Jafza mandates seven banks for sukuk to part repay old one

Jafza mandates seven banks for sukuk to part repay old one

Dubai’s Jebel Ali Free Zone (Jafza) has picked seven banks to arrange a new Islamic bond, lead managers said yesterday, with at least $500 million likely to be raised to part-repay the firm’s 2012 sukuk obligation.

Along with a $1.25 billion sukuk issued by another state-owned entity, DIFC Investments, due in June, the Jafza redemption was considered crucial to assess the ability of Dubai Inc firms to meet their debt maturities.

Dubai is trying to rebuild credibility with investors who fled the region after state-owned conglomerate Dubai World

shook markets in 2009 with plans for a $25 billion debt restructuring.

Jafza, fully-owned by the Dubai government, mandated Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, Citigroup, Dubai Islamic Bank, Emirates NBD, National Bank of Abu Dhabi and Standard Chartered to arrange a series of roadshows, a document from the lead banks said.

The investor meetings will begin on June 5 in the UAE and then take in Singapore and Hong Kong on June 7 and 8 respectively. Two days of roadshows will also be held in London on June 11 and 12.

A benchmark-sized sukuk will be issued subject to market conditions, the document added, with any issue to come from the Jafz Sukuk (2019) special purpose vehicle — indicating a seven-year sukuk is being proposed.

Benchmark-sized is understood as at least $500 million.

The proceeds from the issue will be used to help refinance the Dh7.5 billion ($2.04 billion) sukuk which had been due to be repaid in November, a source with knowledge of the matter said. Bondholders voted last week to allow Jafza to repay the deal early.

Repayment of the sukuk will come through a mixture of a loan, a sukuk and internal cash.

URL: http://gulfnews.com/business/banking/jafza-mandates-seven-banks-for-sukuk-to-part-repay-old-one-1.1030495

 

Islamic Finance: Islamic Sukuk By Goldman Sachs Causes Debate

A controversial plan by Goldman Sachs to issue an Islamic bond has ignited a wider debate on whether conventional banks in the West should be allowed to engage in Islamic finance.

At a major conference of Islamic scholars and bankers in London this week, much of the public and private discussion was devoted to whether growing Western interest in Islamic finance could damage the industry by compromising its religious principles.

Some participants argued investment banks such as Goldman should be banned from issuing Islamic bonds, or sukuk, because the funds they raised could help to finance other parts of their business that did not comply with sharia or Islamic law.

“A conventional bank, with the exception of multilateral development banks like the World Bank and the Asian Development Bank, should not be allowed to issue sukuk,” said Badlisyah Abdul Ghani, chief executive of CIMB Islamic, the Islamic unit of CIMB Group, Malaysia’s second biggest bank.

“The basic principle of Islamic finance is that you should only finance activities that are consistent with sharia, and conventional rib (interest) is not,” he told Reuters on the sidelines of the Euromoney Islamic Finance Summit.

Other participants said the industry could not bar conventional banks and should focus instead on ensuring that each of their Islamic transactions complied with sharia law.

“The fact that these sukuk are issued by Goldman Sachs or by another Western bank really makes no difference whatsoever as far as judgement of sharia is concerned,” Mohamed Elgari, a prominent Islamic scholar, said during a panel discussion.

“An institution has no religion and therefore cannot be judged on religious grounds. Our judgement is always on the structure of the transaction, and whether it is permissible or not and had the necessary sharia requirements.”

The debate could affect Western access to a fast-growing area of the financial world. Estimated at over $100 billion, global sukuk issuance is still dwarfed by trillions of dollars worth of conventional bonds. But Western banks are becoming more involved in Islamic finance as its pool of wealthy, conservative investors from the Gulf and southeast Asia makes it a stable source of funds during the global financial crisis.

HSBC’s Middle East unit became the first Western bank to issue a sukuk last May with a $500 million, five-year Islamic bond. France’s Credit Agricole said last October it was considering whether to issue a sukuk.

Goldman’s sukuk became controversial partly because for many investors, the U.S. investment bank embodies aggressive, sophisticated Western financial engineering.

It announced in October that it planned to issue a sukuk worth as much as $2 billion based on murabaha, a structure that instead of interest, which is banned by Islamic principles, uses a cost-plus-profit arrangement to pay investors.

Some Islamic finance analysts questioned whether the underlying structure of the sukuk was really murabaha, and suggested Goldman might use the proceeds of its sukuk to fund interest-based banking activities.

They also said the sukuk might violate a ban against pure monetary speculation if it traded between investors on the Irish Stock Exchange, where it would be registered, at levels other than par value.

The controversy has put the top authorities of Islamic finance in a difficult position. Big Western banks such as Goldman could help the industry grow by providing trading liquidity, trained personnel and access to Western investors. But the credibility of the industry could suffer if it is perceived to be manipulated by Western institutions.

Asked about the participation of Western banks, a top official of one of the international bodies which sets standards for the industry replied: “That’s a tough question — there is a sharia-compliant issue.

“It requires a seriousness of purpose and respect of Islamic finance, and if those two are not there, I am not sure how they would participate,” said the official, declining to be named because of the sensitivity of the issue.

He noted that Malaysia’s central bank, for example, stipulated Islamic banking activities could only be transacted by a licensed Islamic bank. But he added that this should not exclude Western banks from all involvement in the industry.

“Western banks can certainly participate in terms of underwriting and helping in structuring the products.

Most participants at the conference said there was unlikely to be any sustained, concerted push within the industry to exclude conventional or Western banks from areas of Islamic finance. Some big Western banks, such as HSBC, already operate well-established Islamic arms offering a range of services.

Any attempt to exclude conventional banks could also be thwarted by the industry’s decentralised structure.

Bodies such as the Malaysia-based Islamic Financial Services Board and the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) set standards which they hope banks will follow, but they cannot impose rules; that is up to national regulators in each country.

Ultimately, therefore, the success of Islamic financial products offered by Western banks is likely to come down to whether investors choose to buy them. The Goldman case suggests they will.

Banking sources in the Gulf told Reuters this week that Goldman, which insists its planned sukuk obeys Islamic principles and will not be used to raise money for interest-based activities, was talking to potential Saudi Arabian buyers and was likely to have no problem in attracting enough demand.

A copy of the fatwa or Islamic ruling behind the Goldman sukuk, which was seen by Reuters, showed five sharia scholars had signed it. The AAOIFI’s guidelines stipulate that at least three scholars advising on a bond programme should approve it in writing before issuance.

However, the Goldman controversy could cause conventional banks to take more steps in future to allay potential concerns over whether they are following Islamic principles.

Aznan Hasan, one of the scholars who signed the Goldman fatwa, said there were no sharia-related problems with the sukuk. The intention to list on the Irish exchange is purely for tax purposes, he said. But he added that Goldman should consider more measures to address doubts.

“I personally think the issue now is what is the mechanism to ensure that it is not traded, and even if it is traded, that it’s traded at par, and they have to come up to us with a mechanism for that,” he told Reuters.

He said Goldman might issue an additional or complementary prospectus to address this aspect and describe how it would ensure proceeds of the sukuk were only used for sharia-compliant purposes. Goldman might also agree to issue a letter to its board of sharia scholars whenever it used the proceeds, or agree to quarterly audits, he added.

“If they can put all the mechanisms in there, then there shouldn’t be any problem,” said Hasan. “The murabaha is not a new one — there is nothing new in the structure.”

Another scholar, Sheikh Edam M. Ishaq, said the Goldman case might lead to institutional reforms in the industry and closer scrutiny of sukuk issues in general.

“There must be some regulatory body to monitor and ensure the compliance of these issues, otherwise sooner rather than later the attraction of sukuk as Islamic liquidity management instruments will lose a lot,” he said.

http://www.huffingtonpost.com/2012/02/23/refile-debate-rages-over-_n_1296351.html?ref=religion

Emirates NBD 'names banks to plan Swiss franc bond issue'

Emirates NBD is planning to issue a Swiss franc-denominated bond, four sources said yesterday.

The lender has appointed banks for the issue, one banking source familiar with the matter told Reuters.

“The bank is looking at it [and] has appointed banks,” source said, declining to name the mandated banks.

Emirates NBD has just over Dh8 billion in debt maturing this year, including a $1.5-billion (Dh5.50 billion) loan due in October.

The bank reported a sharp fall in quarterly profit on Wednesday for a second consecutive quarter on provisioning for bad loans. Its Islamic subsidiary, Emirates Islamic Bank, reopened Gulf bond markets this year with a $500 million Islamic bond, or sukuk, in January, which carried a profit rate of 4.72 per cent.

In 2007, Emirates NBD completed a 100-million Swiss franc (Dh399.20 million) three-year guaranteed floating rate bond which paid 7 basis points over three-month Swiss Libor, according to Thomson Reuters data. Under the terms of a guaranteed bond, the principal and interest is paid by someone other than the issuer.

In the last two years, other Gulf banks have sought to take advantage of a favourable swap rate between the Swiss franc and US dollar, the currency most Gulf currencies are pegged to. Commercial Bank of Qatar, Abu Dhabi Commercial Bank and First Gulf Bank have all tapped Swiss liquidity since 2010.

http://gulfnews.com/business/banking/emirates-nbd-names-banks-to-plan-swiss-franc-bond-issue-1.982120

Kuwait Markets Authority Delists Nine Companies, Qabas Reports

Kuwait’s Capital Markets Authority delisted the shares of nine companies after they failed to correct their status on time, Al-Qabas reported, citing a letter by the authority to the stock exchange.

The companies include Investment Dar Co. (TID), which altered the terms of $5 billion of loans after defaulting in 2009; International Investment Group KSCC (IIG), which missed periodic payments on a $200 million Islamic bond in 2010; and Kuwait National Airlines, which was halted in March last year, the newspaper reported.

Other delisted companies include Safat Global Holding Co., Villa Moda Lifestyle, International Leasing & Investment Co., Network Holding Co., Gulfinvest International Co. and Al-Abraj Holding Co., according to Al-Qabas.

The regulator also gave nine companies until March 31 to “rectify their conditions” or face delisting. These companies include Aref Investment Group (AIG), Kuwait Finance & Investment Co., Aayan Leasing & Investment Co. and Securities Group Co., Al- Qabas said

 

http://www.bloomberg.com/news/2012-02-16/kuwait-markets-authority-delists-nine-companies-qabas-reports.html

Islamic bond may be linked to third bridge

Turkey may issue its first sukuk, an Islamic finance tool, to be linked to the toll revenues of a planned bridge over the Bosphorus, daily Vatan claimed without quoting sources. The Treasury has already started a study on the issue, the newspaper said.

The paper said Deputy Prime Minister Ali Babacan’s Jan. 30 speech at a Capital Markets Board (SPK) meeting in Istanbul was a signal for the attempt. Turkey may issue its first sukuk this year, Babacan said at the meeting.

“The financing of the investment will be provided somehow,” Babacan told local broadcaster CNBC-e during last week’s Davos meeting, commenting on Turkey’s bid to build a third bridge over the Bosphorus to ease traffic in the city.

Turkey’s first attempt to find a contractor for a 414 km highway project that includes the third bridge failed as all of the 18 registered companies for a build-operate-transfer model tender failed to place a bid by the deadline of Jan. 10. The government then decided to divide the project into two pieces to ease financing for possible contractors.

“The project will be limited to the third bridge and its link roads. So the cost of the project will come down to $2.5 billion from $6 billion,” Babacan said at Davos.

The new tender date has been set as April 5 for the Northern Marmara Highway Project.

Closed bids will be received no sooner than seven days before the tender date.

With the shift in the initial scheme, only the bridge and 60 km of link roads will be built by the build-operate-transfer scheme. The remaining parts will be financed from the public budget.

 

http://www.hurriyetdailynews.com/islamic-bond-may-be-linked-to-third-bridge.aspx?pageID=238&nID=12901&NewsCatID=344

Sukuk issuance surpasses pre-crisis levels

Islamic bond issuance last year surpassed pre-crisis levels for the first time – after more than doubling in volume – while one bookrunner predicted momentum will continue with a further 50% rise in 2012.

The volume of sukuks, or bonds that are Shariah-compliant, issued during the year rose to $32.6bn, from $14.9bn in 2010, with roughly half the volume of deals occurring in the fourth quarter, according to data from Dealogic. It was the first time volume surpassed pre-crisis levels.

The bonds benefitted from uncertainty in the global market, which drove investors to more stable issuances, according to HSBC Amanah, which was the fourth largest bookrunner last year. The firm said it expected the momentum to continue into 2012, anticipating a total of $44bn in deals this year.

Despite a rise in the number and volume of deals in the Middle East last year, Malaysia remained the dominant nationality of deals, with the year’s five largest sukuks issued by the country’s government or corporates.

There were $25.4bn of Malaysian sukuks issued during the year, while Malaysian financial services firm CIMB Group was the top bookrunner with $7.9bn in proceeds.The largest deal last year was a $6.1bn sukuk issued by an investment holding company owned by the Malaysian government treasury, Khazanah Nasional.

The United Arab Emirates represented the second most popular country for bond issuance with $2.6bn in deals during 2011, according to Dealogic.

Government-related sukuks will continue to dominate the market in 2012, according to a year-end HSBC Amanah forecast, with Asian and Middle Eastern infrastructure projects acting as major drivers. Malaysian toll and highway firm Projek Lebuhraya Usahasama Berhad kicked off the year by announcing that it would issue a massive $9.7bn sukuk.

Middle East banking group Emirates NBD and First Gulf Bank both had $500m issuances in the first two weeks of January. Dubai Islamic Bank had a $300m issuance.

Mohammed Dawood, managing director of Islamic global markets for Emea at HSBC Amanah said demand has continued outstrip supply in January, which has been the busiest start to the year he’s seen.

“Sukuk is favoured by investors because it has been less volatile than conventional issuances, especially in the last four months of 2011. Issuers on the other hand, like sukuk because it gives them access to a new investor base,” Dawood said in HSBC’s projections for the new year.

http://www.efinancialnews.com/story/2012-01-31/islamic-bond-issuance-reaches-pre-crisis-levels-in-2011

Dubai's Majid al Futtaim announces sukuk roadshow

Dubai’s Majid al Futtaim will begin meeting investors on Sunday ahead of a potential Islamic bond, or sukuk issue, a statement from the lead managers said on Tuesday.

The mall developer, which is the sole franchise for Carrefour in the Gulf, will meet investors in Abu Dhabi and Dubai on January 29, before a second day of roadshows in London and Kuala Lumpur on January 30, it said.

Abu Dhabi Islamic Bank, Dubai Islamic Bank , HSBC and Standard Chartered are the lead managers for the potential transaction, which would be the company’s first debt capital markets issue.

The company has been eyeing global debt markets for several months, completing a series of roadshows for a conventional bond in June but not going ahead with a print because of the impact of market volatility on pricing.

It then set up a sukuk programme to have the option to tap Islamic liquidity and take advantage of healthy demand for sharia-compliant assets amid ongoing global risk aversion.

A senior executive told Reuters in November the company hoped to raise between $350 million and $500 million from its debut sukuk offering.

This would be the first issuance by a private corporate firm in the Gulf and is regarded as a vanguard for other private sector companies in the region who, hit by limited liquidity in the loan market, are searching for new finance streams.

The unlisted firm raised $1 billion loan from a group of banks in July which was used for refinancing of a $1 billion loan maturing later this year.

MAF’s revenues grew by 10 percent year over year to 18.7 billion dirhams ($5.09 billion) last year and its net debt was around 7.5 billion dirhams.The developer expects to open around 15 new Carrefour hypermarkets and about 25 to 30 new supermarkets in 2012.

http://www.emirates247.com/business/corporate/dubai-s-majid-al-futtaim-announces-sukuk-roadshow-2012-01-25-1.439425

Islamic finance unpacked

THE National Treasury is considering issuing Islamic bonds and has asked interested banks to submit bids. Some local banks and the JSE already offer sharia-compliant financial instruments. These include the JSE Shariah All Share [JSE:J203] index and the JSE Shariah Top 40 – (Tradeable) [JSE:J200].

Other instruments include Mudarabah, a form of investment partnership between banks and businesses that shares the risk and losses. There is also Murabah, a transaction in which the bank buys the asset then immediately sells it to the customer at a pre-agreed higher price payable by instalments.

Kokkie Kooyman, head of Sanlam Investment Management: Global, said the Treasury’s Islamic bond issue would be part of a bid to “tap into” the unds from the Muslim countries that are shariah-compliant.

“I am sure this was at the request of those Middle Eastern countries because SA has a small Muslim population,” Kooyman told Fin24, adding the shariah products and funding are made attractive by the fact that they are not interest rate sensitive.

FNB Islamic finance offers shariah-approved banking options that are not limited to Muslims. They help FNB clients manage their day-to-day finances, whether they need an account for personal use or a number of products for their business.

Standard Bank Group [JSE:SBK], Africa’s biggest bank by assets, does not offer Islamic banking services in South Africa yet, according to Erik Larsen, the head of media relations at the bank.

In 2010 the bank launched its first Islamic savings and current account in Tanzania. In July last year Stanbic, a unit of Standard Bank, won approval from Nigeria’s central bank to provide Islamic banking services there.

Nedbank Group [JSE:NED], South Africa’s fourth-biggest bank, does not offer any Islamic banking products in South Africa. Absa Islamic finance offers businesses current and retail accounts. Its offerings range from savings, investments, term deposits and commercial asset finance.

Kooyman said the sharia-compliant offerings are worth pursuing because the end result or return is the same as that of conventional banks. “The returns are also not much different for ordinary investors,” he said. Pros and cons But Islamic banking, like conventional banking, has its advantages and disadvantages.

In terms of banking charges, clients of Absa Islamic banking and FNB Islamic finance pay the same fees as Absa and FNB clients banking conventionally; both banks are well known for charging high fees. In Islamic financing, loans for a house or a car offer fixed repayments, which are an advantage to many. This is not the case with conventional banks.

Banking experts said the introduction of more Islamic finance products into South Africa would improve the size of the economy. They added this would also help diversify the banking sector’s funding and investor base.

Steve Meintjes, a senior banking analyst at Imara SP Reid, told Fin24: “If people that have been using Islamic banking have been happy all the time, let us have (more) of it.”

Meintjes said: “The SA economy needs more finance. Islamic banking will enhance the productive capacity of this economy.” He warned, however, that investors who are interested would have to do a bit of homework to understand the products on offer.

Tom Winterboer, a banking analyst at PwC, said Islamic finance products can be accessible to investors beyond the Muslim population. Only 2% of South Africa’s population is Muslim but the demand is coming from non-Muslims, according to Absa.

“It must be a good thing to happen to South African investors. It is a different principle from the domestic finance we have come to know,” Winterboer said, adding however that it needed a different expertise. “But South African banks have this expertise.”

The government is also keen on opening the doors to Islamic finance banking in South Africa. It has proposed a tax amendment in a bid to put Islamic banks in South Africa on an equal footing with conventional banks.

http://www.fin24.com/Money/Investments/Islamic-finance-unpacked-20120123

Egypt May Sell Foreign-Currency Sukuk, Deposit Certificates

Jan. 18 (Bloomberg) — Egypt may issue an Islamic bond or alternatively certificates of deposit in foreign currency for Egyptians abroad, the finance minister said.

“We are studying issuing sukuk,” or Islamic bonds, Mumtaz el-Saeed said today by telephone in Cairo. “We are comparing the benefits of issuing certificates of deposit with those of sukuk for Egyptians abroad,” adding that his preference is for the certificates. The government hopes to issue one or the other during the current fiscal year ending June 30, he said.

Egypt is struggling to recover from a year of unrest in the wake of the uprising that ousted President Hosni Mubarak last February. The economy grew 1.8 percent in the last fiscal year, the slowest pace in at least a decade, as income from tourism and foreign investment dried up. Tourist arrivals fell 33 percent in 2011, while international reserves are at the lowest level since March 2005.

The government formally requested a $3.2 billion loan from the International Monetary Fund on Jan. 16. An agreement is expected “within weeks,” Fayza Aboulnaga, minister of planning and international cooperation, told reporters.

Egypt turned down a similar arrangement with the fund in June, with officials saying they didn’t want to burden future governments with debt. Foreign currency reserves dropped 32 percent in the following six months while yields on all treasury-bill maturities rose this quarter to the highest since Bloomberg started tracking the data in 2006.

‘Sound Fundamentals’

El-Saeed said today the government would prefer not to increase the amount it requested from the IMF.

The economy “despite its solid and sound fundamentals,” faces challenges that have to be addressed by an economic program that safeguards stability and “creates conditions for a strong recovery,” the IMF’s mission said in an e-mailed statement today.

A program drafted by the Egyptian authorities is being discussed “with emerging political parties to ensure broad political support,” the IMF said. The mission met with the economic committee of the Muslim Brotherhood’s Freedom and Justice Party, and also talked to members of other parties and with the civilian body advising the ruling military council, it said.

The Brotherhood’s party gained the most votes in elections for the lower house of parliament, which is due to convene on Jan. 23, two days before the anniversary of the start of the uprising that led to the ouster of Mubarak. It is still unclear what authority the assembly may have. Activists have called for mass rallies on Jan. 25 to call on the country’s ruling generals to hand over power to civilians immediately.

‘Historic Transition’

The IMF’s meetings this week “provided us with a cross- section of views about Egypt’s current economic and political situation, and possible avenues to address the challenges facing the economy,”the fund said. “It also gave us an opportunity to explain the role the IMF could play in support of Egypt’s historic transition.”

http://www.businessweek.com/news/2012-01-19/egypt-may-sell-foreign-currency-sukuk-deposit-certificates.html

Treasury considers Islamic bonds

The National Treasury has asked banks for proposals about a government Islamic bond — known as Sukuk — in the local and international markets.

“There is a great interest in the Sukuk market and this is the first step towards meeting the growing appetite for government-backed Shariah compliant investments,” Lungisa Fuzile, director-general of the National Treasury, said in a statement on Tuesday.

The Treasury invited banking institutions to submit proposals for providing advisory services for the structuring and issuing of Sukuk.

This was in line with its intention to diversify its funding and investor base.Sukuk refers to a financial certificate that conforms to Muslim strictures on the charging or paying of interest.

Interested service providers should submit proposals by the close of business on December 21 2011.Shortlisted bidders would be informed by January 20 2012, the Treasury said.

http://www.timeslive.co.za/politics/2011/12/06/treasury-considers-islamic-bonds