries or countries with a Muslim majority population. Malaysian issuers accounted for more than half of 2011's supply by volume. Between them, issuers in Malaysia, Qatar, the UAE, Indonesia and Saudi Arabia provided more than 90%.

Despite the strong year-on-year increase in supply, the sukuk market remains a fraction of the size of the global bond market. The lack of a standardized deal structure has constrained growth, which has not kept pace with demand from Islamic institutional investors and banks.

CIMB Islamic appoints Habibah as director

CIMB announced the appointment of Habibah Abdul as independent non-executive director of CIMB Islamic Bank Bhd effective Jan 19, 2012. Habibah was previously the group partner of the audit and business advisory division in Ernst & Young.

HeiTech Padu to replace BSN core banking system

PHOTO CAPTION: HI-TECH BANKING SYSTEM: ICT solutions provider HeiTech Padu Bhd has won a RM63.6m bid to provide a replacement core banking system for government-owned Bank Simpanan Nasional Bhd (BSN). (From left) BSN general manager/chief executive Datuk Adinan Maning, Secretary General of Treasury Tan Sri Dr Wan Abd Aziz Wan Abdullah and HeiTech executive director Safiee Mohammad at the signing ceremony in Kuala Lumpur (pic: Ismail Che Rus)

ICT solutions provider HeiTech Padu Bhd has won a RM63.6 million bid to provide a replacement core banking system for government-owned Bank Simpanan Nasional Bhd (BSN).

The deal will see HeiTech Padu and its partners BML Istisharat Sdn Bhd and Juris Technologies Sdn Bhd undertake the delivery of the core banking and loans origination and collections systems for both the conventional and Islamic banking products as well as their services.

BSN chief executive officer Adinan Maning said it took the bank two years to decide which company to award the contract to, as it was a "difficult" decision.

The change, however, was deemed necessary as the current system in use by the bank was slow in getting products to market, compared to other banks.

"Hopefully in two and a half years' time, maximum, we will be able to have a system that will help us to be very efficient and improve our service level," he told reporters after the signing ceremony in Kuala Lumpur yesterday.

The total amount invested collectively is approximately RM100 million, said HeiTech group CEO Harris Ismail.

The systems will be implemented in all BSN branches nationwide over a period of 24 months and will include a Shariah-compliant module.

Harris said the contributions from the deal would make up approximately 10% of HeiTech's revenue for the current financial year.

"We don't expect to make a profit from this as we consider it to be part of our national service," he said.

Harris said HeiTech expects the system and module to contribute positively to the company's future earnings once the intellectual property patent is obtained, as the system could be implemented in takaful and insurance.

For now, however, the deal with BSN is exclusive, he said.

[By Farah Saad, The Malaysian Reserve; Jan 18, 2012]

CIMB-Principal Islamic established CIMB-Principal Islamic Ireland

PHOTO CAPTION: Caption (left to right): Dato’ Charon Wardini Mokhzani, Chief Executive Officer, CIMB Investment Bank; Dato’ Sri Nazir Razak, Group Chief Executive, CIMB Group; HRH Crown Prince of Perak, Raja Dato' Dr Nazrin Shah Ibni Sultan Azlan Muhibbuddin Shah, Financial Ambassador of Malaysia International Islamic Finance Centre (MIFC); Tan Sri Zarinah Anwar, Chairman, Securities Commission Malaysia and Jim McCaughan, President and Chief Executive Officer, Principal Financial Group, at the establishment of CIMB-Principal Islamic’s International Funds in Ireland.

CIMB Group Holdings Bhd’s joint venture company, CIMB-Principal Islamic Asset Management Sdn Bhd (CIMB-Principal Islamic), has recently obtained the approval from the Central Bank of Ireland to establish CIMB-Principal Islamic Asset Management (Ireland) Public Ltd.

In a statement by the bank on Jan 16, it said that CIMB-Principal Islamic Ireland, the first Malaysian-based international Islamic funds platform domiciles in Dublin, will act as an investment manager of a Dublin-based Undertakings for Collective Investment in Transferable Securities (UCITS) for Islamic funds.

“Under the newly-launched platform, CIMB-Principal Islamic is registering three new UCITS-compliant equity funds which are the Islamic Global Emerging Markets Fund, the Islamic Asia-Pacific ex-Japan Fund and the Islamic Asean Equity Fund.

“These funds will eventually be registered and distributed in seven jurisdictions, the US, Switzerland, Germany, Saudi Arabia, Bahrain, United Arab Emirates and Singapore. CIMB-Principal Islamic is the investment manager and master distributor for the funds,” it said.

CIMB-Principal Islamic is a 50:50 joint-venture Malaysian-based Islamic global asset management company between CIMB Group Holdings Bhd and Principal Global Investors.

CIMB Investment Bank Bhd chief executive officer Datuk Charon Wardini Mokhzani said institutional and retail investors globally will be able to see CIMB-Principal Islamic’s asset management track record with the new Islamic fund range in Ireland.

“If the funds do well, not only will they attract investment but institutional investors may also appoint CIMB-Principal Islamic to manage their discretionary mandates too.

“This pioneering initiative to internationalise Malaysian Islamic asset management capabilities clearly supports the Malaysia International Islamic Financial Centre’s (MIFC) aspiration to be a global hub for Islamic finance,” he said.

[By Farah Adilla, The Malaysian Reserve; Jan 17, 2012]

Nadhatul Ulama to explore biz opps in Malaysia

THE world's largest non-governmental organization (NGO) Nadhatul Ulama (NU) of Indonesia has embarked on a journey to explore business opportunities in Malaysia and help forge bilateral economic collaboration with interested Malaysian investors, to foster stronger relationship between the two nations in the long run.

In a recent visit to Malaysia, NU secretary-general Drs Marsudi Syuhud shared with The Malaysian Reserve that the NGO believes its doctrine of ‘blessings for the whole world’ is also meant to be seen in the economic development extension.

In the past, NU has played an integral role in the social collaboration between the two countries, said Marsudi, quoting religious students and teachers’ exchanges as a prime example.

“Now, we are seeking partners in economic development as well. We are also here to rectify the perception Malaysian investors have on the difficulties of initiating and carrying on business in Indonesia,” he said.

Marsudi said these correction moves would create a new bridge of forging economic and business relationships between Indonesia and other Southeast Asian nations as well.

Embarking on what it described as the first of many collaborations to come, NU is exploring opportunity in the media business, and sees the Redberry group as a role model to duplicate the business back home.

For a start, NU and Redberry will join forces to set up a call-centre for the former's ASPEP (Assosiasi Pembedayaan Ekonomi Pesantren or loosely translated as the association for the economic development of Islamic boarding schools) – a wing of NU, representing 22,000 schools in Indonesia. 

NU director for international development Nor Shafizal Sakhuan Husain said the call-centres would create employment opportunities for NU students and help them earn a decent income.

“A career in tele-sales will also help these students boost their mastery of the English language and help them converse better,” he said.

Commenting on the collaboration, Redberry Contact Centre Sdn Bhd chief executive officer (CEO) Chandran Perumal said one such function of the call-centres would be to promote telemarketing of life insurance and family takaful products.

Chandran said the company is projecting an annual revenue of RM20 million to RM30 million from the partnership, which would also comprise sharing of technology, knowledge and skills.

“We will be able to better ascertain the volume of business after its take-off in the first-quarter of 2012,” he said.

In this collaboration, Chandran said ASPEP would play the role of human capital feeder system, where NU graduates will be recruited to meet the human resources demand.

Established on Jan 31, 1926, NU is the oldest and largest Muslim social-religion organisation in Indonesia, with more than 70 million members in Indonesia alone.
The NGO commands strong influence in the Indonesian political arena, boasting current President Susilo Bambang Yudhoyono as one of its members.

NU governmental and private partnerships are represented with offices around the world, including Malaysia, Australia, Europe, the US, the UK and Middle East.
Marsudi said with more than 100 sub-organisations under its umbrella, NU focus was now more diversified.
“Other than issuing edicts, concentration is also being given to several issues like economic development, healthcare, education and training,” he said.

In the area of economic development, NU has its hands extended in oil and gas, shipping, mining, banking and finance, and and information and communications technology.

Redberry has a strategic marketing partnerships with The Malaysian Reserve and The Malay Mail. As the exclusive concession holder for some of Klang Valley's major highways and its major Peninsular Malaysia airports, Redberry’s out-of-home solutions business, which includes Focus Media, Pointcast, MagiqAds and Meru Utama, reaches over 900,000 people every day along with millions of visitors to Malaysia every year.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 16, 2012]

PLUS to issue RM30b sukuk

HIGHWAY concessionaire Projek Lebuhraya Usahasama Bhd (PLUS) is set to issue RM30.6 billion sukuk on Thursday – touted to be the largest global sukuk and Malaysia’s single largest bond issuance to date.

In a press release Jan 8, PLUS said the sukuk issuance was a follow-through of the privatisation of Southeast Asia largest toll operator PLUS Expressways Bhd (PEB) and four other highway concessionaires. 

“The proceeds from the sukuk issuance will be utilised to part finance the purchase of assets, liabilities, businesses, undertakings and rights of five toll concessions – Projek Lebuhraya Utara-Selatan Bhd, Expressway Lingkaran Tengah Sdn Bhd, Konsortium Lebuhraya Butterworth-Kulim Sdn Bhd, Linkedua (Malaysia) Bhd and PBSB,” said PLUS, adding that the proceeds will also be utilised to fund capital expenditure, working capital and other general funding requirements.

The proposed sukuk has been accorded a “AAA” rating by the Malaysian Rating Corp Bhd (MARC) with the repayment profile ranging from five to 27 years and the weighted average yield at approximately 5%.

CIMB Investment Bank Bhd has been identified as the financial adviser, sole principal adviser and lead arranger, and joint lead manager for the transaction.

Commenting on the transaction, UEM group managing director and chief executive officer Datuk Izzaddin Idris said the sukuk issuance demonstrated PLUS' role in further enhancing Malaysia’s prominence in international Islamic capital markets, in line with the government's aspiration to establish the country as an Islamic financial hub.

PLUS is a wholly-owned subsidiary of PLUS Malaysia Sdn Bhd, an investment vehicle in which UEM Group Bhd owns a 51% stake and the Employees Provident Fund (EPF) 49%. The government has a “golden share” in PLUS to preserve its rights in strategic matters involving the country's national infrastructure projects.

In a newsreport last November, PLUS Malaysia was said to have crossed the final hurdle of the proposed acquisition of the expressway operators and has reached a consensus with the government on the revised terms of supplementary toll concession agreements.
The revised terms was reported to include five years of a toll freeze effective from 2011 for North-South Expressway (NSE), NSE Central Link (Elite), Malaysia-Singapore Second Crossing (Linkedua), Butterworth-Kulim Expressway (BKE) and Penang Bridge (P1B), and a slower pace of toll rate hike thereafter for all except P1B, the toll rates of which will remain the same through its concession period.

The new deal also involved the streamlining of the expiry dates for all the concessions to Dec 31, 2038, as well as a waiver of compensation owed by the government (comprising the RM2.9 billion outstanding balance to PEB and up to RM3.6 billion of future monies due from the five-year toll freeze).

According to EPF, it foresees investment in the toll concession to produce a dividend yield of between 5% and 6% over the concession period. Internal rate of return on its investment, on the converse, would be at least 10% as per the national pension fund manager's guidelines.

According to PLUS, it will also look into non-toll revenue like billboard advertisements to boost income, besides expecting a conservative traffic growth of 3% per year, for its expressways to generate increasing toll collections.

“There will also be continuous efforts to control costs to boost PLUS' bottom line, but expenses on the maintenance of expressways, especially in terms of ensuring safety, will not be compromised. The expenses on maintenance are expected to average in excess of RM800 million a year,” PLUS was reported as saying.

PEB, with a market capitalisation of around RM22.2 billion, was previously ranked among the top 20 largest companies in the local stock market. Its delisting saw the toll concession sector not being represented at all in the FBM KLCI.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 9, 2012]

StanChart Saadiq sees local Islamic banking penetration up 3%

STANDARD Chartered Group's Islamic banking arm Standard Chartered Saadiq Bhd sees the penetration rate of Islamic banking in Malaysia to rise 3% to 25% this year, parallel to the global trend.

StanChart global head of Islamic banking Wasim Saifi said Islamic banking is growing rapidly in the international financial markets, and the bank sees the same applies in Malaysia.

Without disclosing specifics, Wasim said there are several push factors, among which include the perception that Islamic banking has gotten sophisticated by well-discerned banking customers.
 He added that Islamic banking have become simpler and widely accessible.

“Islamic banking also projects stability to both Muslims and non-Muslims alike.” 

“We see ample opportunities to help our customers and potential customers worldwide do the switch from conventional banking. The fact that Islamic banking asset represents only 1% of the global conventional banking's, there is vast growth potential, especially with over one billion Muslims worldwide,” he told The Malaysian Reserve in a recent interview.

Indonesia, for example, has the most Muslim population and yet, its Islamic banking penetration rate was still 3%, he said, quoting Pakistan as another populous Muslim nation with only 9% patronizing Islamic finance.

“We will definitely see growth momentum in the next two to three years,” said Wasim, adding that the StanChart Saadiq is looking to spread its wings to the African continent.
For Malaysia, StanChart sees the progress made in policy framework, comprehensive regulations and product diversification have encouraged the acceptance of and switch to Islamic banking locally.

To meet the increasing demand, StanChart is looking at opening up more Saadiq branches, with eight in sight in the near-term.
According to its website, StanChart claimed to be the first international bank in Malaysia to offer Islamic banking products in 1992, with its Saadiq arm officially launched in 2008. StanChart has footprint in over 70 countries.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 9, 2012]

Malaysian Sukuk to Fuel Record Quarterly Sales

Malaysia’s record RM30.6 billion ($9.7 billion) corporate sukuk sale from PLUS Bhd. And offerings planned to follow may help carry Islamic bond sales to their best quarter ever in the first three months of 2012, reports Bloomberg.

The highway operator’s offering is more than the $7.3 billion total of Shariah-compliant securities sales from companies worldwide last quarter. Issues from Malaysia’s state-owned power producer Sarawak Energy Bhd. and Albaraka Turk Katilim Bankasi AS, the Turkish unit of Albaraka Banking Group BSC, may push sales past the previous all-time high of $10 billion set in the final quarter of 2007.

Average yields for global sukuk dropped 75 basis points last year to 3.99 percent, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Malaysian companies are seeking funding as the nation starts a 10-year $444 billion program to build roads, railways and power plants.

“With the record offering from PLUS, it will definitely be a bumper quarter for sukuk sales,” Badlisyah Abdul Ghani, Kuala Lumpur-based chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Group Holdings Bhd., said in an interview with Bloomberg on Jan 3. “The relatively low yields and strong demand will ensure that the deal pipeline remains healthy this year, especially in Malaysia.”

Offerings of Islamic bonds in Malaysia, the world’s biggest sukuk market, rose 51 percent last year to RM45 billion, according to data compiled by Bloomberg. Global sales climbed to $26.5 billion in 2011, compared with $17.5 billion the previous year.

Kuala-Lumpur-based CIMB, the top arranger of sukuk in 2011, has some deals this quarter involving refinancing and fresh funds for infrastructure projects that were delayed from the last three months of 2011, Badlisyah said, declining to elaborate. The Southeast Asian nation’s government is pursuing a $444 billion development program to build railways, roads and power plants.

“Given the infrastructure financing under the $444 billion development plan, sales of sukuk in Malaysia will be better in 2012 than last year,” he said.

The difference between average Islamic bond yields and the London interbank offered rate, or Libor, narrowed 16 basis points to 273 in 2011. Offerings from the six-nation Gulf Cooperation Council, which comprises Bahrain, the United Arab Emirates, Kuwait, Saudi Arabia, Oman and Qatar, climbed to $7.3 billion in 2011 from $4.5 billion in 2010.

“Global sales of Islamic bonds will continue given the growth in the GCC,” Mohamed Azahari Kamil, chief executive officer at Kuala Lumpur-based Asian Finance Bank Bhd., said in an interview yesterday. “There’s still a lot of appetite as Middle East fund managers are hungry for Shariah-compliant instruments for their portfolio diversification.”

[By Elffie Chew, Bloomberg, Jan 4, 2012]

KFH Research: Financial market to see 25% rise in global sukuk issuance

THE global financial market is expected to see strong growth of sukuk issuance for 2012 - about 25% to 30% - based on the momentum registered last year, said the research arm of Kuwait Finance House (KFH).

In the latest publication of its "Global Sukuk Report 2012", KFH Research Ltd said the strong growth will be driven by global economic activities; accommodative monetary policies; continued sovereign fund-raising to support economic growth as well as the revival of private sector projects.

"The International Monetary Fund projects world gross domestic product growth to remain at 4% for 2012, supported by strong growth in Asia, the Middle East and other emerging markets," said KFH Research, highlighting that this will ensure the revival of infrastructure projects on both the conventional and Islamic capital markets.

"More sovereign issuers are anticipated to tap the sukuk market in 2012 as governments will continue to raise funds to support economic growth and fund fiscal deficits," the research house reported, adding that new emerging market players and non-Islamic issuers will likely jump onto the bandwagon as well.

Other traits that will characterised this year's rising sukuk issuance will include, among others, increasing demand and popularity for Shariah-compliant products and structures post-global financial crisis and initiatives taken by various jurisdictions in developing legislative and regulatory frameworks, as part of efforts to attract foreign investments, would allow these new players to explore the sukuk industry for the first time.

KFH Research said a number of new jurisdictions have also shown interest in issuing sukuk, such as Egypt, Senegal and Nigeria; while France, Japan and Hong Kong are expected to continue to make regulatory inroads for future issuances.

"The demand for sukuk was previously limited outside Asia and the GCC (Gulf Cooperation Council) until a few years ago.
"Potential new sukuk markets that will emerge in 2012 include Oman, Thailand and the CIS (Commonwealth of Independent States - former Soviet republics.

"Elsewhere, non-Muslim western financial institutions and corporates in the US, the UK, European Union and Central Europe are also becoming more actively involved in this industry, and are interested to issue sukuk to refinance existing corporate debt or to finance working capital and expansion activities, including acquisitions.

"As in the year 2011, we expect new issuances in 2012 to be dominated by government institutions, and construction and financial services industry," KFH Research concluded.

[By Mohd Rashdan Jamaluddin, The Malaysian Reserve; Jan 9, 2012]