Building Islamic Bonds – Bahrain’s Economy to Receive a Welcome Boost

Global Arab Network – With recent news of a planned new Islamic bond issue, Bahrain’s economy may be set to receive a welcome boost. The issuance may also come as a boon for the Gulf state’s financial services sector, which is a central part of its Economic Vision 2030, the long-term plan to promote the country as a leading regional and international financial centre, Global Arab Network reports according to OBG.

Bahrain faced ratings downgrades after civil unrest in February, followed a month later by the delay of a planned $1bn sovereign bond issue after debt insurance costs hit 18-month highs.

However, on September 19, state news agency BNA reported the government had set up a framework to issue up to BD3.5bn ($9.3bn) in bonds, earmarking the proceeds of the bond sale to help bridge its budget deficit, which stands at about 5% of GDP.

“The finance minister is authorised to issue in accord with Bahrain’s Central Bank up to BD3.5bn ($9.3bn) in public treasury bonds … called development bonds and Islamic sharia-compliant instrument in the kingdom or abroad,” said a decree issued by Bahrain’s King Hamad bin Isa Al Khalifa, BNA reported.

Indeed, Islamic bond issuances in particular could prove to be the strong point of Bahrain’s efforts to attract financing.

The king gave no timeframe for the issuance, but during a September 25 interview at the International Monetary Fund (IMF) in New York, Central Bank governor Rasheed Al Maraj said that Bahrain had hired Standard Chartered, Citigroup and BNP Paribas to advise on a $1bn sukuk (Islamic bond) sale, scheduled for October.

Global sales of sukuk climbed to more than $17bn in 2011, compared with more than $10bn in 2010, according to data compiled by Bloomberg.

“Our reading into the market is that there is still growing demand for sukuk, especially from Asian markets, regional markets in the Middle East and possibly European markets,” Al Maraj said. “There has been an absence of sovereign issuances of sukuk for quite some time. Now the market is ready to have a new issuance.”

According to Al Maraj, Bahrain has received positive feedback from investors for the planned sukuk issue, whose maturity could range from seven to 10 years.

Following fast on the heels of the government’s announcement of the bond sale, too, Albaraka Banking Group – Bahrain’s biggest publicly traded Islamic lender – and its Turkish unit unveiled a plan to raise a total $500m in sukuk this year, its CEO, Adnan Ahmed Yousif, said in a September 24 interview with Bloomberg.

Albaraka Turk Katilim Bankasi is in the process of hiring banks to manage the sale of about $200m in Islamic bonds by November, Yousif said. He also added that the parent bank may sell about $300m by the end of 2011.

Yousif predicted strong demand after Albaraka Turk raised $350m in a syndicated loan in September. “There are many institutions that [would] like to diversify their portfolio to include sukuk,” he said. “We asked for $150m and we got $350m.”

Albaraka is looking to expand its presence in countries such as Algeria, Egypt, Tunisia and Pakistan, as well as Indonesia, where Yousif said an acquisition is planned. The proceeds from the bond sale will be used to finance these planned expansions. Albaraka is currently targeting about three institutions. “Most banks available for sale are very small and they are traditional banks that we are going to acquire and convert into Islamic banking,” he said.

Not to be outdone, Bahraini Islamic investment bank Elaf Bank has revealed that it has sukuk mandates worth $1.5bn. During an October 10 conference, Elaf Bank’s chief executive, Jamil Jaroudi, told reporters the mandates were from three Malaysian firms. Although Jaroudi declined to name the issuers, he did reveal that the sukuk are being planned for the first quarter of 2012 and are of varying sizes, ranging from $100m to $1.2bn.

Initially, Elaf Bank will be the exclusive arranger of the three sukuk in Malaysia, but it is possible that other banks could be allowed to join the deal at a later date. The company secured a licence to open a branch in Malaysia in June.

These and other positive developments in the kingdom’s banking sector were highlighted during an October 9 reception hosted by the Bahrain Association of Banks (BAB) for Bahrain’s delegation to the annual IMF/World Bank conference in Washington.

“The kingdom of Bahrain is indisputably a regional leader in the financial sector and BAB has played an important role in consolidating this position, despite the downturn of the global economy,” BAB chairman Abdulkarim Bucheery said in a press release after the gathering.

No matter how the bond issuances fare, Al Maraj thinks investors should not write off Bahrain’s economic and financial prospects. “Bahrain has been a financial centre for almost four decades. We have gone through many crises before,” he said. (OBG)

Emirates steals the limelight

DUBAI – Emirates airline on Sunday made the 12th edition of the Dubai Airshow, the biggest ever biennial aviation gathering, more bigger as the carrier placed a huge order for 50 Boeing 777s worth $18 billion (Dh66 billion, which is the single biggest order in almost 100 years history of the US airplane maker.

The agreement was signed in the presence of His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

The airline also announced an option to buy another 20 777s as part of the order and that would push the deal’s total value to $26 billion (Dh95.4 billion).

“The Boeing 777-300 ER aircraft plays a pivotal role in Emirates development of a modern fleet to meet the demand for global air travel for the future,” said Emirates Airline and Group Chairman and Chief Executive Shaikh Ahmed bin Saeed Al Maktoum after signing the agreement with Boeing Commercial Airplanes president and chief executive officer Jim Albaugh.

The new agreement further establishes Emirates as Boeing’s best customer for the 777 as the Dubai-based airline already has 95 777s in service and already another 40 on the order books.

“The 777 has really served Emirates very well in terms of the seat cost, especially when we see that the fuel price today is very high,” Shaik Ahmed told reporters.

“With 61 777 300-ERs currently in service, this record breaking dollar value order is another milestone for Emirates and affirms our strategy to expand our long haul destinations and continue to excel as a world leading carrier, connecting the world to Dubai and beyond,” he added.

An analyst termed the deal timely and said the airline needs more aircraft to enhance its capacity and A350 delay is also another reason.

“The order is two parts reflection. Firstly its as a result of A350 delays and Emirates needs something…. to grow business. And I think the second key point to remember is that Emirates has a lot of ageing aircraft and they are going to withdraw from the fleet in the next five to 10 years. They need something to replace and 777 is better option,” FBE Aerospace founder and chief analyst Saj Ahmad told Khaleej Times at the airshow.

Shaik Ahmed said the airline’s decision to place new order for 777s has nothing to do with the delays on the A350. “It’s part of the Emirates expansion. We always find new markets,” he added.

In addition to new 777s orders from Boeing, the carrier has 73 Airbus A380 superjumbos on order, as well as 70 Airbus A350s. The airline is the largest single customer of Airbus’ long-haul airliner A380 with a purchase list of 90 units.

The airline is financially strong enough to fund the purchase of new aircraft as part of ongoing expansion plans by one of the world’s fastest growing airlines, Shaikh Ahmed told reporters.

The airline chief said he expects better results by the group in the second half of this year despite the global slowdown.

Earlier this month, Emirates President Tim Clark indicated that the carrier was looking at the more resilient Islamic finance market to fund aircraft deliveries as international banks back out of plane deals because of the eurozone debt crisis, Reuters reported.

European lenders, especially French banks, which have been major financiers for Emirates’ aircraft deals with Airbus and Boeing, have become risk-averse because of the crisis, Clark said.

“We were kind of planning for finance from European banks… but it’s just a bit difficult now,” said Clark. “We still have the Islamic finance market to go with and other funding options are always open for us,” he said, adding that issuing an Islamic bond or sukuk was “not out of the question.”

The signing was also witnessed by Emirates airline senior executives; Tim Clark, President, Emirates airline and Adel Al Redha, Emirates Executive Vice-President, Engineering and Operations as well as David Joyce, President and Chief Executive Officer of GE Aviation, whose GE 90-115B engine will power the 777-300 ER aircraft.

“This is an extremely proud moment for us as it not only underscores Emirates’ on going confidence in the 777 but also makes this the single largest order in dollar value in Boeing’s history,” said Albaugh from Boeing.

The 777-300ER will be operated in a three-class configuration with eight First Class suites, 42 Business Class seats and 310 Economy Class seats and offers an additional cargo payload of 20.1 tonnes.

“As the largest operator of the 777 in the world, Emirates has played an important role in development of the airplane and its input over the years has been invaluable in the development of the 777 programme,” he added.

“Today’s 777-300 ER order gives Emirates the ability to replace some of our older existing aircraft allowing us to maintain our leadership in fuel efficiency as well as providing our customers with an updated superior product,” said Clark.