Bank of Korea joins Islamic finance body IFSB

South Korea's central bank has joined the Islamic Financial Services Board (IFSB), one of the main standard-setting bodies for Islamic finance, as regulators across Asia build closer ties to the growing industry, reports Reuters (28 March 2014).

Guidelines issued by the Kuala Lumpur-based IFSB are gaining prominence as the industry takes a greater share of the banking sector in several majority-Muslim countries and expands into new markets.

The Bank of Korea is the 59th regulatory body to join the IFSB, bringing total membership to 184, joining the likes of the central banks of Luxembourg and Japan and the monetary authorities of Hong Kong and Singapore.

The move could augur stronger links between South Korea and Islamic finance hubs in southeast Asia, the report added.

SEE IFB STATEMENT HERE.

THE REPORT GOES ON:

South Korea's Export-Import Bank of Korea already has a bond programme in Malaysia that can issue Islamic bonds, or sukuk, although it has yet to tap the market.

This week, Hong Kong lawmakers passed a bill that will allow the AAA-rated government to raise around $500 million via sukuk, or Islamic bonds.

In a separate statement, the IFSB also adopted a revised guideline on the supervision of Islamic finance institutions, helping tighten regulatory oversight of industry practices.

The latest update complements stricter Basel rules, agreed globally to make banks safer after the 2007-09 credit crisis.

In the past two years, the IFSB has issued separate guidelines on liquidity risk management, stress testing and capital adequacy.

S Korean, Malaysian firms plan RM3.2b infra project

A South Korean manufacturing conglomerate and a privately-owned Malaysian firm are in the midst of setting up a joint-venture to build an infrastructure project worth more than US$1 billion for the Malaysian government deploying Islamic funds which will be raised by the Korean party.

The South Korean firm would provide its expertise in manufacturing technology and the funds needed for the project, said South Korean-based Shariah Finance Co Ltd director for overseas operations Robert Jung-Soo Ryu.

"The South Korean firm is not an Islamic based company but the funding for the whole project will be Islamic. The main financial adviser of this project, I believe, is also an Islamic bank. We are trying to partner with them also, to fund the project to distribute the risk between the banks," he said at the 7th Annual Kuala Lumpur Islamic Finance Forum (KLIFF) in Kuala Lumpur, yesterday

Ryu said a special purpose vehicle would undertake the infrastructure project to be built in Malaysia.

He said the Malaysian firm company which owns the project will hold 51% of the SPV while the Korean firm holds the rest.

"The Malaysian company is already in the industry, however, because of lacking of technology to meet the need of the government, they have approached us to find a right partner in Korea.

"One of the conglomerates in Korea is able to pursue it and join them in a consortium. They will be investing funds to create the joint venture and the facility to meet the needs of the Malaysian government. The Korean firm will bring in the manufacturing technology to undertake the project targeted for completion in 2015," he said.

Ryu, however, declined to reveal the identity of the two companies involved in the deal as discussions with Malaysia's high level government officials are currently underway.

He said the project would take off once the letter of intent (LOI) is ready, adding that they had a meeting high level government officials in Malaysia last week.

"We are looking at the LOI to be ready sometime towards end of this year, maybe November," he said.

On Islamic finance, he said it is developing slowly in South Korea which has a Muslim population of about 135,000 only.

However, the Islamic finance sector in the country is getting support from the government and indirectly from the national pension fund which is interested in investing in Islamic products.

He pointed out South Korea does not have an Islamic retail market and there are no plans to open any retail-related Islamic products in the country.
"We feel that it will be good if we can create Islamic products that non-Muslims also can enjoy," he said.

Ryu said South Korea is currently working on its first sukuk to finance the Jeju Island airport project which is expected to materialise between the middle and end of next year.

"We are working very hard with the government to finance this new airport project which has not passed the government level yet. The government has agreed that some of the funds should be raised in sukuk," he said.

He added no decision has been made on the type of sukuk for the Jeju Island project and the South Korean government is working with Kuala Lumpur-based Islamic finance consultants from Amanie Business Solutions Sdn Bhd, led by Dr. Mohd Daud Bakar, on the sukuk.

Dr Daud has been invited by the South Korean government in January 2011 to discuss details on structuring the sukuk and its timing, he added.

(This story, written by Dalila Abu Bakar, appeared in The Malaysian Reserve on August 5, 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)

Islamic bonds spur interest in South Korea

Now is the time for Korean companies to tap into the rapidly growing $800-billion Islamic capital market, and Malaysia may be one of the best destinations for such companies hoping to raise capital from Muslim investors, said two top financial regulators from Malaysia, reports JoongAng Daily (Nov 21, 2009).
Dato’ Dr. Nik Ramlah Nik Mahmood, managing director of Malaysia’s Securities Commission, and Dato’ Yusli Yusoff, chief executive of Bursa Malaysia Berhad, Malaysia’s stock market operator, said a growing number of Asian companies, including those in Japan and Korea, are expressing interest in issuing bonds based on Islamic principles, which the two said will open a vast new market for the firms.
The two visited Seoul this week to attend the Islamic Finance Conference, jointly organized by Korea Exchange and Bursa Malaysia to help coordinate more financial cooperation among investors and companies in Korea and in Muslim countries.
“By selling sukuk [Islamic bonds], you will be able to attract not just conventional investors but another group of investors who would not have invested in conventional bonds, because they are required to invest in securities structured in line with Islamic financial principles,” Dato’ Nik Ramlah said in an interview with JoongAng Daily. “You’re not excluding existing investors, but you’re opening up to new groups. That’s a major attraction of Islamic bond issuance.”
Sukuk is an Islamic financial certificate working in a similar way to a bond in Western finance but structured in line with Shariah, Islamic religious law.
Since Shariah prohibits the use of interest-bearing securities, a sukuk issuer sells the certificates to the investors, who then lend the certificates back to the issuer for a predetermined “rental fee.” The issuer then signs a contract to promise to buy back the bonds later at par value.

Oil money
With investors in Western countries still reeling from the recession, a growing number of investors are considering a plunge in the Islamic financial market, which has been hit less severely by the crisis and whose economies still boom with oil.
HSBC recently estimated rising liquidity in Arab regions due to the oil boom would prompt the volume of Islamic bonds issued across the world to jump from about $7 billion this year to $14 billion in 2010.
Dato’ Yusli said he has met with officials from several Korean companies planning to issue sukuk and local stock brokerages trying to take part in the process.
“The companies are quite ready. I’m still waiting for some laws to be changed in Korea, then we will be able to assist them,” he said. “The whole legal, accounting, regulatory and systematic frameworks to issue sukuk are very well established in Malaysia.”
Dato’ Yusli also stressed that the modus operandi of Islamic financial principles offers a fresh antidote to today’s global financial system.
“After the crisis, investors are looking for far safer types of investment, and more of them are allocating funds for companies qualified under the ESG [environmental, social and corporate governance],” he said, referring to the global investment criteria for investing in companies with socially responsible management. “We believe that Islamic financial principles are compatible to these types of criteria, for instance, under Islamic law, investing in gambling, weapons or alcohol is prohibited.”
During the Seoul conference this week, Citigroup said Korean industries like autos, construction, manufacturing, retail, energy, machinery, telecom and transportation will be encouraged to attract Muslim investors.
Around 50 top local companies like Samsung Electronics, GS Caltex, SK Telecom, Lotte Shopping, Posco and Korea Airlines and Hyundai Heavy Industries as such examples.
Dato’ Yusli said he has met with representatives from several companies on the list to discuss possible bond sale deals.
Dato’ Nik Ramlah also echoed the same sentiment, saying the Islamic financial principles, which put more priority in transparency and clarity in financial securities’ underlying assets, will offer more assurance to the global market that learned the lesson through the subprime mortgage crisis.
“In Islamic financial products, every conception or underlying contract should lead to the actual products, so you don’t have products that are derivatives on top of derivatives on top of other derivatives, where you don’t know what’s the real underlying asset,” she said.

Malaysia's RHB plans Korean sukuk roadshow-paper

Malaysia's RHB Investment Bank will launch a RM500 million-RM1 billion (US$139.5 million-$279.1 million) Islamic bond issue in a roadshow next month, a newspaper reported on Monday, reports Reuters.
"We have seen quite a bit of interest for the sukuk already, from the Middle East, London and New York," the bank's managing director Chay Wai Leong was quoted as saying by the Edge Financial Daily, adding that the issuance would be a multi-currency sukuk.
The newspaper said the bank, which is part of Malaysia's fourth-largest lender RHB, is looking to arrange a sukuk for South Korean oil firm GS Caltex, the report added.