Westpac dips into Islamic finance

Westpac is set to offer a commodity-trading facility aimed at overseas investors that operates under the principles of Islamic law, reports The Sydney Morning Herald (Feb 12, 2010).
The move by Westpac, which targets Islamic institutions, coincides with a federal government attempt to promote involvement in Islamic financing.
The Trade Minister, Simon Crean, will launch a study today outlining opportunities for the financial services sector to tap into sharia-compliant investment and banking markets. It follows the recommendation last month by a government-backed finance taskforce to overhaul tax rules to ensure Islamic financing products receive equal treatment, the report said.
The Australian Financial Centre Forum, which released a broader report into the nation's finance sector, highlighted Islamic financing as a potential funding source for the nation's banks, the report added. "Accessing this market could increase the diversity of the sources of capital available to Australian businesses and consumers," the Australian Financial Centre Forum said in its report.
Mr Crean said Islamic financing was a plank in the government's strategy to make Australia a financial hub in the Asia-Pacific region. ''Continued growth in major Asian economies will create a need for resources-related services and infrastructure, which are ideal assets for forms of Islamic financing," he said.

India’s L&T looking at property development JV

By Habhajan Singh
Larsen & Toubro Ltd (L&T), India’s largest engineering company which has invested more than US$225 million (RM771.75 million) in Malaysia over the last three years, is looking at striking a partnership in the area of property development with a local corporation this year.
L&T chairman and managing director A M Naik said it is now in talks with a Malaysian company to jointly develop property projects in India.
Naik, who is in Malaysia on an official visit, declined to name the company as the talks are in an early stage. At the same time, he said L&T’s joint venture with SapuraCrest Petroleum Bhd had just received a barge for an oil and gas (O&G) project.

"In the first week of March, we are taking over the new vessel for offshore installation," he told reporters in a press conference in Klang yesterday.

Naik said Petronas has given a contract worth US$35 million annually for the next five years to the JV, adding that it will be for an initial three years.
"We will be very busy for the next five years with this initial investment of US$175 million between the two sides," he said.
In April 2007, offshore O&G gas services provider Sapura-Crest had announced that it had formalised plans with L&T to form a JV company in India with L&T to build, own and operate a heavy lift cum pipe laying vessel.
The JV was part of the long term strategy for SapuraCrest that had in the earlier two years prior to the announcement been on an aggressive regional expansion drive, it added.
Last month, Naik told reporters in Mumbai that the L&T and SapuraCrest JV had bagged orders worth US$500 million to undertake installation of platforms and pipelines in offshore.

On the operations of the barge, Naik said it would spend 60% of its time in Indian waters and 35% in Malaysian waters, and the remainder time transiting between the two countries.
He said the barge would be deployed on the Petronas project from March 15 onwards, adding that "this season it will work with Petronas, the next season it will move to India".
When Prime Minister Datuk Seri Mohd Najib Razak visited India recently, Naik said he had a one-onone meeting with Najib for some 45 minutes, after which L&T had handed over to its JV with SapuraCrest a US$75 million contract "as a starting job" for the new barge.

Naik also outlined the company’s aggressive expansion plans for Tamco Switchgear (Malaysia) Sdn Bhd, a switchgear gear manufacturer which is its largest investment in Malaysia to date.
In October 2007, L&T signed an agreement to pay US$108 million to acquire the company in auction in what was billed as L&T’s first big cross-border acquisition, which was completed by April 2008. Naik expects the switchmakers revenue to rise US$300 million by 2013, from a revenue of around US$105 million when it took over the company.

(This story appeared in The Malaysian Reserve on 10 Feb 2010. 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)

Danajamin to launch first wrapped issue

by Bhupinder SinghDanajamin Nasional Bhd says its first credit enhanced debt issue is imminent. The financial guarantee institution is now undergoing the final phase of documentation and expect to close the transaction by the end of this month, without revealing any name or underlying value of issue.
The market was expecting the wholly government owned company to announce its first deal last year when companies were more in need of financing and had submitted with the necessary ratings to support, but nothing has yet came to pass.
"The delay was due to negotiations with the customer as well as the finalisation of certain issues, including those relating to Shariah compliance. Some proposals had to be declined as they do not meet our underwriting criteria or were not sufficiently structured to address the respective risks.
Danajamin will only wrap companies that fulfil our credit criteria. We need to ensure that our product and the deal is well structured to sufficiently protect Danajamin’s interests," the company said in a written reply.

While investment bankers tell The Malaysian Reserve they have had discussions with Danajamin and made submissions on behalf of clients, they are still unclear on issues like how the coupon rate to be paid by the company for a successful Danajamin guaranteed issue will be calculated and paid.
In an interview last year Danajamin chief executive officer Ahmad Zulqarnian Onn said the successful companies would be required to pay the coupon total upfront for the entire tenure but bankers say this may be taxing on the debt issuer.
"Our guarantee fees are determined based on risk and will naturally vary from company to company based on our assessment. Our normal process entails providing indicative fees to companies once sufficient information such as cashflow projections and security arrangements is made available to us," Danajamin said.

Danajamin on its part said it had made clear on certain principles — that its underwriting work if not being subordinated to other creditors, not guaranteeing bonds where there is not specific utilisation and not guaranteeing equity financing – all of which have been a reason for it to decline a number of applications.
Hence, the pioneer Danajamin wrapped issue this month is eagerly awaited by the market as it will give a benchmark to investors, companies, investment bankers and rating agencies on Danajamin’s fee structure and underwriting criteria.
Since the wrapped issue will carry a AAA rating and investor money guaranteed by Danajamin, many expect selling the debt paper will not be a problem. Danajamin’s maximum underwriting limits to is currently set at RM500 million for secured issuance and RM300 million for unsecured issuance.
With most of the two economic stimulus package money already utilised to support economic recovery, the slow starter Danajamin, which was set up last May with a paid up capital of RM1 billion, need to move faster to strike a balance between to need to be prudent with the role of supporting the relatively immature bond market where investors had become averse to risky debt paper rated A and below.

(This story appeared in The Malaysian Reserve on 8 Feb 2010. 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)

AFB targets RM600m loans for cross-border deals

by Lee Cherng Wee
Asian Finance Bank Bhd (AFB) aims to loan out RM600 million to cross-border deals in 2010 as it increases its exposure in financing international projects. The bank’s cross-border financing is expected to make up 40% of RM1.5 billion that the bank aims to loan out this year, said AFB’s CEO Datuk Mohamed Azahari Kamil in a press conference last Friday.
This year’s portion of crossborder financing is expected to increase more than double from 22% of its RM1 billion approved loans in 2009, he said. For 2010, Azahari expects the bank to sustain a positive performance after achieving its maiden profit in the third quarter of 2009.
"We have done a lot of deals in the market, particularly on new credits that we have extended. We are working very closely with Malaysian parties for the development of their projects in the Middle East," he said.
Azahari added that AFB is currently providing funding to a Malaysian company for the exploration and production of oil in Oman and also assisting the development of infrastructure with respect to toll operations on the Luzon Expressway in the Philippines.
AFB also has a representative office in Indonesia that provides funding to infrastructure and oil and gas projects, he said. "There are another two to three deals in the pipeline and we are working on the feasibility of the projects. There are also interest from Middle Eastern parties to invest in oil refineries in Malaysia," he said.
On expansion, AFB plans to open a new branch in Kuching in the second half of this year, pending approval from Bank Negara Malaysia. Azahari said the Kuching office will tap into the markets in Brunei, Sabah, Sarawak and Kalimantan. AFB currently has two offices in Kuala Lumpur and Johor Baru.

(This story appeared in The Malaysian Reserve on 8 Feb 2010. 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)

KFH Malaysia to grow retail banking biz

by Habhajan Singh
Kuwait Finance House (Malaysia) Bhd, the Islamic banking outfit which had created a niche in the area of corporate and investment banking since it began operations more than four years ago, is now giving retail banking a serious look.
The bank announced the move to grow its retail banking business at a recent meeting attended by branch and sales teams from all over Malaysia.
"Retail banking will be a key engine of growth for KFH Malaysia moving forward. We will steadily increase our retail banking product and services range to include others that will be sure to excite the market," said KFH Malaysia deputy chief executive officer Ab Jabar Ab Rahman.
This would mark a departure from the huge concentration in the area of investment banking, an area that is still expected to be a forte for the Kuwaiti-based bank in the near future, as it grows beyond its seven branches presently.
KFH Malaysia’s business model was almost similar to Asian Finance Bank Bhd, another Kuala Lumpur-based Islamic finance outfit controlled by parties from the Middle East. It, too, had gone strong into investment banking, with retail banking playing second fiddle.
However, another foreign Islamic banking player, Al Rajhi Banking & Investment Corporation (Malaysia) Bhd, had a totally different strategy. The Saudi Arabia banking unit had straight gone big into retail banking, making a splash onto the local scene with its aggressive branch opening campaign a few years ago.
KFH Malaysia commenced operations on Aug 8, 2005 and is a wholly-owned subsidiary of Kuwait Finance House KSC (KFH). The parent is billed as one of the world’s largest Islamic banking institutions with a diverse range of products and services, including full-scale corporate and investment banking, commercial banking, retail and consumer banking and asset management.

On the latest move, Ab Jabar (picture) said that retail and consumer banking will be playing a key role in 2010 and beyond.
"There is a growing demand for a ‘back to basics’ approach to bank products and services - our current range of retail deposit and financing products has always been simple and straightforward and that is appreciated by many," he said.
At the moment, KFH Malaysia offers a range of Islamic banking products and services which include deposits and investment accounts, home and personal financing as well as priority banking services to address the needs of mass affluent and high net-worth individuals who seek steady rate of returns on their investments.
For the first nine months for 2009, KFH Malaysia posted a net profit of RM4.62 million on the back of RM364.92 million in operating revenue, at the group level.
In a note for the financial results, KFH Malaysia had noted that notwithstanding the ‘more difficult operating environment, the Group and the Bank will continue to focus on its business growth strategies through new and competitive product offerings, products cross selling as well as exploring new business opportunities within the region and the Middle East, while remaining vigilant on the impact of the global economic crisis to its businesses and profitability’.

(This story appeared in The Malaysian Reserve on 4 Feb 2010. 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)

Azerbaijan to participate in Islamic finance development conference

The Cbonds Information Agency plans to hold an international conference on the "Development of Islamic Finance Tools in CIS Countries," the Baku Stock Exchange reported. The conference will be held within the annual Kazakh finance forum.
Roughly 200 representatives of Kazakh financial institutions, corporations, and state agencies are expected to attend, as are representatives from Russia and other CIS countries. The conference will be held with the support of the RFCA and the Association of Financiers of Kazakhstan.
Representatives of financial institutions in Kazakhstan, Russia, the Middle East and Asia specializing in Islamic financing will be invited to the conference.

Experts pitch for Islamic banking in India

With the global financial crisis putting the spotlight on "casino capitalism" of the West, leading scholars and experts from the Arab
world on Thursday (Feb 4) pitched for interest-free Islamic banking as a solution and its introduction in India, home to the world's largest Muslim minority.
Tracing the genesis of the global meltdown to "greed and unscrupulousness" of financiers and speculators in the West, Umar Chapra, adviser Islamic Development Bank, Jeddah, said the crisis resulted from "excessive and imprudent lending."
"Islamic finance puts emphasis on equity and justice. Islam discourages debt and the charging of interest on debt," Chapra said at an India-Arab conference, organized by the Indo-Arab Economic Cooperation Forum and Institute of Objective Studies, according to a report from New Delhi by Indo-Asian News Service, or IANS.

THE REPORT CONTINUES:
Chapra stressed that under the Islamic system, financial capital is deployed for creating development in society and is consistent with the principles of Islamic law (Sharia) which prohibits the payment or acceptance of interest for the lending and accepting of money respectively.
Pitching for Islamic banking in India, Abdul Azim Islahi of Islamic Economics Centre, King Abdul Aziz University, at Jeddah, pointed out that some of the earliest research on Islamic banking came from scholars at Osmania University in Hyderabad and Allahabad University in Uttar Pradesh.
Agreed Monzer Kahf, consultant of Islamic Banking and Finance in Qatar. "Islamic finance is not Islamic; it belongs to all of humanity," he said.
India is keen to attract investment from oil-rich Gulf countries in its burgeoning infrastructure sector and is, therefore, looking afresh at proposals for introducing Islamic financial services in the country.
Recently, K Rahman Khan, deputy chairman of Rajya Sabha, India's upper house of parliament, had told the Financial Times that the ruling Congress Party is proposing reforms to the finance ministry, the Reserve Bank of India and Securities and Exchange Board of India to allow for the introduction of Islamic financial services.
A large number of around 150 million Muslims in India prefer to stay away from commercial banks due to religious proscriptions against interest.
Making a case for Islamic financial products in India, Shailendra Kumar, CEO of Eastwind Capital Advisors, said that before the meltdown, most of the funds from the Gulf were going to the US, UK and Malaysia. Now, after the meltdown, India, the world's second fastest growing economy, is seen as a safe investment bet in the Gulf, he said.
Many companies from the Gulf are wary of investing with gambling or alcohol companies, activities proscribed by Sharia.
Speaking at the seminar, Minister of State for External Affairs Shashi Tharoor Wednesday called for greater FDI into India from the Gulf region, which has around $3-4 trillion disposable revenues.
The values of interest-free Islamic banking are finding greater recognition. China, which has around 80 million Muslims, recently gave its first licence for Islamic banking to the Bank of Ningxia.

Bank Islam to spend RM24m for expansion

By Jason Ng
Bank Islam Malaysia Bhd, the country’s oldest Islamic lender, is spending RM24.2 million over two years to bolster its branch network nationwide and set up infrastructure to support its expansion.
At present, the bank has 100 branches and it is "on track" to have a total of 115 branches by 2011 as it plans to open 10 new branches this year as well as relocate and refurbish 14 existing branches, according to chief financial officer Malkit Singh Maan.
"We believe that with the establishment of vast branch network and expansion in electronic delivery channels, it would enhance Bank Islam’s reach to customers and its competitive edge," he told The Malaysian Reserve in an interview recently.
Along with the branch expansion which cost RM7.2 million in 2009, Bank Islam plans to spend a further RM17 million in 2010 to put in additional 72 self service terminals including automatic teller machines, cash deposit machines and cheque deposit machines.
The expansion drive is part of a so-called three-year sustainable growth plan after Bank Islam completed its turnaround plan with three consecutive years of growth after suffering a RM1.3 billion loss after tax at the end of fiscal year 2006.
While profit for the fiscal year 2009 at RM161.88 million was lower than a year earlier, Bank Islam attributed the decline partly due to tax credit received when the bank was making losses. Since the bank started to makes profit since 2007, it had to pay as much as RM66 million in taxation last year.
"Operationally, we are doing well and we are looking at several growth areas to improve further," Malkit said.
With the conclusion of its turnaround plan in 2009, Bank Islam plans to focus on non-fund based income generating businesses of the corporate investment banking, treasury, commercial banking and consumer banking divisions to boost growth.

(This story appeared in The Malaysian Reserve on 2 Feb 2010. 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)

Asia to Drive 24% Growth in 2010 Global Sukuk Sales, CIMB Says

Sales of Islamic bonds may increase 24 percent this year, led by Southeast Asia, as the region’s expansion helps drag the world out of recession, said CIMB Group Holdings Bhd., the leading arranger of such issuance, reports Bloomberg (3 Feb 2010).
Global sales of bonds that comply with the religion’s shariah principles, known as sukuk, will probably reach $25 billion this year, Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Holdings, said in an interview yesterday. Gulf issuance will fall after Dubai World’s attempt to reschedule $22 billion of debt eroded investor confidence, he said.
“Economic growth will trigger the need for funding,” said Badlisyah, whose bank handled 22 percent of global sukuk sales in 2009. “Most sales will come from this part of the world,” with countries including Indonesia and Thailand “moving aggressively to facilitate the industry,” he was qouted by the news agency.
The report said sukuk sales rose to $20.15 billion last year from $14.13 billion in 2008, according to data compiled by Bloomberg. Islamic finance bans the payment of interest and stipulates agreements be based on the transfer of goods or services.
The Islamic finance industry’s assets under management may swell to $2.8 trillion by 2015 from about $1 trillion as Muslim wealth increases, according to the Kuala Lumpur-based Islamic Financial Services Board. The assets of the top 500 Islamic banks expanded to $822 billion last year from $639 billion in 2008, Standard & Poor’s said Feb. 1, it added.
Developing East Asia, which excludes Japan, Hong Kong, Taiwan, South Korea and Singapore, will grow 8.1 percent this year, faster than a November estimate of 7.8 percent, the World Bank said on Jan. 21.

Malaysia Needs Vibrant Stock Market For Islamic Finance Growth

KUALA LUMPUR, Jan 29 (Bernama) -- Malaysia needs to develop a vibrant stock market to attract asset flow and support the growth of Islamic finance, first holder of the International Centre for Education in Islamic Finance (INCEIF) chair of Islamic finance, Dr Abbas Mirakhor, said Friday.
According to Abbas, a stock market that is highly liquid will attract assets from all over the world and fits into the evolution of Islamic finance.
"Malaysia has the ability to attract resources from all over the world. It can achieve this by building on its capacity as a resilient financial sector hub in the region," he said at a public lecture at Bank Negara Malaysia here Friday.
He also said that Malaysia has the potential to be a global financial hub as the centre of gravity of the world economy shift towards the Asian and African regions.
Bank Negara governor Dr Zeti Akhtar Aziz today introduced Abbas as the first holder of INCEIF chair of Islamic finance.
Abbas joins INCEIF following a long and distinguished career as an economist and academician.
He will provide leadership in research and consultancy leadng towards seminal publications on Islamic finance, assist in academic research and supervise dissertations by INCEIF students.
He will also present lectures abroad on behalf of INCEIF as part of the efforts to promote the centre and its programmes. -- BERNAMA