ideal september 2014 (volume 11 issue 36) the end of the...

10th September 2014 (Volume 11 Issue 36)

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The long-awaited legislation has fi nally been drafted; and the Saudi stock exchange is set to open to direct foreign investment once the law is passed. With values soaring as international institutional investors set the phone lines to Saudi on fi re, concerns of unsustainable overheating increase — while at the opposite end of the spectrum, the rigid restrictions on qualifying for access are creating doubts as to the long-term material impact of the move. Is the Saudi stock exchange really the pot of gold investors believe it to be, asks LAUREN MCAUGHTRY — or could the end of the rainbow be further away than we think?

A golden opportunityThe Saudi exchange is the largest and most liquid in the region, with an estimated market capitalization of over US$580 billion. However, restrictions on foreign ownership have made it a highly domestic market with local players using it as a platform primarily for trading rather than fundraising, due to the limited investor base.

“On the investor base side… 90% of activity comes from individuals,” reported Abdullah S Alsuweilmy, the former CEO of the exchange, to the World Federation of Exchanges last year. “That’s why it is important to develop

the institutional activity in the Saudi market. This could be through increasing the shares of existing investors such as mutual funds and pension funds [and] additionally, att racting new types of institutional investors to the market.” According to Abdullah, as of 2013 Tadawul accounted for over 50% of the entire GCC equity market and 90% of the traded value in equities — with 90% of market activity dominated by retail local, GCC and resident investors.

But recent regulations drafted by the Capital Markets Authority (CMA) regarding direct access for foreign investors are now set to change the face not only of the Saudi Arabian exchange, but perhaps the global equity markets themselves, as access to this sleeping giant spikes investor interest across the world. “The market will be open to eligible foreign fi nancial institutions to invest in listed shares during the fi rst half of 2015, with God’s permission,” said the Capital Market Authority (CMA) in a statement last month.

Star performanceThe Tadawul All Share Index (TASI) has seen a steady upward trajectory since

the announcement, and shows litt le sign of tailing off despite concerns of overheating. The index topped 11,000 shortly after the news broke, and has continued to climb: reaching a 52-week high of 11,143.82 on the 8th September and up 30.56% year-to-date. Over the last three months alone the index has climbed 12.65% according to the latest Tadawul data: driven by a strong performance from the banking & fi nancial and insurance sectors which have risen 18.56% and 19.47% respectively since June. Average daily turnover increased by 45.6% in August, the largest rise in more than two years, while month-on-month TASI jumped 8.8% during the same period.

Sami Al-Louzi, a partner at Latham & Watkins in Saudi Arabia, explained

the signifi cance of the move to Islamic Finance news. “This is hugely signifi cant for global capital fl ows and an exciting development for the world’s equity markets. Tadawul is the largest securities exchange in

the region and the draft rules bring the bourse one step closer to global money managers. The

opening of the Tadawul is a further important step

to diversify the

The end of the rainbow: Tadawul opens to foreign investors

continued on page 3

COVER STORY

The World’s Leading Islamic Finance News Provider

Islamic banks eye Shariah dollar through private banking services ........ 6

Goldman Sachs names banks to arrange Sukuk .......... 7

New investment approach in Saudi Arabia....................... 9

IFSA — at the expense of General Takaful operators?....................... 13

“ Wealth, properly employed, is a blessing and a man may lawfully endeavour to increase it by honest means.”

Hadith narrated by Bukhari

CIMB Islamic.Artisans of

Islamic Finance™

2© 10th September 2014

IFN RAPIDS

Disclaimer: IFN invites leading practitioners and academics to contribute short reports each week. Whilst we have used our best endeavors and eff orts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions are accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.

DEALSProfi t payment for Puncak Niaga Holdings’ RM$165 million (US$52.29 million) due and payable on the 17th September

Indonesia government Sukuk raises record US$1.5 billion

World Bank in a non-deal roadshow with OIC countries, seeing strong response

Perwaja Steel warns of non-payment on RM400 million (US$126.77 million) Murabahah medium-term notes due 25th September 2014 due to halt in restructuring exercise

Khazanah Nasional prices US$500 million Mudarabah-Murabahah exchangeable Sukuk

Goldman Sachs to meet Middle Eastern investors for proposed Sukuk

IDB to begin roadshow for potential US dollar Sukuk this week

NEWSBNP Paribas applying to the Central Bank of Senegal to change banking laws to accommodate Islamic windows

Morocco’s Economic, Social and Environmental Council raises queries regarding Islamic banking legislation draft

CEO of US investment fi rm Ameriprise Financial highlights long-term prospects for Islamic fi nance

IdealRatings launches new Sukuk Shariah screening off ering and Sukuk indexes

Gulf Finance House acquires properties in

Houston as part of US residential portfolio

Sukuk structures should be simplifi ed to encourage wider adoption by corporates and non-Muslim countries, says Cagamas CEO

Banking Regulation and Supervision Agency grants authorities the right to restructure Bank Asya

Maybank Islamic CEO dismisses market rumors of potential merger with Bank Islam

Responsible innovation has potential to be a catalyst for Islamic capital market growth, according to Malaysian regulator

Malaysian Financial Planning Council receives approval from Securities Commission Malaysia for Shariah fi nancial planning program

CIMB Islamic to grow balance sheet regardless of merger, according to CEO

ASSET MANAGEMENTAl Rahji Capital begins off ering period for new global Sukuk fund

Rasmala Investment announces net asset values for GCC Islamic equity income fund and Global Sukuk fund

CIMB-Principal Islamic Asset Management anchors itself in the Turkish market in partnership with Turkey’s RHEA Asset Management

TAKAFULSecurities and Exchange Commission of Pakistan expects up to 25 new

Takaful window players within the next year

Malaysia primed to become a mega regional Takaful power, according to EY

XL Group expands Takaful insurance suite with fi ne art and specie coverage via Cobalt Underwriting

RATINGSMARC affi rms ‘AA-IS’ rating for Kimanis Power’s RM1.16 billion (US$367.65 million) Sukuk ahead of Sabah power plant launch

S&P rates Sharjah’s proposed Sukuk at ‘A’

Puncak Wangi’s proposed Sukuk receives ‘AAA(fg)’ rating from RAM based on irrevocable guarantee

Dar Al-Arkan announces Moody’s corporate credit rating of ‘Ba3’ highlighting improvement from S&P’s rating of ‘B+’

RAM reaffi rms enhanced ‘AAA’ ratings for KL International Airport’s RM4.06 billion (US$1.28 billion) Islamic notes facility, backed by government guarantee

Fitch assigns ratings to Islamic UAE banks

Fitch assigns ‘AA’ long-term rating to Saudi Arabia

Bank of Tokyo-Mitsubishi UFJ receives top ratings from RAM

MOVESAl Baraka Banking Group appoints new senior vice-president and head of commercial banking

Brian Tipple named as Abu Dhabi Investment Authority’s fi rst global head of external equities

IFN Rapids ................................................... ..2

IFN Reports:

Islamic banks eye Shariah dollar through private

banking services • Goldman Sachs names banks

to arrange Sukuk • Growing global acceptance

of Islamic instruments bodes well for sovereign

Sukuk sector • New investment approach in

Saudi Arabia • IFN Weekly Poll: To assist

in the development of cross-border activities

and secondary trading, would it be feasible

to establish a global Islamic stock exchange?

• IFN Deal Summary: Sukuk volumes could

exceed expectations • Fund focus: Innovative

new off erings from EIIB-Rasmala • IFSA — at

the expense of General Takaful operators? •

Malaysian GST and its impact on brokerage fi rms

• BTMU Malaysia-ICD fi nancing agreement

marks growing internationalization of Islamic

fi nance • UK government responds to public

consultation on Shariah compliant student

fi nancing • Sovereign Sukuk: Sharjah joins the

big boys • Khazanah Nasional issues innovative

exchangeable Sukuk ...................................... 6

IFN Analysis: Saudi Arabia: An new era of

evolution ......................................................... 18

Structured fi nance: The way forward ............ 19

Case Study:

Indonesian innovation ................................... 20

Shariah Pronouncement ............................. 21

IFN Country Correspondents:

Indonesia; Pakistan .............................. 22

IFN Sector Correspondents:

Trade Finance;Takaful & re-Takaful; Treasury

Products ........................................................ 23

Special Reports:

The Indian leasing market ............................. 26

Islamic Finance news ................................... 27

Deal Tracker ................................................. 33

REDmoney Indexes .................................... 34

Eurekahedge data ....................................... 36

Performance League Tables ....................... 38

Events Diary................................................. 42

Company Index ........................................... 43

Subscription Form ....................................... 43

Volume 11 Issue 36


COVER STORY

Saudi economy away from oil and it is a historic milestone in the global capital markets.”

Institutional access onlyPreviously, non-resident foreign investors could only access the market through equity swaps, mutual funds and exchange-traded funds via member trading fi rms. The new legislation plans to open up the market to direct foreign investment subject to a number of key restrictions, the fi nal defi nitions of which are reportedly still underway during a 90-day consultation process.

The most prominent of these is likely to be a limit of 5% holding of any listed Saudi fi rm by a single foreign investor, up to a combined foreign ownership ceiling of between 20-49% (depending on reports); while overseas players will not be able to hold more than 10% total market value of Saudi stocks. Investors will also only be allowed to access the market through funds with minimum assets under management of between US$1-5 billion (according to varying reports), eff ectively restricting access to large institutional players. Licenses will be awarded by the CMA, with only 10 initially expected: making the total initial eff ect of the relaxation rules relatively minor.

Limited impact?“At the end of the day, it is a pure trading platform that is being given to foreign players, without lett ing them take over any typical rights as a majority shareholder so they have no ability to get a controlling interest. The rules very much retain control in Saudi hands,” explained a Saudi lawyer to IFN.

And qualifi cation is expected to be tough. “It’s not like a straightforward process to be qualifi ed,” said the lawyer. “You have to go through certain procedures laid down by the new legislation, you have to satisfy a lot of requirements and it is a very robust process.”

An overall improvementNevertheless, with less than 2% of the market currently owned by foreign players, opening up access to as much

as US$58 billion in a booming and hitherto closed economy

is no small thing. “The

most immediate impact will be for large institutional investors that have global mandates,” predicted Omar Bassal, the head of asset management at Saudi investment fi rm Mohammed Alsubeaei & Sons Investment Company (MASIC), to IFN. “We are expecting that roughly US$35 billion will come in over the next one to two years, and over time that may ramp up.”

“Even though the draft regulations are out and there are obviously restrictions in there, which is as expected following other Gulf markets, it is still an improvement on the existing method by which non-GCC investors were investing,” agreed Ahmed Butt , a partner with Simmons & Simmons in Saudi Arabia.

This was primarily through swap arrangements, which gave foreign investors an opportunity to trade on the market through a local counterparty. “But it still only gave the foreign

The end of the rainbow: Tadawul opens to foreign investors Continued from page 1

continued on page 4

The goal of the legislation is

not to open the door for foreign in luence on the Saudi stock market, but to welcome greater trading and funding opportunities and give Saudi irms a new channel of inancing

Table 1: Tadawul 52-week performance

52 WEEK

High Date Low Date

11,143.82 2014/09/08 7,643.13 2013/09/09

Source: Tadawul

Table 2: Tadawul YTD performance, 2014

YEAR-TO-DATE

Index as of 31st December Indicator Year-to-Date Change % Change

8,535.60 2,608.22 30.56

Source: Tadawul

Figure 1: Tadawul All Share Index, one-year performance

11K

10K

9K

8K

7KNov 2014 Mar May July

9th September 2013 - 8th September 2014

Source: Tadawul

Figure 1: Tadawul All Share Index, one-year performance

11K

10K

9K

8K

7KNov 2014 Mar May July

9th September 2013 - 8th September 2014

Source: Tadawul


COVER STORY

investor a benefi cial interest, not a legal interest,” explained Ahmed. However this channel had distinct disadvantages — such as the inevitable fee charged by the local counterparty in the arrangement which made it inconvenient and ate into profi ts. “This is obviously an improvement on that. That said, even the draft regulations provide that any foreign investor’s application to invest in the market will be assessed by a locally licensed CMA-authorized person and there will be fees involved in that.”

Neverthless, said Ahmed: “Judging by all the calls we have been receiving from clients, there is huge interest. We have had a lot of calls. Not regional, as GCC investors already have access to the market. But the US and Europe are showing a lot of interest.”

Sending a messageThe restrictions are designed to both retain overall local control and to prevent market volatility through excessive short-term speculation, with the relaxation expected to be gradual. However, the main aim of the new law is to send a message that the rules of the game are changing. While this will inevitably take time, the goal of the legislation is not to open the door for foreign infl uence on the Saudi stock market, but to welcome greater trading and funding opportunities and give Saudi fi rms a new channel of fi nancing.

“It will make the Saudi stock exchange more visible on the radar of investors going forward. With these new rules you will see a lot more excitement. Of course they will cherry pick, but it will create a headier atmosphere for both Saudi and foreign investors alike,” predicted another Saudi lawyer.

A new wave“It’s a way of Saudi companies obtaining investment, and it opens up a new market for them,” suggested Ahmed. “For the type of deals we work on — syndicated fi nancings, project fi nancings — the funding is

readily available — from local banks, government funds etc. But a number of major Saudi companies have reached their borrowing limits, so opening up the market to foreign investors could be seen as a new avenue for them to obtain foreign investment.”

Between 2007-12, 47 companies listed on Tadawul, raising an estimated US$12.5 billion in IPO capital, according to former CEO Abdullah. But with the Saudi IPO market slowing down over the last few years, could the upcoming rules be a trigger for a new era of IPOs? Although the prospect is alluring, the reality may not be so rosy. In Saudi Arabia, IPOs typically have low valuations and the authorities are very strict about how many fi rms list and when. The process to IPO takes around 18-24 months and the requirements are rigorous.

“The CMA is very well-run and it is very specifi c about IPOs, — it is very good about regulating companies and their valuations when they come to market,” warned Omar. “So you may see a wave of fi rms applying for IPOs, but a sudden fl ood of new listings is not a concern. In fact to be honest, we would like to see more.”

A positive in luenceOne thing the new rules are likely to do, however, is bring in a new era of greater transparency and disclosure. To protect local investors and to encourage foreign participation, fi nancial statements and company disclosures could become more rigorous, while the entry of foreign expertise and investment talent will add depth to a market currently dominated by day traders. With the restrictions limiting involvement to institutional fund managers with longer-term investment

horizons, the infl ux of liquidity should stabilize prices and support consistent growth.

A heated exchangeYet although stability and the avoidance of shock are core goals

of the new plans, there are already concerns that the market is

overheating as investors fl ood to register

interest and get in on the ground

before the market formally opens up next year. The exchange is already up by 45.8% over the last 12 months, and is expected to benefi t yet further from upcoming dividend announcements and budget expectations.

While the high valuations do bring sustainability concerns, it should be noted that the spike is not a unique phenomenon but a growth trend refl ected in the wider GCC market, as booming fi nancial and construction sectors drive market performance. With upcoming listings including the Emaar Properties’ Malls launch, expected in the next few days, and a strong pipeline of project launches from players including Emaar, Nakheel and Aldar, the Dubai Financial Market General Index for example has pulled in a reported 50.2% return year-to-date.

As a historically low volatility market, most players remain cautiously optimistic that the Saudi momentum is here to stay. “For sure, the market is trading at a higher value than other emerging markets,” said Omar. “It is also trading above its historical average valuation. But I am not ready to say that the market is over-valued, because companies in Saudi Arabia benefi t from specifi c government support measures and they enjoy much higher profi t margins than comparable companies in other markets. And for that reason, you would expect them to trade at a higher valuation. In addition, many Saudi investors are shifting portfolios out of real estate and into Saudi equities which should support a continued rally. So although I think we may be due for some kind of pull-back, I think we will see a continued rally through the next


You may see a wave of irms

applying for IPOs, but a sudden lood of new listings is not a concern

continued on page 5


COVER STORY

few months.”

Strong fundamentals One of the key factors supporting this positivity is the exceptional fundamentals of the Saudi economy. Although in essence a closed economy with a banking sector predominantly focused on the local market, and with the government dominating activity as the largest player, its macro signals remain strong. The country saw a 3.8% growth in GDP in 2013 which has already been revised to 4.6% by the IMF. Non-oil PMI is expanding at its fastest rate ever, while bank deposits broke SAR1.5 trillion (US$399.93 billion) for the fi rst time in July. Year-on-year infl ation is edging downwards, while the stock market, as we have seen, is displaying a sustained performance.

“Market fundamentals are really, really strong in Saudi Arabia, agreed a local fund manager. “If you look at things like the growth of GDP, the profi tability of companies on the stock market — these are all these reasons why the Saudi market is very att ractive. So what is happening now is that they have been improving corporate governance.” A report released by HSBC last month comparing the corporate governance of Saudi-listed companies with the global marketplace ranked Saudi Arabia as among the top emerging markets in terms of governance standards. “This has always been in place for the local market,” pointed out the fund manager. “Now things are just opening up and we are telling that story to a wider audience.”

Global integrationSo with sustainable growth, a strong support system and superlative investor interest, the path forward for the Saudi stock exchange looks positive. Should the new move result in inclusion in the MSCI indices, as is widely expected, this will have an even greater impact.

“Were the equity market to open up, it may be included in the index it fi ts bett er

in terms of equity market size/liquidity and equity market accessibility, i.e., emerging market or frontier market,” Sebastien Lieblich, the director of index research for MSCI, said to the Wall Street Journal last month. “There is no rule in the methodology that forces a market to enter fi rst frontier market before being eligible for emerging market.” However, the earliest the country could enter either index would be early 2017. “The weight of Saudi Arabia in emerging market and frontier market [based on current data] would be of approximately 4% and 63%, respectively. MSCI does not calculate

or estimate fund fl ows,” confi rmed Lieblich. “In order to be included

in emerging market, Saudi Arabia would need to exhibit emerging

market standards in terms of its broad equity market accessibility.”

What remains is for Saudi Arabia to build on these early

steps and work towards a strong and stable market that is open to all. The exchange is already seeking regional

and global tie-ups with international counterparts, and these will only enhance its att raction to overseas investors. Tadawul has entered into a series of regional and international agreements over the past year: including entry to the International Organization of Securities Commissions (IOSCO) in May and an MoU with the Malaysian stock exchange in February, the Bahrain Bourse in April and the Abu Dhabi Securities Market last November.

The market remains optimistic, and prospects for growth are strong as hopes for retail involvement continue. “I think that this is still just the fi rst step in a gradual opening up of the market that we will see,” concluded Omar.

“Eventually hopefully even individual investors will be able to have exposure to Saudi shares. At the end of the day, the capitalization of the total market is over US$500 billion - so it’s a hard market to ignore.”


Companies in Saudi Arabia

bene it from speci ic government support measures and they enjoy much higher pro it margins than comparable companies in other markets. And for that reason, you would expect them to trade at a higher valuation

Join the most active Islamic finance focused group on

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IFN REPORTS

Bank Muamalat Malaysia on the 2nd September signed an MoU with UK’s Bank of London and The Middle East (BLME) through which the two Islamic fi nancial institutions will collaborate in establishing a joint Islamic private banking presence in Malaysia. VINEETA TAN explores how the agreement, which marks the fi rst MoU to be signed between a UK and Malaysian bank, refl ects the growing economic power of Shariah-seeking high net worth individuals (HNWI) which has captured the att ention of Islamic banks worldwide.

“The MoU is a start for Bank Muamalat and BLME to work towards the research and development of a viable business model to off er private banking services in Malaysia, focusing on off ering products and solutions to domestic and cross-border clients in Malaysia,” said Mohd Redza Shah Abdul Wahid, CEO of Bank Muamalat Malaysia. “If everything is positive, then we will launch [the service] next year.” The Malaysian bank has confi rmed that it has begun due diligence on product concepts and expects to ready a framework within the next six months.

The potential entry of BLME and Bank Muamalat Malaysia adds to the increasingly vibrant Islamic private banking scene of Malaysia, of which CIMB Islamic and Maybank Islamic are household names; and while the global Islamic private wealth management sector is relatively small with limited product sophistication, the industry is nonetheless gaining foothold in various Islamic fi nancial markets due to the rising affl uence of Muslims.

According to data lifted from the Knight Frank Wealth Report 2014, the number of UHNWI (individuals with at least US$30 million in assets) in traditionally Muslim regions has increased signifi cantly with the Middle East charting a 2% year-on-year growth and forecasted to grow 35% in the next 10 years.

Asia Pacifi c also registered a growth of 2%, and commands a 10-year market projection accretion of 43%; Malaysia alone expects the number of its high net

worth investors to double within the next fi ve years to 60,000, according to industry reports.

Africa, which in recent years has aggressively moved forward with its Islamic fi nance ambitions, perhaps holds the most potential for the Shariah compliant private wealth management sector as the region’s UHNWI population is predicted to increase by 53% in 2023, growing in tandem with the continent’s robust economic growth

which the World Bank forecasted to be at 5.2% this year, up from 4.7% last year. “Africa’s potential for wealth creation should not be underestimated, given the amount of foreign investment, including social investment, it has received and is likely to receive in the future,” noted the report.

“Clearly, there’s a very large opportunity in asset management that will feed the wealth management of the private banking area,” said Humphrey Percy, CEO of BLME. And although it is still early days for Islamic private banking and wealth management which is faced with product development challenges, the sector is on the right track towards capturing a larger market share as market players strive to att ract growing Muslim wealth.

Islamic banks eye Shariah dollar through private banking services

While the global Islamic

private wealth management sector is relatively small with limited product sophistication, the industry is nonetheless gaining foothold in various Islamic inancial markets due to the rising af luence of Muslims

Source: Knight Frank Wealth Report 2014

Region 2003 2012 2013 2023 10-yr 1-yr Forecast 10-yr

growth growth year growth

Africa 813 1,844 1,868 2,858 130% 1% 53%

Asia 21,753 40,116 41,114 58,588 89% 2% 43%

Australasia 1,527 3,791 3,828 4,526 151% 1% 18%

Europe 42,007 58,549 60,504 73,396 44% 3% 21%

Latin America 3,934 9,635 9,677 13,711 146% 0% 42%

Middle East 3,258 6,891 7,052 9,498 116% 2% 35%

North America 32,349 42,142 43,626 52,536 35% 4% 21%

World 105,641 162,968 167,669 215,113 59% 3% 28%

UH

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Regional wealth trends

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IFN REPORTS

US-based bank Goldman Sachs, is reportedly preparing to issue a benchmark-sized, US dollar-denominated Sukuk, and has selected Abu Dhabi Islamic Bank, Emirates NBD, National Bank of Abu Dhabi and NCB Capital, along with itself to arrange investor meetings in the Middle East. REBECCA SIMMONDS takes a look at the bank’s previous form in the Sukuk market.

Goldman Sachs did not reply to requests for comments, but recent reports are the latest entry in the bank’s eff orts to issue a debut Sukuk. In October 2011 the US bank announced plans for a US dollar Sukuk that was to be issued via a Cayman Islands SPV and listed on the Irish Stock Exchange, with Shariah compliance outsourced to Shariah advisor, Dar Al-Istithmar. Plans were put on hold however, following concerns from the industry that the commodity Murabahah structure to be utilized was not Shariah compliant. Suggestions were made that the funds raised could be directed to the bank, that the underlying assets to be used for the issuance could be sold to a third party and that there was no guarantee that the securities would trade at par.

According to S&P, which has assigned an ‘A-’ rating to the benchmark-sized issuance, the Wakalah structure will be used. SPV JANY Sukuk will enter a Murabahah agreement for 49% of the issued amount and a Wakalah agreement for the remaining 51% with Goldman Sachs subsidiary, J Aron & Co. Fitch Ratings has stated that it expects to assign a long-term debt rating of ‘A’ to the Goldman Sachs Group’s JANY Sukuk Company-guaranteed trust certifi cate issuance program, based on

Goldman’s unconditional and irrevocable guarantee of the payment obligations of J Aron under the Murabahah contract which will reportedly rank ‘pari passu’ with the bank’s other unsecured and unsubordinated indebtedness.

J Aron & Co is considered to be one of the pioneers of commodity Murabahah in the London market in the 1980s and 1990s. Speaking exclusively to Islamic Finance news, David Loundy, the chairman of the board of directors of US-based Devon Bank, which off ers Islamic fi nance options elaborates: “Anything

involving this kind of a fi rst for a big investment bank, or from anyone at this kind of size will gain att ention. I think the willingness to issue Sukuk is there, but the motivation may not be if a prospective issuer’s capital needs are otherwise easily met. Where Sukuk in the US really have potential, is to generate investments in particular projects that show creativity—if investors can be found that want such investments.”

The move by Goldman Sachs refl ects the growing demand in the market for Sukuk, given the current low average yields and use of the structure by governments such as those of Brunei, Indonesia, Malaysia, Senegal, and the UK. Despite a perceived lack of att raction toward Islamic fi nance in the US, Goldman Sachs has been one of the country’s banks that has displayed a continued interest in the industry; most recently participating as a fi nancial advisor in the att empted sale of a portion of troubled Turkish participation Bank Asya to Qatar Islamic Bank and being selected as one of the mandated coordinators and bookrunners for the US$400 million issuance by Dar Al Arkan Real Estate Development in May this year.

Goldman Sachs names banks to arrange Sukuk

Where Sukuk in the US really

have potential, is to generate investments in particular projects that show creativity


IFN REPORTS

The growing familiarity and acceptance of relatively complex Islamic fi nancial instruments within the international investor community are expected to boost the international sovereign Sukuk market this year, with Moody’s Investors Services projecting the overall outstanding amount of sovereign Sukuk to reach US$115 billion by the end of 2014, bolstered by approximately US$30 billion-worth of government Islamic securities this year. This growth is also att ributed to increasing fi nancing needs and leverage appetites from several Sukuk-issuing countries, buoyed by increasing eagerness for stronger investment ties with the burgeoning economies of the Gulf and Asia as well as the expanding Islamic fi nancial industry. VINEETA TAN takes a look at this optimistic market prognosis from Moody’s.

Registering a cumulative annual growth rate of 30% since 2003 and commanding approximately 36% of the outstanding global Sukuk market valued at US$296 billion as of July 2014, this double-digit positive trend has been supported

considerably by increasing political will of governments in Muslim nations, as well as non-Muslim countries, to support the Islamic fi nance and banking industry.

“2014 has become a landmark year for sovereign Sukuk, with the UK issuing its inaugural Sukuk, and with Hong Kong and South Africa expecting to conclude sales in September 2014. All three are major non-Islamic countries and indicate a signifi cant change in the potential size, depth and liquidity of this market,” explained Khalid Howladar, the global head of Moody’s Islamic Finance Group.

Yet despite the phenomenal growth experienced by the sovereign Sukuk market in general, the sector remains but a fraction of the global government debt market: Out of the US$56 trillion general government debt stock of Moody’s-rated sovereigns as of the end of last year, Sukuk only accounted for a mere 0.2%. And while the fi gure may seem negligible, the consistent double-digit expansion rates are not, and this outstanding growth story fuels the optimism for further build-up; especially since the share of international sovereign Sukuk out of the total sovereign issuance has more than doubled to 20% in 2014 from less than 10% in 2010, mirroring increasing appeal of Islamic instruments in the global community.

“Despite the low global government participation levels in the Sukuk market thus far, we expect the sovereign Sukuk market will continue to grow from this low base driven by fi ve broad factors,” Khalid opined. These factors include: rising number of global investors seeking

yield and diversifi cation in Asian and Middle Eastern fi xed-income markets, increasing investment needs of Sukuk-issuing countries, desire for stronger trade and investment links to access Islamic liquidity, capital market hubs stepping up their game to retain and enhance their position in the industry and growing cultural affi nity for Islamic fi nance.

In addition to Hong Kong, South Africa and Sharjah, at least eight other governments including Oman, intend to issue Sukuk in the short to medium-term. Oman targets to mandate banks in October to arrange the sultanate’s debut Sukuk for the fi rst quarter of 2015. The program, expected to be worth OMR500 million (US$1.29 billion) together with the government’s conventional sovereign debt, would be denominated in riyals.

Growing global acceptance of Islamic instruments bodes well for sovereign Sukuk sector

This outstanding

growth story fuels the optimism for further build-up; especially since the share of international sovereign Sukuk out of the total sovereign issuance has more than doubled to 20% in 2014 from less than 10% in 2010

908070605040302010

-

Source: IFIS, Moody’s. Year-end expected volumes assumes 2014 trends continue

Sovereign Government-related entity

Other corporate Financial institutions

2014 YE estimate

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Jul 2

014

Annual Sukuk issuance, by types of issuer (US$ billions) – July 2014

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IFN REPORTS

Saudi Arabia’s inimitable equity market holds a special kind of appeal for investors: yet its domestic development and insular outlook has resulted in a unique growth trajectory that has inspired an array of distinctive investment approaches from local asset managers whose familiarity with the market has led to the evolution of idiosyncratic strategies to achieve return. LAUREN MCAUGHTRY speaks to one family offi ce about the impact on investment strategy of the recent surge in Saudi stock prices.

With its origins as a trading house founded in 1933 by the Alsubeaei brothers, Mohammed Alsubeaei & Sons (MASIC) has since 2006 transformed itself from a family offi ce into a leading professionally managed Shariah compliant investment fi rm with multiple arms including a direct investment division (focusing on sourcing portfolio opportunities), an asset management arm (managing indirect fund investments including public equities, private equity, real estate and income-producing assets) and a real estate department (managing MASIC’s own property portfolio and investing in real estate opportunities across the region).

“We are prett y large investors in the local Saudi market and we have been developing new strategies which we fi nd to be more effi cient and profi table than traditional strategies,” commented Omar Bassal, the head of asset management, to Islamic Finance news.

Over the past fi ve years the fi rm has been focusing on mandates for small cap stocks, as it has found that the traditional kind of market capitalization weighting approach does not work in Saudi Arabia. “We feel that the largest cap companies are overvalued relative to their growth rates,” explained Omar. “This has been the right call since we started the program in 2011: so our main strategy has been increasing our exposure to the smaller and mid-cap companies where we feel there are higher growth rates and more profi tability; while reducing exposure to some of the large cap companies, where we feel valuations are more fully refl ected.”

Comparing the MSCI GCC Domestic SC to GCC Domestic LC index over the past three years (see Figure 1), the diff erence in performance backs up these claims:

with the small cap index seeing returns of 26.07% compared to 15.9% for the large cap.

The fi rm also has mandates for ‘unconstrained’ strategies, where the managers have complete freedom to do as they wish, which has also brought good results. “Our global strategy has been to increase exposure to more income-producing assets and real assets: such as trade fi nance, leasing, forestry and some types of real estate,” said Omar. Essentially, MASIC is seeking investments that are uncorrelated with global markets, due to the high valuations we are seeing in the west. With the recent surge in the Saudi stock market following the news that it could open up to follow investment

as early as next year (see cover story), asset management fi rms in the country are seeking to benefi t from these recent catalysts while retaining a sense of caution.

“Historically, if you buy when the market is at 20 times earnings, your fi ve to 10 year returns are prett y low,” he warned. “For that reason, we are not putt ing new money in markets trading at these valuations, but looking where new opportunities lie. Real assets such as trade fi nance and leasing are more interesting for us than putt ing new money to work in markets that have already had tremendous runs. Plus, many real assets have low correlations with public equities.”

As for any investment mandate, the driving factor is of course valuation. When markets are cheap, allocations will increase; while when markets are expensive that exposure will be reduced. Although the Saudi Arabian market is booming at the moment, this very performance suggests that investment could now be over-valued. “The short-term impact has really just been a positive result on our bott om line, in terms of unrealized gain,” explained Omar. “We are certainly not selling — we believe the rally will have legs and might even be able to catch up with some of the other high fl yers in the region. So we are comfortable with seeing how third quarter earnings turn out, and continuing to hold. If fundamentals deteriorate or oil prices decline, we might consider reducing that exposure.”

New investment approach in Saudi Arabia

Real assets such as trade

inance and leasing are more interesting for us than putting new money to work in markets that have already had tremendous runs

Figure 1: MSCI GCC Domestic SC/LC comparison

160

150

140

130

120

110

100Sep 09, 2013 Nov 09, 2013 Jan 09, 2014 Mar 09, 2014 May 09, 2014 Jul 09, 2014

GCC countries domestic small capGCC countries domestic large cap

Source: MSCI


IFN REPORTS

For the fi rst week of the IFN poll, we take a look at the feasibility of establishing a global Islamic stock exchange. Based on the votes submitt ed online over the previous week, 100% of our readers are in agreement that the establishment of a global Islamic stock exchange would encourage the advancement of cross-border activities and secondary trading in our niche industry. NABILAH ANNUAR revisits the idea.

The proposition of sett ing up an Islamic securities exchange emerged several years ago. It has been welcomed as an innovative strategy in the advancement of the Islamic fi nance industry. However, many have claimed that it is something that is highly unlikely to be achieved. Earlier in 2009, the OIC set up a working committ ee spearheaded by the Tehran Stock Exchange to explore the feasibility of an Islamic securities exchange. The task force members included Bursa Malaysia, Dhaka Stock Exchange, Dubai Financial Market, Istanbul Stock Exchange, Lahore Stock Exchange and Muscat Securities Market.

The challenges identifi ed by the working committ ee include a uniform regulatory and legal framework supportive of an

Islamic fi nancial system that has not yet been developed; a lack of Islamic accounting procedures and standards; a lack of uniformity in the religious principles applied in Islamic countries; the absence of large and active domestic institutional investors; poor or non-existent corporate governance standards; and a lack of product diversifi cation.

Speaking to Islamic Finance news, Sivanesan Muthusamy, an experienced fi nancial markets professional and the former vice-president of IILM, confi rmed: “Yes, most defi nitely.

“However, the Shariah aspect of what qualifi es as ‘Halal’ can be a challenge. The Shariah practice diff ers from Mahzab to Mahzab and countries and school the scholars come from. The issues of country rating and regional rating can come into play. If there is convergence, there would be the question of how bett er rated regions can att ract capital and how the not so well rated regions will benefi t from such a convergence. If we take from the euro experience, convergence based on economic variables needs a strong political cooperation. As we see it now, any colloborative eff orts that are there are still in their infancy.”

It seems that the establishment of an Islamic securities exchange remains a lauded proposition in the industry. Nonetheless in order to overcome the anticipated challenges that follow, market players must demonstrate more serious initiatives and result-orientated partnerships to move towards that particular goal.

IFN Weekly Poll: To assist in the development of cross-border activities and secondary trading, would it be feasible to establish a global Islamic stock exchange?

If there is convergence,

there would be the question of how better rated regions can attract capital and how the not so well rated regions will bene it from such a convergence


IFN REPORTS

As we move into the fi nal quarter of 2014, it seems that the predictions made at the start of the year that Sukuk volumes would grow and perhaps exceed US$100 billion may be realized, marking an improvement on the 13% decrease in Sukuk volumes witnessed in 2013. REBECCA SIMMONDS examines the data on the global Islamic capital debt markets.

According to data from Dealogic, global Sukuk volumes for last 12 months place Malaysian ringgit-denominated Sukuk issuances in the lead with a value of US$19.3 billion, followed by US dollar-denominated Sukuk at US$17.44 billion. This contrasts with fi gures from the same period in 2013, which put US dollar-denominated Sukuk issuances fi rmly in the lead, albeit a reduced one at US$14.4 billion, with Malaysian ringgit Sukuk in second place at US$13.4 billion. One of the reasons for the reversal in fortunes for US dollar-denominated Sukuk this year may be that despite a number of new players, such as the UK and Senegal, choosing to enter the Islamic debt market, they have done so in their own home currencies.

Malaysia leads the fi eld in terms of Sukuk issuance by nation, with a total of US$19.06 billion followed by Saudi Arabia and the UAE at US$13.27 billion and US$5.6 billion respectively. Turkey and the UK have also made a showing within the 10 leading nations for Sukuk issuance. Despite predictions at the start of the year that Qatar and the UAE would see an exponential increase in the volume of Sukuk issued in 2014 due to the large number of infrastructure projects scheduled for marquee events, including Expo2020 in Dubai and the FIFA World Cup to be held in 2022, this has yet to materialize. Sukuk volumes by issuer nation have seen only a slight increase for the UAE to US$5.6 billion from US$5.4 billion at this point last

year according to Dealogic data, and a drop for Qatar to US$1.25 billion from last year’s fi gure of US$1.5 billion.

Finance maintains its lead as the top sector for global Sukuk volume at 35% and HSBC and CIMB Group continue to lead as arrangers of Sukuk, with the UK sovereign issuance aiding in HSBC’s position at the top of the table despite CIMB Group leading in terms of issuances, at 44 to HSBC’s 28. Recent issuances of note have been the US$1.5 million Sukuk by the government of Indonesia at a yield of 6.125%, the highest yield since 2009. Malaysian sovereign wealth fund Khazanah Nasional, which owns 69% of Malaysia Airlines and recently announced a restructuring plan for the airline, including a commitment of RM6 billion (US$1.88 billion) over the next

three years, last week issued the fi rst Mudarabah-Murabahah exchangeable Sukuk. The US$500 million paper was issued via Khazanah’s Labuan-incorporated special purpose company Cahaya Capital, with a negative yield of -5bps to maturity with a 15% exchange premium. The Sukuk, with a tenor of seven years are exchangeable into ordinary shares of Malaysia-based electricity utility company, Tenaga Nasional.

Whilst Malaysia leads in terms of Sukuk issuance, in the case of Shariah compliant fi nancing, the GCC takes point, with Middle Eastern banks fi lling the top three slots in terms of lead arrangers and book runners in syndicated and project fi nance. The top Islamic fi nancing deals include Saudi-based Ma’aden Waad al-Shamal Phosphate, UAE-based Emaar Malls Group and Emirates Steel Industries, with real estate, mining and transportation as the top sectors for Islamic fi nancing. According to Dealogic data, the UAE, Saudi Arabia and Turkey lead the sector with a combined total of 12 deals at US$6.2 million.

IFN Deal Summary: Sukuk volumes could exceed expectations

Despite predictions

at the start of the year that Qatar and the UAE would see an exponential increase in the volume of Sukuk issued in 2014 due to the large number of infrastructure projects scheduled, this has yet to materialize

19.3

17.4

8

0.3

Islamic bond volume (US$ billion) by currency last 12 months (rolling)

US dollar

Malaysian ringgit

Saudi riyal

Other

19.1

13.3

5.6

3.3

2.3

1.3

0.3

0.2

Malaysia

Saudi Arabia

UAE

Indonesia

Turkey

Qatar

UK

Singapore

Islamic bond volume by issuer nation (US$ billion) last 12 months (rolling)

Islamic nance related nancing by country – last 12 months (rolling)

Pos. Nationality Deal value (US$m) No. %share

1 UAE 3,204 8 43.5

2 Saudi Arabia 2,226 2 30.2

3 Turkey 740 2 10.1

4 Qatar 621 2 8.4

5 Sri Lanka 150 1 2


IFN REPORTS

In our new series of daily in-house reports, IFN brings to you a weekly focus on a particular fund or fi rm that we believe is innovating, making waves, or driving forward the industry. This week, LAUREN MCAUGHTRY highlights a familiar name that has in recent months initiated a spate of activity set to leave a mark in the Islamic asset management and investment space.

EIIB-Rasmala is a long-established and committ ed player in the Middle East for 15 years and has one of the region’s most successful institutional investment track records, focused on increasingly compelling MENA-GCC

investment opportunities. “We consider ourselves a unique and ‘specialist’ asset manager,” explained Eric Swats, the head of asset management, to IFN, “due to the combination of our Shariah compliant focus and our physical ‘dual hub’ regional presence in both London and Dubai — linking two of the global capitals of Islamic fi nance”.

In a clear demonstration of the growing demand for Shariah compliant investment off erings, the fi rm recently crossed the US$1.2 billion mark for funds under management, with business growing by an impressive 300% in a period of two years. “We continue to see strong demand and interest from new clients who are drawn to the wider and more diversifi ed investment choices and products we are creating,” confi rmed Swats.

Currently, activities are focused on a number of core product areas including equity and fi xed income/Sukuk; along with some new real estate investment products and funds; and several exciting new asset classes such as trade fi nance and leasing.

Its two most recent Shariah compliant products, the Rasmala Leasing Fund and the Rasmala Trade Finance Fund, have been so popular that during July the frequency of investor subscriptions/redemptions was increased from bi-weekly to daily; while Swats tells us that their investment guidelines were also recently amended, “to provide the fund managers with additional fl exibility to pursue att ractive opportunities within the sub-investment grade segment of the fi xed income market”. As of the 14th August 2014, the limit on sub-investment grade exposure has been raised from 25% to 50% of the funds’ net asset value.

In addition to these new products, IFN has also learned that EIIB-Rasmala is in

the process of re-domiciling all its key funds (including the Rasmala Global Sukuk Fund and Rasmala GCC Islamic Equity Income Fund) from the Cayman Islands to Luxembourg, within a SICAV Umbrella Fund structure. “A broad Lux-domiciled fund range will allow for the expansion of our distribution strategy to include international markets like Switz erland, the UK, Luxembourg, Hong Kong, Singapore and South Africa,” said Swats.

The fi rm is now turning its sights to African skies, with plans to enter the market in this second half of the year, as it sees these frontier markets as becoming increasingly att ractive to institutional investors. A pioneer in the Islamic investment space, we can look forward to exciting times ahead from this small but successful self-starter.

Fund focus: Innovative new offerings from EIIB-Rasmala

EIIB-Rasmala is a long-

established and committed player in the Middle East for 15 years and has one of the region’s most successful institutional investment track records, focused on increasingly compelling MENA-GCC investment opportunities

• Rasmala Leasing Fund (Initial closing December 2012, fi nal closing March, 2014)The Rasmala Leasing Fund off ers a low risk, stable and att ractive return profi le by investing primarily in operating leases with predominantly US domiciled investment grade lessees. The Fund has a six-year term, and targets an IRR of 6-7% with annual distributions in the range of 12-14%.

• Rasmala Trade Finance Fund(February 2014)The Rasmala Trade Finance Fund off ers a low risk, stable and att ractive return profi le by investing in a diversifi ed portfolio of Islamic trade fi nance transactions. It targets annual distributions of 4%, and off ers unit holders monthly liquidity.

IFN ONLINE DIRECTORYOver 4,000 individual companies directly involved in the Islamic fi nance industry


IFN REPORTS

Liberalization seems to be the main theme driving Malaysia’s economic growth strategy, as the Southeast Asian nation embarks on a series of policies aimed at opening its markets to not only att ract inward investment but to also provide the home market with stronger foundations to support further growth. Most relevant to the Islamic fi nance industry, apart from the drastic measure of removing mandatory credit ratings requirements by 2017 (see IFN Report Vol 11 Issue 24), is the Islamic Financial Services Act 2013 (IFSA) designed to push local Islamic fi nancial institutions to greater Shariah compliance standards and enhance public confi dence by strengthening consumer protection – eventually to bolster the industry. However, almost 15 months since its implementation, VINEETA TAN asks whether IFSA will actually benefi t the Islamic insurance sector — or leave it behind while the rest of the industry progresses ahead?

Skewed growth“There is a lot of excitement for the Takaful industry, however most of the excitement is generated for the Family side and not the General,” said Zainuddin Ishak, the chairman of Malaysian Takaful Association. This perhaps does not come as a surprise as Malaysia is the world’s largest Family Takaful market with the life business commanding two-thirds of the entire Islamic insurance market at RM6.22 billion (US$1.96 billion) against its General counterpart at RM1.92 billion (US$603.62 million), according to gross contribution fi gures for 2013 as provided

by the Bank Negara Malaysia (BNM). In fact it is this disproportional growth which prompted IFSA to require Takaful operators (except re-Takaful players) with a composite license to separate its Family and General businesses so as to encourage operators to focus on the non-life area in order to grow the General sector instead of overemphasizing on the lucrative Family Takaful operations.

General at losing endHowever, with the mandatory splitt ing of licenses and RM100 million (US$31.47 million) capital injection for the new entity, General Takaful players are at a great disadvantage due to their small size and lack of capacity to meet the new capital requirements.

“Unfortunately, the picture for General Takaful and General re-Takaful does not look that rosy and the situation will get even tougher for the whole industry,” said Marcel Omar Papp, the head of re-Takaful at Swiss Re Retakaful. Speaking to Islamic Finance news, Papp noted: “Some of the General Takaful players are very small, hence it may not be viable for them to inject another RM100 million (US$31.48 million) when their net contribution is currently much lower than that.”

Experts have noted that only the top three General Takaful operators in Malaysia, who underwrite in excess of RM150 million (US$47.21 million) in net contributions, are operationally profi table, while the smaller players who underwrite less than RM150 million in combined contributions are loss-making. “If the General Takaful sector cannot generate growth in the coming

years, the situation will look even more challenging,” said Papp.

Regional championIn order to generate such growth, industry experts have proposed for M&A between existing players in order to create a larger entity and increase capability to underwrite more risk. However apart from the merger between AMMB Holdings and MetLife, the market has yet to see anymore M&A activities. “M&A was a topic raised three years ago, but nothing [much] has happened since, then with regards to General Takaful (there was some M&As on Family side),” observed Papp.

Currently working with the Malaysian Takaful Association on creating a market pool, Papp suggests that gathering resources to enable Takaful operators to write larger commercial risk is the next viable option for the industry to expand. With such a pool, operators would be able to decrease their volatility risk and subsequently increase their price competitiveness to be at par with its conventional sibling.

There is still timeAlthough the market prognosis for the Malaysian General Takaful sector may be less than optimistic, this does not necessarily spell the end for the sector as the industry still has more than four years before it needs to be in full compliance with the IFSA requirements. And if regional experience is to be a guide, Brunei’s Takaful success story could be motivation and inspiration for the Malaysian scene. Like Malaysia, Brunei had to split its General and Family Takaful businesses which created challenges for the small nation. However after fi ve years, Takaful now has captured 60% of total market share, according to Osman Jair, the chairman of Brunei Insurance and Takaful Association, during an Islamic fi nance-related event. With Malaysia’s Muslim demographic, relatively stable political atmosphere and low insurance penetration rate, coupled with government support and availability of human capital, the Southeast Asian does have key ingredients to weather the storm, and also perhaps take on the mantle as a regional Takaful champion that Rauf Rashid, the country managing partner of EY Malaysia, has called for.

IFSA — at the expense of General Takaful operators?

Only the top three General

Takaful operators, who underwrite in excess of RM150 million in net contributions, are operationally pro itable

Malaysian Takaful 2013 performance

General Takaful

Total gross contribution (RM million)

1,918.5

Changes in gross contribution 9.9%

Net underwriting margin 14.9%

Technical reserves 139.2%

Family Takaful

Total gross contributions (RM million)

6,219

Change in total contribution 6.6%

Investment yields including capital gains

4.4%

Source: BNM


IFN REPORTS

As the implementation of the goods and services tax (GST) approaches Malaysia, some have raised concerns on how it will aff ect trading and stockbroking transactions in the country. Market participants have suggested that larger brokerage fi rms may not be as heavily aff ected by the GST. NABILAH ANNUAR explores.

At present, most countries exempt fi nancial services companies from any value-added tax (VAT). However, due to the fact that almost everyone today is a consumer of the fi nancial services industry, many are expecting a ripple eff ect as well as a wide-range economic impact on individuals and businesses. One of the issues raised has been that larger brokerage fi rms would not be heavily aff ected by the GST.

Commenting on the matt er, Nor Rashidah Zainal, Fellow at the Institute of Business Excellence, Universiti Teknologi MARA, who is actively involved in the implementation of the GST, opined to IFN: “There are a myriad of factors aff ecting stockbrokers and trading companies, but I believe it boils back to the most important one — investor expectations and sentiments. The GST has thus far been portrayed in a positive light, despite

some protest — majority of the business community and the general public is beginning to embrace it as something good and inevitable.”

To manage risks eff ectively, Rashidah suggested that the fi nancial services industry may need implementation assistance in executing the GST such as: fi nancial impact assessment, advice on the IT systems and staff training. As an incentive, if professional services are required, perhaps the fees could be treated as claimable costs for the fi rst few years. She said: “Tax claims for

implementation assistance is fairer and easier to justify compared to preferential treatment. It’s transparent, effi cient, and lead to healthy competition among the industry players — which will benefi t the economy and consumers of fi nancial services in general.”

Generally, stockbrokers are remunerated with a fee or commission income derived from the sale of services rendered. The fee collected for facilitating the transaction is believed to be subjected to normal GST principles. Nonetheless, the precedence from other countries show that some companies fare bett er after the GST/VAT implementation compared to others. As income for brokerage fi rms are derived from the buying and selling of fi nancial services related to the companies, naturally some fi rms would gain more than others. However in aggregate, larger brokerage companies may not feel much impact.

Malaysian GST and its impact on brokerage irms

There are a myriad of

factors affecting stockbrokers but it boils back to the most important one — investor expectations and sentiments

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IFN REPORTS

Bank of Tokyo-Mitsubishi UFJ (Malaysia) and the Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of IDB, on the 8th September signed a US$100 million commodity Murabahah agreement, to be utilized alongside ICD proprietary capital to fi nance projects in its member countries. VINEETA TAN examines how the agreement not only signifi es a crucial milestone for BTMU Malaysia but also a turning point for the ICD and the wider Islamic fi nancial market.

Japanese strengthThe historic signing of the facility marks another achievement for BTMU Malaysia in the area of Islamic fi nance as it forms the fi rst ever agreement to be contracted by the Japanese bank with a multilateral international fi nancial entity such as the ICD. The bank, which was involved in the highly successful US$170 million Islamic fi nancing facility for Brunei Gas Carriers (which won the IFN Structured Finance Deal of the Year 2013), has been steadfast in expanding and strengthening its Islamic fi nance footprint.

In addition to this most recent transaction, which follows an MoU with the ICD in April to establish a joint strategic collaboration to tap opportunities in the rapidly growing industry of Shariah compliant fi nance, the Japanese player is also looking to raise up to US$500 million-worth of yen-denominated Sukuk in Malaysia as it seeks to break into the ever growing Islamic fi nancial markets of Southeast Asia and the Middle East. And the bank shows no signs of slowing down as in the words of Naoki Nishida, CEO of BTMU Malaysia, the bank is “committ ed to work closely with ICD and support each other especially in the areas of technical assistance and potential business opportunities. We welcome and look forward to further opportunities to collaborate with ICD in its eff ort to support private initiated economic development projects in its member countries”.

ICD commitmentThe ICD, widely acknowledged as one of the most infl uential agencies in the Islamic fi nance markets, has also been

aggressively expanding its clout as revealed to Islamic Finance news (see Cover Story Vol. 11 Issue 21). In the exclusive interview, Khaled Al Aboodi, CEO of the ICD, said: “Demand is there in member countries, and we need to be able to meet that.”

The landmark Murabahah agreement with BTMU Malaysia is one step by the multilateral organization in the

direction of meeting this demand as it opens up new opportunities for scaling up ICD fi nancing in its member states. Choosing a Japanese bank as its partner also refl ects its growing global presence and solid commitment to promote cross-border Islamic investment as the organization continues to create linkages with non-traditional markets from the Asia Pacifi c region.

“Japan has shown growing interest to further develop its Islamic fi nance industry with the signing of today’s Murabahah agreement between the ICD and BTMU Malaysia. We are delighted with this initiative and it has also cemented our view of Malaysia as the Islamic fi nance hub from where we can engage in new relationships with non-traditional partners in the region,” said Khaled.

Crossing-bordersThe partnership between ICD and BTMU Malaysia demonstrates the rising confl uence of international forces in furthering the proposition of Islamic fi nance across borders and while the industry faces challenges on multiple fronts as a nascent sector, including misplaced apprehension towards the Shariah as a result of rising extremism, it remains imperative for global actors, both private and public, to come together to place Islamic fi nance in the light it deserves.

BTMU Malaysia-ICD inancing agreement marks growing internationalization of Islamic inance

Choosing a Japanese bank

as its partner also re lects its growing global presence and solid commitment to promote cross-border Islamic investment as the organization continues to create linkages with non-traditional markets


IFN REPORTS

The UK government last week issued a response to the 10-week public consultation launched in April, regarding a potential Shariah compliant alternative fi nance product to be off ered alongside traditional student loans for Higher Education in England. Following the consultation, which received 19,886 formal responses from both individuals and organizations including CityUK, Islamic Finance Council UK and Imperial College Union, the UK government has concluded that “there is demand for an alternative fi nance product, although the extent is unquantifi able”. REBECCA SIMMONDS assesses the future for plans to introduce Shariah compliant student fi nancing to England.

The results of the consultation suggested that over three quarters of the respondents were sent in a personal capacity, with 83% of respondents stating the changes in the cost of tuition fees and student loans (which can now reach up to GBP9,000 (US$14,690.1) per year) have had a large eff ect on students with religious objections to the charging of interest. Of the respondents, 94% believed that there would be demand among students and potential students for an alternative fi nance product which was Shariah compliant; 81% felt that the proposed alternative fi nance product would be acceptable to students and potential students, who currently hold concerns regarding the interest rates on traditional loans.

The consultation revealed concern regarding the true Shariah compliance of the proposed model and how the system would work; the necessity of AAOIFI compliance and the presence of a Shariah advisory committ ee that was

independent of government, free from fi nancial incentives, transparent and open, with no confl icts of interest was clear. The results of the consultation showed some limitations. There was evidence of campaigning activity resulting in a large number of responses with identical or similar wording and misunderstanding of the product, particularly the interest free component and this has been taken under advisement within the government response: “The government recognizes that with the introduction of an alternative fi nance product comprehensive information and guidance would be need to be put in place to raise awareness and articulate how this was Shariah compliant and which Shariah board and scholars had approved it.”

Despite the concerns voiced within the consultation, the exercise has provided the UK government with a positive response to the introduction of an alternative fi nance product, as prior to the consultation launch there had been no direct evidence to help inform policy-making. The potential alternative product, which is based on the Takaful model, has been developed by the UK government with the aid of Shariah compliance fi nance experts and has received preliminary approval from the Shariah advisory committ ee of the UK’s only retail Islamic bank, Islamic Bank of Britain.

Whilst the consultation has provided the necessary proof of demand for an alternative fi nancing product for students, there are still many more hurdles to overcome before the model is made reality. The UK government has identifi ed the need for a full feasibility study to determine whether the current student fi nancing and taxation infrastructure would be capable of servicing the Shariah compliant model. New primary legislation would be required for the off ering of the alternative model, meaning that it is unlikely that any alternative fi nance product will be available before the academic year 2016/17.

UK government responds to public consultation on Shariah compliant student inancing

There was evidence

of campaigning activity resulting in a large number of responses with identical or similar wording and misunderstanding of the product, particularly the interest-free component


IFN REPORTS

Set to debut this month, the government of Sharjah is scheduled to meet with potential investors across Asia, Europe and the Middle East within the coming two weeks to market its maiden Sukuk off ering. The benchmarked-sized US-dollar denominated Sukuk is expected to adopt the Ijarah structure. The third-largest emirate in the UAE has appointed HSBC, Kuwait Finance House, National Bank of Abu Dhabi, Sharjah Islamic Bank and Standard Chartered to arrange the roadshows. NABILAH ANNUAR reports.

The SPV established for the purpose of the Sukuk issuance, Sharjah Sukuk, has been assigned a provisional rating of ‘(P) A3’ by Moody’s. “Moody’s ‘A3’ government bond rating and stable outlook on Sharjah is primarily supported by the emirate’s very strong fi scal and government debt position, which benefi ts from the emirate’s membership in the UAE,” said Steff en Dyck, Moody’s lead sovereign analyst for Sharjah in a statement.

The ‘(P)A3’ rating assigned to the Trust Certifi cates is at the same level as the long-term local-currency and foreign-currency issuer ratings of the Government of Sharjah. Butt ressed by a competitive manufacturing sector, Sharjah’s credit strength is also supported by the relatively higher degree of economic diversifi cation compared to the rest of the UAE (UAE, ‘Aa2’ stable) and countries in the GCC. Nevertheless, due

to the small size of the emirate’s economy and its economic linkages with the rest of the UAE, Sharjah is still exposed to macroeconomic volatility.

Following a successful issuance, the emirate joins the likes of Dubai and Abu Dhabi, who are active in the international Sukuk market primarily driven by the US dollar currency peg, large fi nancing needs and leverage appetite. Market players are also waiting on an upcoming Sukuk issuance by the government of Ras Al Khaimah, which is yet to appoint any banks to manage the transaction.

Industry players have however suggested that the recent requests for proposals for a syndicated loan sent out by Ras Al Khaimah may lead to the postponement or cancellation of the sovereign’s Sukuk plans. According to statistics by Moody’s the UAE collectively leads international issuances globally: with over US$26.8 billion of Sukuk outstanding, and has att racted signifi cant global investor interest.

Sovereign Sukuk: Sharjah joins the big boys

The issuance sets a

benchmark for exchangeable Sukuk offerings, providing future issuers with greater options to access a wider pool of investors

Malaysia’s sovereign wealth fund, Khazanah Nasional (Khazanah), last week successfully priced a US$500 million Mudarabah-Murabahah exchangeable Sukuk priced at a negative yield of -5bps. REBECCA SIMMONDS takes us through the transaction.

The seven-year exchangeable Sukuk, which were issued via Khazanah’s Labuan-incorporated special purpose company Cahaya Capital, are the fi rst to be based on the principles of Mudarabah and Murabahah. The Sukuk issuance follows swiftly in the heels of the corporation’s previous issuance of Islamic medium-term notes of RM1.5 billion (US$469.47 million) via SPV Rantau Abang Capital on the 28th August this year.

This most recent benchmark-sized issuance priced through an accelerated book-building process with a -5bps yield to maturity and a 15% exchange premium. The Sukuk, with a tenor of seven years, are exchangeable into ordinary shares of Malaysia-based electricity utility company, Tenaga Nasional. The transaction drew a

demand of 1.6 times the book size and the company has stated that the issuance “sets a benchmark for exchangeable Sukuk off erings, providing future issuers with greater options to access a wider pool of investors.” The issuance will be listed on the Singapore Stock Exchange, Bursa Malaysia (under the exempt regime) and Labuan International Financial Exchange.

Khazanah has returned to the Islamic debt capital market repeatedly since its inaugural issuance of exchangeable Sukuk in 2006, which was a RM750 million (US$235.66 million) off ering of Sukuk exchangeable into Telekom Malaysia (TM) shares — the world’s fi rst. Since then, the company has made issuances off ering exchangeable Sukuk in six Malaysian underlying securities: shares of TM, Axiata Group, PLUS Expressways, Parkson Retail Group and IHH Healthcare. Azman Mokhtar, Khazanah’s managing director, said: “Malaysia is a leader in the dynamic Islamic fi nance sector, continuously pushing the boundaries in product innovation and market depth. The issuance of this exchangeable Sukuk is in line with Khazanah’s fund-raising

strategy and long term commitment towards a progressive divestment of its investments.”

Khazanah, which owns 69% of beleaguered national carrier Malaysia Airlines, recently detailed a tough restructuring plan for the airline, committ ing RM6 billion (US$1.88 billion) over three years in a bid to restore the airline to profi tability by 2017.

Khazanah Nasional issues innovative exchangeable Sukuk


ANALYSISIFN COUNTRY ANALYSISSAUDI ARABIA

Legal and regulatoryThe Saudi Arabia Monetary Agency (SAMA) acts as Saudi Arabia’s central bank and was established in 1952. In 2003, the Capital Markets Authority (CMA) was established to monitor publicly traded companies and regulate securities among other duties. However, the Shariah supervisory role for fi nancial transactions has not offi cially been assigned to either body, and whilst all banking transactions in Saudi Arabia are theoretically required to be wholly Shariah compliant, this is not the case in many instances. Saudi Arabia does not have a standalone Islamic banking law and has ruled out the adoption of a dual-system as employed in Malaysia. The task of Shariah supervision is generally assumed by the Shariah supervisory board of the concerned company.

In July 2014, SAMA issued a fi rst update of its consumer fi nancing regulations introducing caps for retail lending at individual banks and limiting the fees that may be implemented by the country’s banks. Analysts have indicated that Islamic banks may be most aff ected by the new regulations, experiencing a negative impact on their fee income growth prospects.

Business environmentApproximately 85% of exports and 90% of Saudi government revenues stem directly from the hydrocarbons sector. For many years foreign investors have sought to participate in trading on the country’s US$530 billion stock market, but have been restricted to purchasing stock via international swaps and through exchange-traded funds. However, in August 2014, the CMA announced that Saudi Arabian stock market, Tadawul, worth US$530 million would be opening to direct foreign investment for the fi rst time in 2015.Saudi Arabia is familiar to the regulatory bodies of Islamic fi nance, being home to the IDB. SAMA was one of the original stakeholders of the Malaysia-based International Islamic Liquidity Management Corporation (IILM) prior

to the unexpected end of its association with the organization in 2013.

Banking and inanceSaudi Arabia is home to three fully fl edged Islamic banks: Al Rajhi Bank, Al Bilad Bank and Alinma Bank; with the country’s other banks all also off ering Shariah compliant fi nance options. National Commercial Bank introduced its fi rst Islamic mutual fund based on Murabahah transaction in 1987 and in the 1990s launched the fi rst Shariah compliant global equity fund as well as establishing guidelines for Shariah compliant equity.

Despite a predicted demand for Sukuk in the GCC, syndicated fi nance remains a larger market for Islamic fi nance within the region, rising by 13.4% in 2013. However many industry players believe that with the entry of foreign investors to the Saudi stock market, a boom in the currently relatively restricted local currency Sukuk market will not be far behind, potentially creating a huge new market for Sukuk in the region. In 2013, US$15.2 billion-worth of Sukuk was issued out of Saudi Arabia, a 36.4% year-on-year increase, with two of the largest issuances on a global level being issued in the country: the US$4 billion Sukuk by General Authority of Civil Aviation and Sadara’s (Aramco) Sukuk worth US$2 billion. Dollar denominated Sukuk has been issued in Saudi Arabia by Dar Al Arkan Real Estate Development Co, Fawaz Abdulaziz Alhokair and Saudi Electricity Co this year, with local

currency paper coming from issuers including Almarai, National Commercial Bank and TF Varlik Kiralama.

Saudi Arabia is considered to be one of the most developed markets for Islamic fi nance, holding 18% of global Islamic banking assets and 14% of Islamic fund assets. Saudi Arabia is home to 10 of the 20 largest Islamic funds and over 160 Islamic funds in total. Whilst the country aims to diversify its revenue generating markets, currently approximately 90% of government revenues and 85% of exports stem directly from the hydrocarbons sector.

Foreign investmentBusiness for foreign banks in Saudi Arabia can be diffi cult. In recent months both Barclays Saudi Arabia and Goldman Sachs have surrendered their licenses, while Nomura Holdings also canceled its licenses to conduct dealing, managing investment funds and custody services and Standard Chartered ended its license to conduct dealing as an agent and investment fund management in March. Foreign banks are more tightly bound by regulations, only being able to provide limited services, in contrast to local banks, which can operate freely.

In terms of overseas investment for Saudi Arabia, the country is in the process of developing a new sovereign wealth fund to coordinate investment, which is currently supervised by SAMA. The country off ers aid to Muslim countries including Egypt and Pakistan, with a total of US$5 billion in aid to Egypt confi rmed in June.

OutlookThe potential opening of the Saudi stock market to foreign investors in 2015 has incited a rise of over 10% on the exchange since the announcement on the 21st July and is being heralded as a step that could encourage up to US$35 billion of incremental foreign infl ows once the market is open, welcoming a new surge of growth for Saudi’s fi nancial system (see cover story).

Saudi Arabia: An new era of evolution Considered one of the world’s most developed Islamic markets, the last year has seen closer relations between Tadawul, Saudi Arabia’s stock exchange, and those of Bahrain, the UAE and Malaysia to enhance fi nancial and economic linkages in the Islamic market. With the prospect of Tadawul opening to foreign direct investment for the fi rst time next year, REBECCA SIMMONDS explores the landscape for Islamic fi nance in the country ranked 26 in the World Bank’s Doing Business rankings.

Saudi Arabia is home to 10 of

the 20 largest Islamic funds and over 160 Islamic funds in total


ANALYSISIFN SECTOR ANALYSISSTRUCTURED FINANCE

According to data sourced from Dealogic, the highest Shariah compliant fi nancing deals are contracted in the real estate and property sector reaching US$2 billion. This is followed by the mining sector at approximately US$1.5 billion and the transportation industry at between US$1-1.5 billion. The telecommunications and fi nance sector have taken up loans at about US$500 million to US$1 billion each. Based on these fi gures, Islamic fi nancing exercises are most dominant in the UAE at US$3.2 billion, followed by Saudi Arabia at US$2.22 billion, Turkey at US$740 million, Qatar US$621 million and Sri Lanka at US$150 million.

On the back of UAE’s recovering real estate sector, three Islamic deals were made. Earlier in the year, IMG Theme Park concluded a AED1.2 billion (US$326.62 million) fi nancing deal with Abu Dhabi Islamic Bank (ADIB) for the company’s refi nancing exercises and project expansions. Emaar Properties secured a seven-year US$1.5 billion facility from Dubai Islamic Bank (DIB), Mashreq, Noor Bank, First Gulf Bank and National Bank of Abu Dhabi to restructure its debt. Union Properties acquired a AED360 million (US$97.98 million) refi nancing facility from DIB to manage its balance sheet and development purposes. In Saudi Arabia, Jabal Omar Development procured a six-month fi nancing scheme worth SAR464 million (US$123.7 million) from Saudi British Bank (SBB), which was utilized as an advance payment for the fourth phase in the Jabal Omar project.

Saudi Arabia contracted the most deals in the industries and mining sector. As one of the prominent fi nanciers in the kingdom, SBB provided Islamic fi nancing facilities to: (1) Astra Industries — SAR877.5 million (US$233.93 million) six-year package for capital expenditure; (2) Dallah Healthcare Holding Company — SAR955.5 million (US$254.72 million) half-year facility incorporating Tawarruq Metal Murabahah, bridge fi nancing and structured hedging for construction of medical facilities; (3) Umm Al Qura

Cement Company — a three-year SAR618.87 (US$164.98 million) million facility.

In the neighbouring UAE, DIB aff orded a 12-year US$245 million fi nancing package to Emicool District Cooling to fund its expansion plans. In Asia, Singapore-based Atlantic Navigation Holdings secured a US$15 million four-year term Islamic facility from Maybank Singapore to repay existing loans. In the transportation sector, majority of the fi nancing deals revolve around the aviation industry. Over the past fi ve months, the largest deal was procured by Emirates Airlines from ADIB, Commercial Bank of Dubai and DIB. Worth US$425 million, the facility fi nanced the purchase of two Airbus A380s. Kuwait’s Jazeera Airways Group obtained a three-year US$70.5 million rollover debt facility from Ahli United Bank for the group’s growth plans. In the southern hemisphere, Indonesian carrier Garuda Indonesia procured a Musharakah fi nancing scheme from Bank Internasional Indonesia worth US$100 million.

Two notable transactions were made in the telecommunications sector: Saudi Arabia’s Etihad Etisalat Company (Mobily) signed a 10.5-year facility with Export Development Canada, to acquire telecommunication equipment from Alcatel-Lucent. The SAR750 million (US$199.94 million) deal was priced at a fi xed rate of 2.52% per year and will be used over a period of two years. Virgin Mobile Middle East & Africa procured a US$15 million Murabahah senior secured facility for the company’s expansion and growth across the GCC region.

Several fi nancing deals have been made over the past few months in the fi nancial services sector. Some notable deals included a US$155 million receivable backed syndicated fi nancing facility provided by Noor Bank, Qatar Islamic Bank and Kuwait’s Warba Bank to Dubai’s Jebel Ali Freezone (JAFZ). Another prominent transaction was a US$105 million fi ve-year Islamic credits

facility provided by Kuwait Finance House to Gulf Finance House.

In this particular sector, two new products were introduced: (1) a dedicated construction fi nancing facility by Sohar Islamic; and (2) ‘Tamweely’ — a personal fi nancing product by KFH-Bahrain based on the Tawarruq structure allowing customers to gain fi nancing of up to BHD100,000 (US$263,630) by using the international commodity trading of palm oil off ered by KFH-Bahrain in partnership with an international broker a Bursa Malaysia.

An area that always resurfaces in structured fi nance is usually the confl ict between Shariah principles and commercial interests of the bank or fi nanciers. Moving forward, industry observers have urged the market to innovate. When it comes to structured products, it has been suggested that parties involved in a transaction endeavor to maximize a client’s asset portfolio. In the next six to 12 months, we can expect to see more interesting deals coming to the market as interest and participation in Islamic fi nance continues to develop across the globe.

Structured inance: The way forward Islamic structured fi nancing products typically incorporate two or more Shariah contract principles into one facility. Structured products are often tailored to the client’s unique fi nancing needs. It is therefore imperative for arrangers to use an appropriate structure and fi nd ways to capitalize on a borrower’s assets to cater to its fi nancing purposes. NABILAH ANNUAR delves into the prospects and opportunities of Islamic structured fi nance.

In the next six to 12 months,

we can expect to see more interesting deals coming to the market as interest and participation in Islamic inance continues to develop across the globe


CASE STUDY

The Indonesian government recently issued US$1.5 billion in US dollar-denominated Sukuk. Despite the relatively low yield, the transaction witnessed a demand reaching almost seven times its off er with bids amounting to US$10.2 billion. The orderbook was the largest ever achieved by a sovereign Sukuk issuance in Southeast Asia. NABILAH ANNUAR reports.

Due to mature on the 10th September 2024, the Sukuk carry a return of 4.35% and are part of the government’s Trust Certifi cate Issuance Program set up on the 5th November 2012.

Speaking to IFN, Robert Pakpahan, Indonesia’s director general of debt management, said that the proceeds from the issuance would be channeled to meet the country’s general fi nancing requirements. “The proceeds will be applied by the issuer for the purchase of the Ijarah assets and project assets from the Republic of Indonesia, and the Republic of Indonesia will use the proceeds received to meet part of its general fi nancing requirements.”

Indonesia’s Trust Certifi cate Issuance Program was initially set up at US$3

billion in November 2012. Through an SPV, Perusahaan Penerbit SBSN Indonesia III, the fi rst drawdown was trust certifi cates worth US$1 billion due in 2022. In September 2013, the Republic of Indonesia subsequently upsized the program to US$5 billion and auctioned US$1.5 billion trust certifi cates due 2019. The country regularly issues local currency Islamic paper including: Islamic fi xed rate bonds, project-based Sukuk and retail Sukuk, all of which utilizes the Ijarah structure.

The issuance incorporates the Wakalah principle, a structure that eff ectively utilized the government’s existing assets, and which aff orded it the fl exibility to use future infrastructure assets. “We worked hard to ensure that the innovation introduced, i.e. infrastructure projects under construction and/or to be constructed to be part of the underlying assets, met all requirements from the Shariah, legal and accounting perspectives. It was a thorough exercise that understandably took some time to conclude, but the result is a unique structure that allows us to access a new pool of assets for our Shariah compliant fund-raising exercises,” explained Pakpahan.

The paper is listed on the Singapore Stock Exchange due to its effi ciency and because all Indonesia’s Sukuk and global bonds have been listed there. Additionally the Singapore Stock Exchange provides the most active trading in the region.

The transaction achieved several milestones in the Sukuk space: the issuance is the largest single-tranche Sukuk issuance in 2014, it is the largest sovereign Sukuk in 2014 and the paper captured the largest orderbook for a Southeast Asian sovereign Sukuk to date.

In terms of geographical distribution, the fund-raising exercise att racted investors from the Middle East (35%), Asia (30%), US (20%), Europe (15%). As for investor type, the Sukuk was taken up by: fund managers (57%), banks (28%), central banks/sovereign wealth funds/supranational institutions (13%), others (2%).

Indonesian innovation

Republic of Indonesia

US$1.5 billion 4.35% Sukuk due 2024

September 2014

Issuer Perusahaan Penerbit SBSN Indonesia III

Obligor Republic of Indonesia

Issuance price 100%

Purpose of issuance

General fi nancing requirements

Trustee Bank of New York Mellon

Tenor 10 years

Coupon rate/return

4.35%

Payment Semi-annual

Currency US dollar

Maturity date 10th September 2024

Lead managers, bookrunners and Shariah advisors

CIMB Investment Bank, Emirates NBD Capital, The Hong Kong and Shanghai Banking Corporation and Standard Chartered Bank

Governing law English Law Indonesian law

Legal advisors/counsel

Allen & Overy , White & Case

Listing Singapore Stock Exchange

Underlying assets

51% Ijarah assets, 49% project assets

Rating ‘Baa3’ Stable (Moody's), ‘BB+’ Stable (S&P), ‘BBB-‘ Stable (Fitch)

Structure Wakalah

Tradability 144A/Reg S transaction, with access to the US investor base (QIBs), as well as Asian, European, Middle Eastern investors

Face value/minimum investment

US$200,000 and integral multiples of US$1,000 in excess thereof

It was a thorough

exercise that understandably took some time to conclude, but the result is a unique structure that allows us to access a new pool of assets for our Shariah compliant fund raising exercises


SHARIAHPRONOUNCEMENT

Pronouncement:There are few scenarios where the guarantee is generally required to be issued in favor of a conventional bank:

1. The customer of an Islamic bank may have obtained a certain loan facility from a conventional bank, and in order to fulfi ll the security requirement of the conventional bank, it requires a lett er of guarantee from the Islamic bank. In such a situation it is not permitt ed for the Islamic bank to issue a lett er of guarantee favoring the conventional bank guaranteeing the customer’s interest-bearing loan facility. This is because Shariah strictly negates payment or receipt of interest;

2. A contractor (customer of Islamic bank) undertakes a project owned by a conventional bank not to be used for banking purposes, such as a residential building. As owner of the building, the conventional bank requires normal construction-related guarantees such as a bid bond or performance bond and advance payment bond from the customer. In such cases, the Islamic bank is permitt ed under Shariah to issue the lett ers of guarantee in favor of the conventional bank, i.e. the owner of the project. This is because there is no involvement of the interest-bearing loan facility. Moreover, the project secured by the guarantee is not meant for Shariah-repugnant usage. However the text of such lett er of guarantee must be in line with Shariah principles and should be approved by the Shariah Board.

3. If the project that is the subject matt er of the guarantee is supposed to support any one or overall function of the conventional bank, such as construction or renovation of the head offi ce or branch, or to supply and install a system to be used by the conventional bank in its normal course of operation, it will not be permissible for an Islamic bank to issue the guarantee. This is because, as per Shariah, a guarantee must not be issued by an Islamic bank to secure any Shariah-repugnant activity.

Dr Hussain Hamed Hassan Chairman of the DIB Shariah Board, Managing director, Dar Al Sharia Legal & Financial Consultancy, Dubai, UAE

Query: Islamic banks often receive requests from their customers to issue a lett er of guarantee, wherein the benefi ciary of guarantee is a conventional bank. Shariah guidance is sought as to whether it is permissible for an Islamic bank to issue lett er of guarantee in favor of a conventional bank.

This Fatwa is brought to you exclusively by IFN in collaboration with Dar Al Sharia Legal & Financial Consultancy-Dubai. The Fatwa appearing in this space was obtained by Dar Al Sharia for issues faced by their clients and the documents stated in the Fatwa were developed at Dar Al Sharia. This Fatwa was compiled by Dr Muhiuddin Ghaziwww.daralsharia.com


IFN COUNTRYCORRESPONDENTS

INDONESIA

By Farouk Abdullah Alwyni

In order to support further the growth of the Islamic banking industry in the country, Bank Indonesia (BI), the country’s central bank, recently issued a regulation No. 16/12/PBI/2014 related to Shariah monetary operations in foreign currency, i.e. US dollars. The monetary operation for these US dollar-based term deposits will be done through an auction process by the central bank, through which the interested Islamic banks will need to place their bids.

The objective of the issuance of the US dollar-based term deposit is basically for the liquidity management purpose of Islamic banks. This will be the fi rst forex- based instrument issued by BI. The need for Islamic banks in Indonesia to have a Shariah compliant forex money market instrument has existed for some time. Prior to the issuance of this instrument, whenever there was an excess liquidity

in US dollars, Indonesian Islamic banks would normally place the funds in NOSTRO accounts in conventional banks and/or foreign banks.

The instrument used for this instrument is the Jualah Aqad, or commission-based agreement. The fi rst auction of this instrument was on the 20th August 2014 with three diff erent types of tenor: one week, two weeks and one month. According to BI, that fi rst auction was

successful, and the demand for the instruments was oversubscribed. Out of the target of US$70 million, it att racted bids amounting to US$89 million.

Most of the bids were for the instrument with two-week tenor (US$42 million), followed by the one-week tenor (US$34 million) and one-month tenor (US$13 million). BI decided to accept all bids. The pricing for these instruments were 0.13%, 0.14% and 0.16 % for the one-week, two-week and one-month tenor respectively.

BI hopes that the issuance of this instrument will further deepen the Islamic money market in the country, and complement existing rupiah-based money market instruments issued by BI and those used by inter-Islamic banks.

Farouk Abdullah Alwyni is the CEO of Alwyni International Capital (AIC) and the Chairman of the Center for Islamic Studies in Finance, Economics, and Development (CISFED). He can be reached at [email protected].

Deepening the Shariah money market in Indonesia

BI hopes the issuance of

this instrument will complement existing rupiah-based money market instruments

PAKISTAN

By Muhammad Shoaib Ibrahim

Recently, Habib Metropolitan Bank (a subsidiary of Habib Bank Zurich) launched its distinct new Islamic banking identity, SIRAT.

As reported by Habib Metro Bank, SIRAT is a divine word meaning path and direction, signifying an inspired journey towards excellence as its clients’ trusted partner. The bank has developed this name and image in alignment with its group strategy locally and internationally. The same refl ects in the implication of the inner working of the brand name SIRAT: Security, Integrity, Reliability, Accessibility and Trust.

The brand also depicts its legacy and corporate philosophy as a well-recognized and respectable fi nancial institution. The bank has always practiced strong ethical values which have been at the forefront in providing Shariah compliant banking solutions in the country.

In order to have a robust Islamic banking IT platform supporting its growth the bank has upgraded and re-designed its existing system and adopted in good

time a pool management mechanism based on regulatory requirements. It has also introduced and is in process of developing new tailor-made trade fi nance solutions in order to support clients’ business growth which is structured around their specifi c needs complying with Shariah guidelines.

The bank is committ ed to increasing Islamic banking services and keeping pace with the industry growth. In this regard it appreciates the level of support and guidance provided by the regulatory authorities. With the launch of brand SIRAT the bank is planning to increase its existing network of standalone Islamic banking branches by the end of next year and expand the brand presence in other parts of the group’s footprint areas.

Muhammad Shoaib Ibrahim is the CEO and managing director of First Habib Modaraba. He can be contacted at [email protected].

Islamic banking division of Habib Metro Bank: SIRAT


IFN SECTORCORRESPONDENTS

IFN COUNTRYCORRESPONDENTS

IFN Country CorrespondentsAFGHANISTAN: Manezha Sukhanyarhead of Islamic banking, Ghazanfar BankAUSTRALIA : Chaaban Omran,Principal, Crescent Professional Services

BAHRAIN: Dr Hatim El-Tahirdirector of Islamic Finance Knowledge Center, Deloitt e & Touche BANGLADESH: Md Shamsuzzamanexecutive vice president, Islami Bank BangladeshBELGIUM: Prof Laurent MarliereCEO, ISFIN BERMUDA: Belaid A Jheengoordirector of asset management, PwC BRUNEI: James Chiew Siew Huasenior partner, Abrahams Davidson & Co CANADA: Jeff rey S Grahampartner, Borden Ladner Gervais EGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Kader Merbouhco head of the executive master of the Islamic fi nance, Paris-Dauphine UniversityHONG KONG & CHINA: Anthony Chanfounder, New Line Capital Investment LimitedINDIA: H Jayeshfounder partner, Juris CorpINDONESIA: Farouk A AlwyniCEO of Alwyni International Capital and the chairman of Centre for Islamic Studies in Finance Economics and Development IRAN: Majid PirehIslamic fi nance expert, Securities & Exchange Organization of Iran IRAQ: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & Co JAPAN: Tareq Rahman Islamic fi nance consultantJORDAN: Khaled Saqqafpartner, Al Tamimi & CoKOREA: Yong-Jae Changpartner, Lee & KoKUWAIT: Alex Salehpartner, Al Tamimi & CoLEBANON: Johnny El Hachempartner – corporate, Bin Shabib & Associates LUXEMBOURG: Said Qacemesenior manager of Advisory & Consulting, Deloitt e Tax & Consulting MALAYSIA: Abdullah Abdul Rahmanpartner, Cheang & Ariff MALDIVES: Aishath Muneezadeputy minister, Ministry of Islamic Aff airs, MaldivesMALTA: Reuben Butt igiegpresident, Malta Institute of ManagementMAURITIUS: Sameer K Tegallyassociate, Conyers Dill & PearmanMOROCCO: Ahmed Tahiri Joutisenior consultant, Al Maali Islamic Finance Training and ConsultancyNEW ZEALAND: Dr Mustafa Faroukcounsel member for Islamic fi nancial institutions, The Federation of Islamic Associations of New Zealand (FIANZ)NIGERIA: Auwalu Ado; Shariah auditor, Jaiz BankOMAN: Riza Ismail; senior associate, Trowers & HamlinsPAKISTAN: Muhammad Shoaib Ibrahimmanaging director & CEO, First Habib ModarabaPHILIPPINES: Rafael A Moralesmanaging partner, SyCip Salazar Hernandez & GatmaitanQATAR:Amjad Hussain partner, K&L GatesRUSSIA: Roustam Vakhitovmanaging partner, International Tax AssociatesSAUDI ARABIA: Nabil Issapartner, King & SpaldingSENEGAL: Abdoulaye MbowIslamic fi nance advisor, Africa Islamic Finance Corporation SOUTH AFRICA: Amman MuhammadCEO, First National Bank-Islamic FinanceSINGAPORE: Yeo Wicopartner, Allen & GledhillSRI LANKA: Imruz Kamilhead of Islamic banking, Richard Pieris Arpico FinanceSWITZERLAND: Khadra Abdullahiassociate, Investment banking, Faisal Private BankSYRIA: Gabriel Oussi,general manager, Oussi Law FirmTANZANIA: Khalfan Abdullahihead of product development and Shariah compliance, Amana BankTHAILAND: Shah Fahadvice-president and head of strategic marketing and product development, Islamic Bank of ThailandTURKEY: Ali Ceylanpartner, Baspinar & PartnersUK: Roshan MadewalaCEO and director, Research Intelligence Unit US: Joshua Brockwellinvestment communications director, Azzad Asset ManagementYEMEN: Moneer Saif; head of Islamic banking, CAC Bank

IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports. For more information about becoming an IFN Correspondent please contact [email protected]

TRADE FINANCE

By Anthony Coleby

From the beginning of 2013 it has been recognized that Islamic factoring had the potential to make a signifi cant contribution to the trade fi nance sector in Oman, refl ecting its success in other major Islamic fi nance markets such as Malaysia, Indonesia and Pakistan. But with the Islamic fi nance sector now beginning to fl ourish in the sultanate, the perception of many Omani banking clients is that the local banking sector is not ready for the launch of Islamic factoring in the sultanate. In the experience of the author, no clients have yet sought the sanction of the Central Bank of Oman to market this elsewhere-established product to their customers.

Since ‘conventional’ factoring has proven readily adaptable to Shariah principles, to provide an Islamic alternative, there follows a brief consideration of the key areas that require att ention for that adaptation to be realized.

Factoring monetizes trade invoices by the sale to the bank of the underlying debt with the debt’s discounted value as the price. Att ention thus turns fi rst to the calculation of the discount applied; and here the date payable (and debtor quality) will be relevant, as will the benchmark ‘reward’ rate used. LIBOR + has been used for this purpose but a more Shariah-friendly measure continues to be sought.

Three other elements of the conventional factoring contractual model will require att ention also: the eligibility of receivables to be sold and then the linked areas of recourse to the client seller and the client seller’s obligations to repurchase.

Self-evidently, the debts or receivables to be purchased will need to fi t the parameters of Shariah as well as the other qualitative criteria set by the purchaser bank.

A fundamental tenet of Islamic fi nance is the sharing of risk between the parties, in this case the seller and the buyer. Recourse to the seller in respect of bad or doubtful debts will need to refl ect this. Full recourse (irrespective of cause of defect) would likely be seen as tilting the balance too far in favor of the purchaser bank. Non-recourse would likely prove commercially unviable. Limited recourse therefore remains, as the most Shariah compliant basis, with generally only debts tainted by seller culpability to be repurchased.

The absence of Islamic factoring from the Oman market refl ects a persistent conservative approach by participating banks. That said, with the sultanate’s initiatives to foster local SME’s, that absence is still surprising, given its potential assistance to that community.

Anthony J Coleby is the head of the corporate commercial department of Said Al Shahry Law Offi ce (SASLO). He can be contacted at [email protected].

Islamic trade inance in Oman

Factoring monetizes

trade invoices by the sale to the bank of the underlying debt with the debt’s discounted value as the price



TAKAFUL & RE-TAKAFUL

By Momodou Musa Joof

The Zambian regulatory body, Pensions and Insurance Authority, has approved the operation of a Takaful window by Phoenix of Zambia Assurance Company (2009) in collaboration with the Islamic Supreme Council of Zambia.

The Takaful products off ered by Phoenix include motor, marine, travel, fi re and general accident as well as bancassurance. The company seeks to expand their variety of products to include personal accident cover for schools, Family Takaful and Shariah compliant investment windows. When a client enrolls for Takaful, 30% of the premium paid is allocated to the insurance company’s management account while, the remaining 70% is put

into a fund. The fund places priority on paying claims, reinsurance and commission. Profi t made after fulfi lling these obligations are then shared among the participants. Takaful Insurance is open to all including non-Muslims. The Takaful Insurance product on general are for 12 months (365 days) and the profi t sharing event where all participants are invited is held annually.

Insurance creates the backbone of every healthy economy; this new and fairer system of insurance is expected to contribute positively to the Zambian economy by encouraging both Muslims and non Muslims to participate in the insurance business. The current participation of Zambians in insurance is relatively low, for example; a recent study the Insurance Association of Zambia revealed that six out of every 10 motor vehicles on the road in Zambia have no comprehensive insurance.

African territories have demonstrated signifi cant success in the Islamic insurance landscape; Nigeria recently passed legislation for Takaful, Kenya-based Takaful of Africa is fully operational and Takaful Gambia has won several awards and is currently trailing at 25% of insurance market share after just fi ve years with 12 insurance companies in Gambia. Egypt has established a re-Takaful window through Africa Re, South Africa has a Takaful Company and most other African countries on the continent are working towards establishing Takaful.

Momodou Musa Joof is the chief operations offi cer of the Takaful division at Phoenix of Zambia Assurance Company (2009). He can be contacted at [email protected].

Takaful window for Zambia

A recent study the Insurance

Association of Zambia revealed that six out of every 10 motor vehicles on the road in Zambia have no comprehensive insurance

IFN Sector CorrespondentsASSET MANAGEMENT Sean Daykin, head of investment funds, Emirates NBD Asset Management

CORPORATE GOVERNANCESeydina Fall, principal, smf + co

CROSS-BORDER FINANCING:Fara Mohammad, senior lawyer and consultant in Islamic fi nance

DEBT CAPITAL MARKETS: Muhammad Shoaib Ibrahim, managing director & CEO, First Habib Modaraba

DERIVATIVESSuhaimi Zainul - Abidin, treasurer for Gulf-Asia Shariah Compliant Investment Association and advisor to 5Pillars

LAW (EUROPE):Ayhan Baltaci, att orney at law, Bereket & Baltaci Law Firm

LAW (MIDDLE EAST) Bishr Shiblaq, head of Dubai offi ce, Arendt & Medernach

LEASING : Professor Dr Shahinaz Rashad, executive director, Financial Services Institute, Egyptian Financial Supervisory Authority.

MERGERS & ACQUISITIONS Jamal Hijres, CEO, Cappinova Investment Bank

MICROFINANCE (ASIA):Dr Mahmood Ahmed, executive vice president and director training, Islami Bank Training and Research Academy

MICROFINANCE (AFRICA): Mansour Ndiaye, director of microfi nance, Assistance and Consulting for Development

PRIVATE BANKING & WEALTH MANAGEMENTKhadra Abdullahi, associate, investment banking, Faisal Private Bank

PRIVATE EQUITY & VENTURE CAPITAL : Arshad Ahmed, partner, Elixir Capital

PROJECT & INFRASTRUCTURE FINANCEAnthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO)

REAL ESTATEPhilip Churchill, founder partner, 90 North Real Estate Partners

REAL ESTATE (MIDDLE EAST): Yahya Abdulla, head of capital markets — Middle East, Cushman & Wakefi eld

REGULATORY ISSUES (ASIA)Intan Syah Ichsan , chief operating offi cer, Samuel Aset Manajemen

REGULATORY ISSUES (MIDDLE EAST): Mohammad Abdullah Malik Dewaya, head of Shariah compliance and audit, Maisarah Islamic Banking Services

RETAIL BANKING : Ris Rizqullah, lecturer, Trisakti University

RISK MANAGEMENT : Hylmun Izhar, economist, Islamic Research and Training Institute, Islamic Development Bank Country

SECURITIES & SECURITIZATION : Nidhi Bothra, executive vice president, Vinod Kothari Consultants

STOCK BROKING & TRADING : Athif Shukri, research analyst, Adl Capital

STRUCTURED FINANCE:John Dewar, partner and head of Islamic fi nance, Milbank, Tweed, Hadley & McCloy

SUKUK Anthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO)

TAKAFUL & RE-TAKAFUL : Dr Sutan Emir Hidayat, assistant professor and academic advisor for Islamic fi nance, University College of Bahrain

TAKAFUL & RE-TAKAFUL (EUROPE): Ezzedine Ghlamallah, director, Solutions Insurance and Islamic Finance in France (SAAFI)

TRADE FINANCEAnthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO)

TREASURY PRODUCTS : Nafi th ALHersh Nazzal, certifi ed fi nancial & investment advisor

IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short sector reports. For more information about becoming an IFN Correspondent, please contact [email protected]



TREASURY PRODUCTS

By Nafi th Al-Hersh

Recent results from several R&D centers demonstrate that Islamic banks have achieved good progress in all fi nancial fi gures such as return on equity (ROE) and return on assets (ROA), in addition to the expectation to expand their businesses after entering the batt le of globalization. Islamic and conventional banks working under the umbrella of Islamic banking rules off er a wide choice of treasury products to suit customer needs without disregarding Islamic values and beliefs.

Islamic banks provide traditional products such as deposit, placement, shares, international Murabahah, Sukuk and such, in addition to new structured products with wide choices of Shariah compliant treasury to individuals, corporate and institutional clients. Investments in treasury should be managed by a team of dedicated personnel, so clients can be assured that their investment will be invested in a prudent and acceptable manner with a professional team.

For traditional treasury products, most Islamic banks present international commodity Murabahah investment (ICMI) which is an alternative deposit

product for corporate and institutional clients. ICMI, which is based on globally accepted Islamic concepts, involves the purchase and sale of metal commodities at the London Metal Exchange (LME) based on the Murabahah principle as the underlying transaction. The rate of return is pre-determined, fi xed and guaranteed with a tenor which can be as

short as 30 days and may reach to one year.

Special investment accounts (corporate and institutional) are another treasury product, a type of placement investment accounts on a profi t sharing (Mudarabah) contract with a pre-determined profi t sharing ratio for greater transparency. The rate of return is not fi xed and will only be known on maturity. Tenor can be from one day to fi ve years. Islamic negotiable instruments of deposit are a placement on a profi t-sharing (Mudarabah) contract basis with a pre-determined profi t sharing ratio. Therefore the rate of return is not fi xed and will only be known on maturity, which can be between 30 days to 10 years.

Nafi th AL Hersh Nazzal is an Islamic banking specialist, certifi ed fi nancial and investment advisor and statistical analyst in Jordan. He can be contacted at [email protected].

Islamic treasury products in global markets

Investments in treasury

should be managed by a team of dedicated personnel, so clients can be assured that their investment will be invested in a prudent and acceptable manner with a professional team


SPECIAL REPORT

ISLAMIC LEASING

By H Jayesh

There exist legal and regulatory issues creating impediments in the development of the conventional sale and lease-back structures of capital goods in India (domestic and cross-border).

Typically the types of lease transactions could be either for funding for new asset addition or to raise funding for assets already procured, that are structured to help enhance return on assets, i.e. sale and lease back. In case of the former, the manufacturer sells to fi nancier who in turn leases to the customer and the customer pays rentals to fi nancier through the tenor of the lease. The lease could be in the nature of an operating lease where at the end of the term, the customer has the option to buy at fair market value (FMV) or return the asset or get into a secondary lease at FMV. The lease could also be a fi nance lease where at the end of the tenor, the customer has an option to buy at a pre-determined price.

The issue with an operating lease is that asset purchase at end of tenor at FMV may be higher than the assumed residual value at the inception of the lease. In case of a fi nance lease, given similarities between fi nance lease and hire purchase, some states may VAT. States ask for upfront VAT on principal and interest for deemed sale transactions and they do not have any separate tax treatments (classifi cations) of fi nance lease.

a) Operating leases Company sells the asset to the

fi nancier which at the end of tenor may or may not be bought back by the company.

Issues• Ascertaining the actual FMV and

deciding the funding amount which may or may not be in line with the requirement of assets;

• Could lead to capital gains on

asset sale or a loss on the profi t and loss for asset sale;

• ‘No objection certifi cates’ required from existing lenders;

• Passing the operating lease classifi cation.

b) Finance leases The depreciation taken to date by

client, the new asset value and the fresh profi t and loss on sale of assets need to be accounted in accordance with the AS19 guidelines.

Issues • Financial controllership issues

Regulatory issues pertaining to cross-border leasesa) Finance lease would be construed

as a ‘capital account’ transaction under the Foreign Exchange (FX) Regulations. Such transactions are generally prohibited, unless specifi cally permitt ed either by the Reserve Bank of India (RBI) or under any particular FX Regulation)

b) Stamp duty: Movable vs immovable — As

per the Bombay Stamp Act, 1958 (BSA), the defi nition of immovable property includes things that are “permanently att ached to anything att ached to the earth”. While capital goods like plant and machinery

are typically movable assets, for other assets that are fi xed, the characterization becomes critical from a stamp duty perspective. Stamp duty rates are invariably much higher for immovable than for moveable.

Recommendations to encourage leasing transactionsa) Diff erent VAT rates for diff erent

asset classes and states with rules on claiming tax set off make the structure extremely complicated and any eff orts to simplify the same will help grow this business.

b) The government of India should consider amending the EXIM Policy to stipulate conditions under which (i) leasing structures with/without purchase undertaking into India would be permitt ed, (ii) type of assets that can be utilized for this purpose and (iii) category of ‘lessees’ who would be eligible to import such assets into India.

c) The RBI should consider clarifying what constitutes ‘fi nancial lease’ or ‘fi nance lease’ for the purpose of the Indian FX Regulations. Such clarifi cation can take into consideration (or cross-refer) to the defi nition provided in the Indian Accounting Standards (under AS 19).

There are many commonalities between conventional sale and lease-back structures and Shariah compliant sale and lease-back structures. The issues are also pertinent to Shariah compliant leased-backed Sukuk. The elements of microfi nance are considered as consistent with the goals of Islamic banking and they both have a signifi cant impact on one another’s development. As the demand for Shariah compliant based fi nancing is increasing, Islamic fi nance will in turn amplify the signifi cance of microfi nance in the market.

H Jayesh is the founder partner at Juris Corp. He can be contacted at [email protected].

The Indian leasing market India’s leasing industry is small in terms of overall economic size and recent growth. On new business volume, it ranks outside the top 50 globally. The Indian leasing market is still in the development stage at around 2-3% penetration but has been emerging as a strong market for operating leases — H JAYESH explores how growth looks set to continue in the coming year.

The RBI should consider

clarifying what constitutes ‘ inancial lease’ or ‘ inance lease’ for the purpose of the Indian FX Regulations


NEWS

DEALSPro it payment dueMALAYSIA: The second profi t payment of Puncak Niaga Holdings’ fi ve-year convertible Sukuk Ijarah worth up to RM165 million (US$52.29 million), under the stock code PI130062, is due and payable on the 17th September 2014.

Record sale for Indonesian SukukINDONESIA: The Indonesian government raised US$1.5 billion in sovereign Sukuk sales last week; the largest order book ever achieved for a sovereign Sukuk from Southeast Asia, according to the Indonesian fi nance ministry.

World Bank Sukuk in the worksGLOBAL: Michael Bennett , the head of derivatives and structured fi nance for capital markets at the World Bank, told IFN exclusively on the sidelines of GIFF 2014 that International Finance Facility for Immunization (IFFIm), for which the World Bank acts as treasury manager, is currently in the process of collecting investor feedback on a possible Sukuk in a non-deal roadshow with a number of OIC countries including Malaysia, the UAE, Qatar and Saudi Arabia. “We are seeing a strong response from investors

due to its unique SRI profi le and strong ‘AA+/AA’ rating,” he confi rmed. “We have not yet made a fi nal decision on whether to issue, but if the IFFIm Board decides to move forward, we may launch a transaction before the end of the year — perhaps as soon as this month.

Non-payment from Perwaja SteelMALAYSIA: Due to a standstill in a restructuring exercise under the purview of the Corporate Debt Restructuring Committ ee, Perwaja Group has indicated a non-payment of Perwaja Steel’s Murabahah medium-term notes of up to RM400 million (US$126.77 million) for the following stock codes: VL061658, VL061726 & VL061742, due on the 25th September 2014.

Khazanah pricesMALAYSIA: Malaysia’s national mortgage corporation Khazanah Nasional (Khazanah) on the 4th September successfully priced a US$500 million Mudarabah-Murabahah exchangeable Sukuk priced at a negative yield of -5bps. The seven-year exchangeable Sukuk, which was issued via Khazanah’s Labuan-incorporated special purpose company Cahaya Capital, is the fi rst to be based on the principles of Mudarabah and Murabahah. The Sukuk follows swiftly of the heels of the corporation’s previous

issuance of Islamic medium term notes for RM1.5 billion (US$2.22 billion) via SPV Rantau Abang Capital on the 28th August.

Following the launch of its offi ce in Istanbul last year, Khazanah may consider issuing Sukuk in Eastern Europe if there are good investable assets in the region, said Mohd Izani Ghani, Khazanah Nasional’s executive director and chief fi nancial offi cer. Izani also said that while there have been plans to issue Sukuk in Turkey, the interest rate environment in the republic is currently on the high side and volatile, making an issuance not feasible at the moment.

Goldman Sachs Sukuk roadshowGLOBAL: Goldman Sachs Group will begin meeting investors for two days in the Middle East to market its proposed Sukuk, starting on the 10th September.

IDB to begin Sukuk roadshowGLOBAL: The IDB has mandated CIMB, Deutsche Bank, First Gulf Bank, GIB Capital, HSBC, Maybank, Natixis, National Bank of Abu Dhabi and Standard Chartered as joint bookrunners for its potential US dollar-denominated Sukuk. The banks will arrange investor meeting in the Middle East, Europe and Asia beginning 11th September.

DEAL TRACKER Full Deal Tracker on page 33

DATE ANNOUNCED COMPANY’S NAME SIZE DATE EXPECTED STRUCTURE

5th September 2014 Goldman Sachs Group US$500 million TBC Sukuk Murabahah-Wakalah

4th September 2014 International Finance Facility for Immunization

TBA pre-2015 Sukuk

4th September 2014 Khazanah Nasional TBA TBC Sukuk27th August 2014 Zain Group TBC TBC Sukuk26th August 2014 CIMB Islamic Up to RM5 billion TBA Sukuk


NEWS

AFRICABNP Paribas wants law changeSENEGAL: Islamic Finance news has learned that BNP Paribas is in the process of applying to the Central Bank of Senegal to amend the country’s

banking law to allow for Islamic window operations as it intends to expand its Islamic banking footprint in the republic.

Slow progress for MoroccoMOROCCO: Two changes have been proposed to Morocco’s Islamic bank bill by the country’s Economic, Social and

Environmental Council, relating to a lack of consumer information regarding marketing by Islamic banks and the need for clarifi cation of the roles of the National Council of Ulema and the central bank in the oversight of the sector.

ASIASteps for wider Sukuk adoption MALAYSIA: Chung Chee Leong, the CEO of national mortgage corporation Cagamas, has called for regulators to simplify Sukuk structures to encourage more corporates and non-Muslim countries to issue.

Bank Asya under watchTURKEY: The Banking Regulation and Supervision Agency (BRSA) is reviewing the position of Bank Asya and has permitt ed authorities to replace the participation bank’s executives as well as facilitate with a takeover while sourcing for new shareholders. Authorities have also been granted the right to stop the bank’s domestic and international transactions.

Quiet con idence from Maybank Islamic MALAYSIA: Maybank Islamic is cautiously confi dent that the bank will be able to maintain its growth momentum over the second half of the year, according to Muzaff ar Hisham, the bank’s CEO. The bank has dismissed

speculation that it is in talks regarding a potential M&A with Bank Islam.

Separately, Maybank Group president and CEO Abdul Faris Alias has indicated that the bank is not worried about the potential merger of CIMB Group Holdings, RHB Capital and Malaysia Building Society; as the bank, particularly its Islamic business, is in a solid market position. Faris said that the proposed merger would be good for Malaysia in meeting the banking demands of the wider Southeast Asian region. Maybank, which has not seen any att ractive M&A opportunities as of yet, plans to grow its business organically with a focus on the Southeast Asian market.

Islamic capital market MALAYSIA: The Islamic capital market has signifi cant potential to expand into new frontiers where non-commercial considerations rank highly in determining the desired outcomes, according to Dr Nik Ramlah Mahmood, the deputy CEO of the Securities Commission Malaysia. Responsible innovation, the Halal industry and Waqf have been highlighted as areas that have the potential to be catalysts for Islamic capital market growth.

Islamic inance planningMALAYSIA: The Malaysian Financial Planning Council has received approval from the Securities Commission Malaysia (SC) for its Shariah Registered Financial Planner program, which equips practitioners with Islamic fi nance and Takaful knowledge. The program has also been recognized and endorsed by Bank Negara Malaysia.

Green inancingMALAYSIA: RAM Ratings anticipates green Sukuk becoming instrumental in the fi nancing of low-carbon and renewable energy economies and expects the use of Islamic fi nance instruments in raising capital for sustainable development projects to set a new precedent for the industry.

Scale a priority for CIMB Islamic MALAYSIA: CIMB Islamic will pursue a larger balance sheet to help win more business, whether or not the proposed merger with RHB Capital and Malaysia Building Society goes ahead, according to Badlisyah Abdul Ghani, the bank’s CEO, speaking on the sidelines of GIFF 2014.

AMERICASBright future for Islamic inance

US: Long-term growth prospects for Islamic fi nance are present, due to the strong demand for Shariah compliant products, according to William Truscott , CEO of global asset management at US investment fi rm Ameriprise Financial. Delivering the special address at GIFF 2014, Truscott also predicted a bright future for Islamic asset management market on the back of further product innovation.

New services from IdealRatings US: US-based IdealRatings has announced the launch of its Sukuk Shariah Screening Solution, a research-based online screening service allowing investors to screen Sukuk against diff erent Shariah guidelines in the market such as AAOIFI, OIC and Securities Commission Malaysia as well as defi ning their own custom composite Shariah guidelines. The company has also launched fi ve US dollar Sukuk indexes with segmentation of investment grade Sukuk, sovereign, corporate, fi nancial

and general. Saudi-based Shariah compliant Alinma Bank assisted in the development of the new IdealRatings off erings.

GFH acquires US portfolioUS: As part of its diversifi ed US residential portfolio, Shariah compliant Gulf Finance House has acquired two multi-family residential properties in Houston. The portfolio, which will be off ered at an expected average yield of 9% per year at a fi ve-year maturity, will also consist of one residential property in Atlanta.

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NEWS

Kazakhstan stepping upKAZAKHSTAN: The Kazakhstani government and central bank will provide fi nancial aid to train human capital for the country’s Islamic fi nance industry, confi rmed Kairat Kelimbetov, the governor of National Bank of Kazakhstan. This is part of the country’s eff orts to develop the Shariah compliant fi nance industry of Kazakhstan, for which the central bank has pledged support, both technical and fi nancial.

BSP studying proposalPHILIPPINES: The central bank of the Philippines (BSP) is currently studying the proposal to establish another Islamic bank to join the country’s existing player, Al Amanah Islamic Investment Bank of the Philippines, in order to widen the reach to the underbanked Muslim population, confi rmed deputy governor for supervision and examination, Nestor Espenilla.

Slower growth for Bank IslamMALAYSIA: Bank Islam projects a lower growth for its fi nancing activities this year at 20% as compared to last year’s 25% increase, taking stock of Bank Negara Malaysia’s measures to slow down debt growth in the household sector, according to managing director Zukri Samat.

Saadiq in Brunei?BRUNEI: Standard Chartered Bank Brunei (SCB) is considering launching its Shariah compliant brand Saadiq in Brunei in addition to its existing conventional business in the sultanate. SCB CEO Lai Pei-Si said that the bank is studying the prospect and although no time frame has been given, she reportedly said that the bank’s foray into the Bruneian Islamic banking market will be “sooner rather than later”.

BB cuts Sukuk maturity periodBANGLADESH: Through the recently-amended Islamic Investment Bond Guidelines 2004, Bangladesh Bank (BB) has introduced shorter tenor Sukuk programs at three months in addition to the existing six-month facilities available as a measure to provide Islamic banks with more liquidity management options.

Tajikistan responding to demandTAJIKISTAN: It has been reported that the National Bank of Tajikistan has commissioned a group of experts to draft amendments to several pieces of legislation which will include those relevant to Islamic banking, an area the central bank said many domestic banks have expressed keen interest in.

EUROPEIncreased UK investor demandUK: Investor demand for Sukuk in the UK could help fund almost GBP400

billion (US$661.85 billion) of planned infrastructure projects according to Mansur Mannan, the executive director of DAR Capital.

The UK government is considering how to further develop its strategy for Islamic

fi nance according to the country’s debt offi ce. The UK government has no further plans to issue Sukuk but according to TheCityUK the corporate sector is considering its options.

GLOBALGlobal moves for Islamic inance

GLOBAL: Awareness of Islamic fi nance is still low, according to Daud Vicary, the president and CEO of INCEIF. At a GIFF 2014 panel on global linkages, Vicary stated that a step towards the internationalization of Islamic fi nance would be educating entrepreneurs to bett er understand its benefi ts.

Malaysian takes the prizeGLOBAL: The Royal Award for Islamic Finance 2014, an initiative spearheaded by Malaysia’s central bank and Securities Commission, has been awarded to Dr Abdul Halim, who was instrumental in establishing the organization structure and operating procedures of Malaysia’s fi rst Islamic bank (Bank Islam Malaysia) in 1983 in his capacity as managing director. Dr Abdul Halim, who was also chairman of the country’s fi rst Islamic insurance company (Takaful Malaysia), is

the fi rst Malaysian to receive this award, which was presented by the King of Malaysia.

Dr Abdul Halim has urged the Malaysian Islamic fi nance and banking community to consider establishing Sadaqah houses, a fi nancial institution under the purview of the central bank and Securities Commission Malaysia, to collect Sadaqah, Waqf and Hibah from the private sector and distribute to the poor and the needy.

Islamic inance arbitrationGLOBAL: INCEIF and the UK-based Chartered Institute of Arbitrators (CIArb) have signed an MoU, on the sidelines of GIFF 2014, to deliver courses on alternative dispute resolution in Islamic fi nance and banking.

The collaboration between INCEIF and CIArb is focused on expanding the range of dispute resolution options available in Islamic fi nance. An eight-day course ‘Certifi cate in Islamic Banking & Finance

Arbitration’ will be run in October in Kuala Lumpur, to kickstart the collaboration.

IILM seeks new membersGLOBAL: Malaysia-based International Islamic Liquidity Management Corp is seeking to widen its membership base with the success of its short-term Sukuk program launched August last year, according to its CEO, Rifaat Ahmed Abdel Karim.

Green investingGLOBAL: Islamic fi nance asset managers are looking to fi nancial products based on renewable energy and sustainable agriculture as they seek avenues for crossover investment opportunities in ethical and Shariah compliant investing. The new instruments being developed are tailored specifi cally to invest in a certain type of asset in a specifi c country or region combining Shariah compliance screening with other practices required by sustainable investment fi rms.

Join the most active Islamic finance focused

group on Linked-In

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NEWS

Egypt seeks IDB fundingGLOBAL: The IDB executive board will meet next October to review Egypt’s request for US$223.2 million in funding to complete the second phase of upgrading Sharm El-Sheikh airport. Egypt has also submitt ed a request to the IDB for US$160 million to fi nance Egypt’s electricity interconnection project in partnership with Saudi Arabia.

Parthenon-EY launchedGLOBAL: EY has announced the conclusion of merger with Parthenon Group, a global strategy consultancy. Under the new arrangement, Parthenon Group and EY’s investment strategy practices will operate under the Parthenon-EY brand (part of EY’s global Transaction Advisory Services) which will be led by Bill Achtmeyer, the chairman and founder of Parthenon.

Digital future for Islamic inance

GLOBAL: Islamic fi nance should utilize the advances in digital technology to move ahead and be more relevant to the changing market, according to Goh Peng Ooi, the chairman of IT solutions fi rm,

Silverlake Group. Mobile banking was highlighted as an area that Islamic banks could use to grow.

ICD invests in Nigeria’s biggest companyGLOBAL: Dubai state fund, Investment Corporation of Dubai (ICD), has agreed to purchase a US$300 million stake in Nigeria-based cement producer Dangote Cement, the equivalent of a 1.3% holding.

Global Sukuk issuance continues to growGLOBAL: Global Sukuk issuance for the fi rst eight months, as of the end of August 2014, reached US$80.35 billion according to a report by Kuwait Finance House (KFH), 6.8% higher than the issuance for the same period in 2013.

Despite an increase of in total overall Sukuk issuance of 19% in the GCC and 6% in Malaysia over the same timeframe, a recent report by S&P has indicated a dip in corporate and infrastructure Sukuk, with issuance in the GCC and Malaysia dropping by dropping 33% and 7%, respectively over the last eight

months. The decline has been att ributed to the availability of cheap bank fi nancing as well as a small pool of Sukuk investors and an early Ramadan season. Despite the volatility of corporate and infrastructure Sukuk issuance, S&P predicts that the sector will grow over the next few years.

IFDI launchedGLOBAL: The ICD-Thomson Reuters 2014 Islamic Finance Development Indicator (IFDI) has been released, identifying Bahrain as the leading Islamic fi nance market in the GCC. The report is a numerical measure representing the overall health and development of the global Islamic fi nance industry.

New SWIFT Islamic inance rulebookGLOBAL: SWIFT (Society for Worldwide Interbank Financial Telecommunication) will publish the Islamic Finance Rulebook by the end of the year. The guideline intends to clarify on the types of SWIFT MT messages utilized in Shariah compliant transactions and aims to increase straight-through processing of these deals.

MIDDLE EASTEI extends campaignUAE: Following encouraging response, Emirates Islamic has re-launched its ‘Personal Finance Sale’ package which off ers UAE customers low rates on personal fi nancing facilities.

New SAMA rules to hit Islamic banks hardestSAUDI ARABIA: Saudi Arabian Monetary Agency (SAMA) has published new consumer lending regulations allowing it to cap retail lending at individual banks and limit the fees that banks in the country can charge. The regulations allow SAMA to impose restrictions on the size of creditors’ consumer fi nancing portfolio in relation to its total fi nancing portfolio, and restrict all fees, costs and administrative services charges collected by banks to up to 1% of the fi nancing amount or SAR5,000 (US$1,333.06) whichever is lower. Brokerage fi rm EFG Hermes predicts that the country’s Islamic banks will see the biggest negative impact on their fee

income growth prospects due to the regulations.

Emaar Malls Group to be listedUAE: UAE-based Emaar Malls Group, which issued Sukuk of US$750 million in June this year, will launch the company’s IPO on the 14th September and will be listed on the Dubai bourse on the 2nd October, according to a statement by the company’s parent company, Emaar Properties. At least 15% of the share capital of Emaar Malls Group, which has been determined at AED13 billion (US$3.54 billion) will be fl oated and the IPO will be divided into two tranches: one for retail investors and one for institutions, with only 40% of shares on off er to retail investors and the remaining 60% open to institutions.

Islamic inance regulation for YemenYEMEN: The executive board of the IMF has approved a three-year US$552.9 million extended credit facility

arrangement with the Republic of Yemen to support the economic program launched by the country’s government to boost macroeconomic stability and growth.

The program includes reforms aimed at strengthening consolidated and cross-border supervision, and developing regulation to address risks specifi c to Islamic banking. An amount equivalent to SDR48.75 million (about US$73.8 million) is available for immediate disbursement and the remaining amount will be issued in semi-annual disbursements, subject to six reviews.

Pioneering service from Al HilalUAE: As a result of the strategic partnership signed between Al Hilal Bank and Emirates Identity Authority (EIDA) in January 2013, customers of the Shariah compliant bank can now make ATM withdrawals and transfers using their EIDA cards. This service is the fi rst of its type in the UAE.


NEWS

SKFH advising SukukSAUDI ARABIA: Saudi Kuwait Finance House (SKFH) is reportedly advising on a Sukuk deal for a leading Saudi contractor and expects to sign the deal in October. The Shariah compliant bank is also involved in two IPOs, one of which may come to market by the end of the year.

Open for businessUAE: Etihad Credit Bureau issued its fi rst credit reports on the 8th September.

The service will initially be available to banks and fi nancial institutions that have subscribed to the system and submitt ed historical credit data to the bureau.

Growth plans for ENBDUAE: Dubai-based Emirates NBD (ENBD), which off ers Islamic fi nance products, is planning to expand operations in Saudi Arabia, according to Shayne Nelson, the bank’s CEO.

Personal banking from Barwa BankQATAR: Shariah compliant Barwa Bank has announced the opening of a new branch at Medina Centrale, located in The Pearl-Qatar. The new branch off ers Barwa Bank’s Prestige personal banking service.

RESULTSADIB EgyptUAE: Abu Dhabi Islamic Bank (ADIB) Egypt recorded a 245% year-on-year growth in net income for the fi rst half of 2014 at EGP117 million (US$16.1 million). Total assets reached EGP17 billion (US$2.34 billion), up 4.2% year-on-year

driven by growth in customer fi nancing, which increased 13.4% against the last quarter of 2013 to reach EGP7.5 billion (US$1.03 billion).

PBDACEGYPT: Principal Bank for Development and Agricultural Credit (PBDAC) has reportedly registered a surplus of EGP30

million (US$4.13 million) in Shariah compliant transactions for the 2013/14 fi scal year, despite incurring cumulative losses of EGP3.5 billion (US$481.54 million). The bank projects its Islamic dealings deposits, which currently stand at about EGP800 million (US$110.07 million) to reach EGP1 billion (US$137.58 million) by the end of 2014.

TAKAFULMega potential for MalaysiaMALAYSIA: Malaysia has the experience and the potential to become a mega Takaful operator in the region according to EY and is in a position to help develop other regional markets.

Malaysia has the most successful template for Family Takaful, according to Ashar Nazim, EY’s global Islamic fi nance leader. He also said Takaful operators in Malaysia should take advantage of the country’s standing as a core Islamic fi nancial market with a strong industrial base. Malaysia and Indonesia hold one-third of the global Takaful market, with penetration rates of 5% and 1.8% respectively.

XL adds Takaful productsUK: Ireland-based XL Group has expanded its suite of Takaful products through Cobalt Underwriting; the operator now covers fi ne art and specie in addition to its existing coverage of property, construction and fi nancial lines.

ASSETMANAGEMENTNew fund from Al Rajhi CapitalSAUDI ARABIA: Saudi-based asset manager Al Rajhi Capital has announced the launch of the off ering period for the fi rm’s Al Rajhi Sukuk Fund. The open-ended Shariah compliant fund invests in

global Sukuk and other Shariah compliant instruments. The fund is aimed at individual and institutional investors with a benchmark of three-month US dollar LIBOR + 75bps.

NAVs for Rasmala fundsGLOBAL: As of the 1st September 2014, the Rasmala GCC Islamic Equity Income Fund registered a net asset value (NAV) of 133.03, a 38bps accretion month-to-date while its Rasmala Global Sukuk

Fund charted a slight month-to-date decline of 1bps to 101.79.

Malaysian-Turkish asset management partnershipGLOBAL: By way of an MoU, RHEA Asset Management of Turkey and Malaysia-based CIMB-Principal Islamic Asset Management have agreed to jointly develop a partnership in the Turkish Islamic asset management space.

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NEWS

MOVESAl Baraka Banking GroupBAHRAIN: Shariah compliant Al Baraka Banking Group has announced the appointment of Mohammed El-Qaq as senior vice-president and head of its commercial banking department. El-Qaq comes to the role with more than 22 years of commercial banking experience.

ADIAUAE: Sovereign wealth fund Abu Dhabi Investment Authority (ADIA) has announced the appointment of Brian Tipple as the fund’s fi rst global head of

external equities. Tipple comes to ADIA from his previous role as chief investment offi cer at US-based Key Private Bank.

Salama Cooperative Insurance CoSAUDI ARABIA: Saudi-based Salama Cooperative Insurance Co has announced the resignation of non-executive board member, Faisal Mustafa Alkurdi, with eff ect from the 8th September 2014.

Bank Muamalat MalaysiaMALAYSIA: Islamic Finance news can confi rm that Mashitah Osman, who left

Bank Islam as director of corporate investment banking in June, has recently joined Bank Muamalat Malaysia as chief operating offi cer.

Bahrain BourseBAHRAIN: Bahrain Bourse has appointed Sheikh Dr Osama Mohammed Bahar as its Shariah advisor to advise on Islamic products the bourse intends to launch in the upcoming period. Dr Osama was att ached to several Islamic banks previously including Al Salam Bank, ABC Islamic Bank and Shamil Bank among others.

RATINGSKimanis Power’s rating af irmedMALAYSIA: MARC has affi rmed the rating of ‘AA-IS’ for Kimanis Power’s RM1.16 billion (US$367.65 million) Sukuk program. The rating comes with a stable outlook and incorporates the imminent start of full commercial operations of the company’s 285-megawatt power plant in Sabah and long-term power purchase agreement with Sabah Electricity and the involvement of Petronas Gas.

S&P assigns an ‘A’UAE: S&P has assigned an ‘A’ rating to the proposed Sukuk certifi cates from Sharjah Sukuk, the SPV established by the government of Sharjah.

‘AAA’ for Puncak WangiMALAYSIA: Puncak Wangi’s proposed guaranteed Islamic medium-term notes program of up to RM200 million (US$62.95 million) in nominal value has been rated ‘AAA(fg)’ by RAM, refl ecting

the irrevocable and unconditional guarantee of Danajamin Nasional. Puncak Wangi is wholly-owned by Malaysian Resources Corporation, undertaking the construction of an offi ce building in Petaling Jaya.

Improved rating for Dar Al-ArkanSAUDI ARABIA: Dubai-listed Dar Al-Arkan Real Estate Development Company has been assigned a corporate credit rating of ‘Ba3’ by Moody’s Investors Service. The rating comes with a stable outlook and is an improvement on the ‘B+’ rating assigned to the company by S&P.

‘AAA’ rating for KLIAMALAYSIA: RAM has reaffi rmed the enhanced ‘AAA’ ratings of KL International Airport’s (KLIA) RM4.06 billion (US$1.28 billion) Bai’ Bithaman Ajil notes issuance facility with a stable outlook. The ratings are based on the unconditional and irrevocable guarantee of repayment by the government of Malaysia.

Fitch rates UAE bankUAE: Fitch has assigned support ratings of ‘1’ to Abu Dhabi Islamic Bank, Al Hilal Bank, Dubai Islamic Bank and Mashreqbank; and aff orded a support rating of ‘2’ to Sharjah Islamic Bank and RAKBANK. The ratings refl ect high probability of state support.

Saudi Arabia af irmedSAUDI ARABIA: Saudi Arabia’s long-term foreign and local currency issuer default ratings (IDR) have been affi rmed at ‘AA’ by Fitch, with a stable outlook. The country ceiling has been rated ‘AA+’ while short-term foreign currency IDR stands at ‘F1+’.

Top ratings for BTMUGLOBAL: Bank of Tokyo-Mitsubishi UFJ, which off ers Islamic products and services in Malaysia, has been reaffi rmed at ‘AAA/Stable/P1’ by RAM, refl ecting the credit metrics of the bank’s parent group, Mitsubishi UFJ Financial Group.

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DEAL TRACKER

DATE ANNOUNCED COMPANY’S NAME SIZE DATE EXPECTED STRUCTURE 5th September 2014 Goldman Sachs Group US$500 million TBC Sukuk Murabahah-

Wakalah

4th September 2014 International Finance Facility for Immunization

TBA pre-2015 Sukuk

4th September 2014 Khazanah Nasional TBA TBC Sukuk

27th August 2014 Zain Group TBC TBC Sukuk

26th August 2014 CIMB Islamic Up to RM5 billion TBA Sukuk

25th August 2014 Sunway Treasury Sukuk Up to RM2 billion TBA Sukuk Mudarabah

19th August 2014 Malaysia Airport Holdings TBA TBA Sukuk

18th August 2014 Government of Indonesia IDR6.4 trillion pre-2015 Sukuk

15th August 2014 DIFC Investment TBA Sep-14 Sukuk

28th November 2013 Government of Hong Kong US$1 billion Sep-14 Sukuk

9th July 2014 Emirate of Sharjah TBA Sep-14 Sukuk

7th August 2014 Government of Malta TBA TBA Sukuk

20th June 2014 Bank Internasional Indonesia IDR300 billion TBA Sukuk

26th May 2014 Government of the Philippines TBA 2016 Sukuk

2nd May 2014 Government of Pakistan US$1 billion Sep-14 Sukuk

7th February 2014 Government of Tunisia US$140 million Sep-14 Sukuk

26th August 2013 Societe Generale RM1 billion TBA Sukuk

2nd July 2014 Adira Dinamika Multi Finance IDR1.5 trillion 2014 Sukuk

27th June 2014 Dogus Varlik Kiralama Up to US$400 million TBA Sukuk

25th June 2014 Bank Muamalat Malaysia Up to RM2 billion TBA Sukuk

17th June 2014 International Finance Corp TBA 2015 Sukuk

9th May 2014 IOI Properties RM1.5 billion TBA Sukuk

17th June 2014 Jeddah Economic Co TBA TBA Sukuk

21st January 2014 UEM Sunrise RM2 billion TBA Sukuk

17th June 2014 Aktif Bank Up to TRY200 million TBA Sukuk

6th June 2014 Government of Ras Al Khaimah TBA TBA Sukuk

5th June 2014 Government of Jordan TBA TBA Sukuk

5th June 2014 Bank of Tokyo-Mitsubishi UFJ Up to US$500 million TBA Sukuk

2nd June 2014 Al Othaim Real Estate and Investment Co

Up to SAR1billion TBA Sukuk

2nd June 2014 Bank Islam Malaysia Up to RM1 billion 2014 Sukuk

22nd May 2014 Felda Global Ventures Holdings US$1 billion 2H2014 Exchangable Sukuk

20th May 2014 Al Baraka Banking Group US$200 million TBA Sukuk

26th November 2013 Government of South Africa US$500 million TBA Sukuk

5th May 2014 Meethaq OMR300 million TBA Sukuk

30th April 2014 Pelaburan Mara RM1 billion TBA Sukuk

30th April 2014 Hua Yang RM250 million TBA Sukuk Murabahah

18th April 2014 Dubai Islamic Bank TBA TBA Sukuk

11th April 2014 KLCC REIT RM3 billion TBA Sukuk Murabahah

10th April 2014 Emaar Misr for Development TBA TBA Sukuk

8th April 2014 Etiqa Takaful RM300 million TBA Sukuk Musharakah

Sabah Credit Corp Up to RM1.5 billion TBA Sukuk Musharakah

4th April 2014 Electricity Supply Board - Ireland RM500 million TBA Sukuk

4th April 2014 Japan Bank TBA TBA Sukuk

2th April 2014 Treedom Group TBA TBA Sukuk

27th March 2014 Maybank Islamic RM10 billion TBA Sukuk Murabahah

27th March 2014 Bumi Armada Capital RM1.5 billion TBA Sukuk

21st March 2014 Saudi Investment Bank TBA TBA Sukuk


SHARIAH INDEXES

SAMI Halal Food Participation (All Cap) 6 months

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

REDmoney GCC 6 Months REDmoney Global 6 Months

REDmoney MENA 6 Months REDmoney US 6 Months

1700

1780

1860

1940

2020

2100

Sep-2014Aug-2014Jul-2014Jun-2014May-2014Apr-2014

All Cap Large Cap Medium Cap Small Cap

650

800

950

1100

1250

1400

SepAugJulJunMayApr800

880

960

1040

1120

1200

SepAugJulJunMayApr


500

660

820

980

1140

1300

SepAugJulJunMayApr


680

844

1008

1172

1336

1500

SepAugJulJunMayApr


500

630

760

890

1020

1150

SepAugJulJunMayApr


800

1080

1360

1640

1920

2200

SepAugJulJunMayApr



SHARIAH INDEXES

For further information regarding REDmoney Indexes contact:

Andrew MorganManaging Director, REDmoney Group

Email: [email protected] +603 2162 7800

RED

REDmoney Global Shariah Index Series

REDmoney Global Shariah Index Series (All Cap) 6 Months REDmoney Global Shariah Index Series (Large Cap) 6 Months

REDmoney Global Shariah Index Series (Medium Cap) 6 Months REDmoney Global Shariah Index Series (Small Cap) 6 Months

Utilities2%Telecomunication Services

2%

Technology14%

Basis Materials15%

Non-CyclicalConsumer Goods Services

7%

Energy8%

Financials4%

Healthcare11%

Industrials22%

Consumer Goods Services15%

REDmoney Global Shariah

Equities are considered eligible for inclusion into the REDmoney Global Shariah Index Series only if they pass a series of market related guidelines related to minimum market capitalization and liquidity as well as country restrictions.

Once the index eligible universe is determined the underlying constituents are screened using a set of business and fi nancial Shariah guidelines.

The REDmoney Global Shariah Index Series powered by IdealRatings consists of a rich subset of global listed equities that adhere to clearly defi ned and transparent Shariah guidelines defi ned by Shariyah Review Bureau in Jeddah, Saudi Arabia.

The REDmoney Shariah Indexes provides Islamic investors with an accurate and Shariah-specifi c equity performance benchmark with optimized compliance credibility due to the intensive research conducted to ensure that index constituents do not confl ict with the defi ned Shariah requirements.

IdealRatings™ is the leading provider of Shariah investment decision support tools to investors globally, including asset managers, brokers, index providers, and banks to empower them to develop, manage and monitor Shariah investment products and Shariah compliant funds. IdealRatings is headquartered in San Francisco, California. For more information about IdealRatings visit: www.idealratings.com

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

550

720

890

1060

1230

1400

SepAugJulJunMayApr450

610

770

930

1090

1250

SepAugJulJunMayApr



500

840

1180

1520

1860

2200

SepAugJulJunMayApr



500

800

1100

1400

1700

2000

SepAugJulJunMayApr




FUNDS TABLES

Comprehensive data from Eurekahedge will now feature the overall top 10 global and regional funds based on a specifi c duration (yield to date, annualized returns, monthly returns), Sharpe ratio as well as delve into specifi c asset classes in the global arena – equity, fi xed income, money market, commodity, global investing (which would focus on funds investing with global mandate instead of a specifi c country or geographical region), fund of funds, real estate as well as the Sortino ratio. Each table covering the duration, region, asset class and ratio will be featured on a fi ve-week rotational basis.

Eurekahedge Islamic Fund Index

Top 10 Yield-to-Date Returns for ALL Funds

Fund Fund Manager Performance Measure Fund Domicile

1 Amanah GCC Equity SABB 46.94 Saudi Arabia

2 GCC Al-Raed Samba Financial Group 43.47 Saudi Arabia

3 Al-Mubarak Pure Saudi Equity Arab National Bank 40.92 Saudi Arabia

4 AlAhli Saudi Mid Cap Equity NCB Capital Company 39.76 Saudi Arabia

5 Jadwa GCC Equity Jadwa Investment 38.75 Saudi Arabia

6 Jadwa Saudi Equity Jadwa Investment 38.29 Saudi Arabia

7 Jadwa Arab Markets Equity Jadwa Investment 37.68 Saudi Arabia

8 Amanah Saudi Equity SABB 37.36 Saudi Arabia

9 Al Rajhi Local Shares Al Rajhi Bank 35.77 Saudi Arabia

10 Al Danah GCC Equity Trading Banque Saudi Fransi 35.53 Saudi Arabia

Eurekahedge Islamic Fund Index 7.66

Top 10 Sharpe Ratio for ALL Funds since Inception


1 Meezan Tahaff uz Pension - Money Market Sub Al Meezan Investment Management 9.24 Pakistan

2 Meezan Tahaff uz Pension - Debt Sub Al Meezan Investment Management 5.23 Pakistan

3 Atlas Pension Islamic - Debt Sub Atlas Asset Management 5.22 Pakistan

4 Public Islamic Money Market Public Mutual 4.64 Malaysia

5 PB Islamic Cash Management Public Mutual 3.62 Malaysia

6 SR International Trade Finance - (Al Sunbula) Samba Financial Group 2.88 Saudi Arabia

7 Al Rajhi Commodity Mudarabah - USD Al Rajhi Bank 2.51 Saudi Arabia

8 USD International Trade Finance - (Al Sunbula) Samba Financial Group 2.41 Saudi Arabia

9 Commodity Trading - SAR Riyad Bank 2.23 Saudi Arabia

10 AlAhli GCC Growth and Income NCB Capital Company 2.15 Saudi Arabia


Based on 60.81% of funds which have reported August 2014 returns as at the 8th September 2014


Inde

x Va

lues

70

80

90

100

110

120

130

140

150

160

170

Dec

-99

Mar

-01

Jun-

02

Aug

-03

Nov

-04

Feb-

06

Apr

-07

Jul-0

8

Sep-

09

Dec

-10

Mar

-12

May

-13

Aug

-14


FUNDS TABLES

Top 10 Islamic Fixed Income Funds by 3 Months Returns


1 Meezan Islamic Income Al Meezan Investment Management 1.72 Pakistan

2 AmBon Islam AmInvestment Management 1.65 Malaysia

3 CIMB Islamic Sukuk CIMB-Principal Asset Management 1.63 Malaysia

4 MAA Takaful Shariah Flexi MAA Takaful 1.59 Malaysia

5 PB Islamic Bond Public Mutual 1.58 Malaysia

6 Public Islamic Bond Public Mutual 1.52 Malaysia

7 MAA Takaful Shariah Income MAA Takaful 1.44 Malaysia

8 Eastspring Investments Dana Wafi Eastspring Investments 1.44 Malaysia

9 Public Islamic Enhanced Bond Public Mutual 1.35 Malaysia



Top 10 Annualized Sortino Ratio for ALL Islamic Funds


1 Atlas Pension Islamic - Debt Sub Atlas Asset Management 15.24 Pakistan


3 Commodity Trading - SAR Riyad Bank 6.30 Saudi Arabia

4 AlAhli GCC Growth and Income NCB Capital Company 4.81 Saudi Arabia

5 Public Islamic Income Public Mutual 4.11 Malaysia

6 Public Islamic Bond Public Mutual 3.32 Malaysia

7 PB Islamic Bond Public Mutual 3.30 Malaysia

8 Public Islamic Select Enterprises Public Mutual 2.68 Malaysia

9 Public Islamic Select Bond Public Mutual 2.46 Malaysia

10 Atlas Pension Islamic - Money Market Sub Atlas Asset Management 2.39 Pakistan



Based on 60.81% of funds which have reported August 2014 returns as at the 8th September 2014Based on reporting funds with at least 12 months of returns till August 2014 as at the 31st August 2014

Contact EurekahedgeTo list your fund or update your fund information: [email protected] further details on Eurekahedge: [email protected] Tel: +65 6212 0900

DisclaimerCopyright Eurekahedge 2007, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an “as is” basis and you assume and will bear all risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its affi liates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and fi tness for any purpose.

Eurekahedge Islamic Fund Equity Index over the last 5 years Eurekahedge Islamic Fund Equity Index over the last 1 year

Perc

enta

ge

Perc

enta

ge

95

105

115

125

135

145

155

165

175

Dec

-99

Mar

-01

Jun-

02

Aug

-03

Nov

-04

Feb-

06

Apr

-07

Jul-0

8

Sep-

09

Dec

-10

Mar

-12

May

-13

Aug

-14

99.5

100

100.5

101

101.5

102

102.5

103

Sep-

13

Nov

-13

Jan-

14

Mar

-14

May

-14

Jul-1

4

Aug

-14


LEAGUE TABLES

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

0250500750100012501500

02468

1012

1 2 76 5 9876432112111098543

2013 2014

US$mUS$bn

Value (US$bn)Avg Size (US$m)

0100200300400500600

02468

1012141618

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 3Q2Q1Q4Q3Q2Q2009 2010 2011 2012 2013 2014

US$mUS$bn Value (US$bn) Avg Size (US$m)

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers2nd Sep 2014 Perusahaan

Penerbit SBSN Indonesia III

Indonesia Sukuk Ijara Euro market public issue

1,500 Standard Chartered Bank, HSBC, CIMB Group, Emirates NBD

19th Aug 2014 National Higher Education Fund

Malaysia Sukuk Murabahah Domestic market public issue

317 Maybank, CIMB Group

19th Aug 2014 Rantau Abang Capital

Malaysia Sukuk Musharakah Domestic market public issue

476 RHB Capital, Maybank, Bank Islam Malaysia, CIMB Group

25th Jul 2014 Golden Assets International Finance

Singapore Sukuk Murabahah Domestic market public issue

118 RHB Capital, CIMB Group

21st Jul 2014 DanaInfra Nasional Malaysia Sukuk Murabahah Domestic market public issue

126 Maybank, CIMB Group, AmInvestment Bank

21st Jul 2014 DanaInfra Nasional Malaysia Sukuk Murabahah Domestic market public issue

157 RHB Capital, Maybank, CIMB Group, Affi n Investment Bank, AmInvestment Bank

16th Jul 2014 DanaInfra Nasional Malaysia Sukuk Murabahah Domestic market public issue

501 Standard Chartered Bank, RHB Capital, Maybank, CIMB Group, AmInvestment Bank

10th Jul 2014 Aquasar Capital Malaysia Sukuk Domestic market public issue

473 RHB Capital

30th Jun 2014 Sepangar Bay Power

Malaysia Sukuk Domestic market public issue

146 Hong Leong Financial Group

25th Jun 2014 Department for Communities & Local Government

United Kingdom

Sukuk Euro market public issue

336 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, CIMB Group, Barwa Bank

25th Jun 2014 Sarawak Energy Malaysia Sukuk Musharakah Domestic market public issue

467 RHB Capital, Kenanga Investment Bank, AmInvestment Bank

24th Jun 2014 Albaraka Turk Katilim Bankasi

Saudi Arabia

Sukuk Euro market public issue

350 Standard Chartered Bank, Nomura, Emirates NBD, QInvest

24th Jun 2014 Al Hilal Bank United Arab Emirates

Sukuk Mudarabah Euro market public issue

500 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Citigroup, Emirates NBD, Al Hilal Bank

23rd Jun 2014 TF Varlik Kiralama Saudi Arabia

Sukuk Domestic market public issue

248 Standard Chartered Bank, HSBC

19th Jun 2014 Kuveyt Turk Katilim Bankasi

Turkey Sukuk Euro market public issue

500 Standard Chartered Bank, HSBC, Kuwait Finance House, Citigroup, Emirates NBD

18th Jun 2014 UEM Sunrise Malaysia Sukuk Domestic market public issue

124 Maybank, CIMB Group

11th Jun 2014 Emaar Malls Group United Arab Emirates

Sukuk Wakalah Euro market public issue

750 Mashreqbank, Standard Chartered Bank, Morgan Stanley, National Bank of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank, Union National Bank, Abu Dhabi Islamic Bank, Emirates NBD, Noor Bank, Al Hilal Bank

5th Jun 2014 Public Islamic Bank Malaysia Sukuk Domestic market public issue

155 Public Bank, AmInvestment Bank

4th Jun 2014 Saudi Telecom - STC

Saudi Arabia


533 Saudi National Commercial Bank, Standard Chartered Bank, JPMorgan

4th Jun 2014 Hong Leong Islamic Bank

Malaysia Sukuk Domestic market public issue

124 HSBC, Hong Leong Financial Group


LEAGUE TABLES

Top 30 Issuers of Global Sukuk 12 MonthsIssuer Nationality Instrument Market US$(mln) Iss(%) Managers

1 General Authority for Civil Aviation

Saudi Arabia


4,056 9.0 Saudi National Commercial Bank, HSBC

2 Saudi Electricity Company

Saudi Arabia

Sukuk Al-Istithmar

Domestic market public issue

3,700 8.2 Banque Saudi Fransi, HSBC, JPMorgan, Deutsche Bank

3 Perusahaan Penerbit SBSN Indonesia III

Indonesia Sukuk Euro market public issue

3,000 6.6 Standard Chartered Bank, Deutsche Bank, Citigroup, HSBC, CIMB Group, Emirates NBD

4 DanaInfra Nasional Malaysia Sukuk Murabahah


2,437 5.4 RHB Capital, Maybank, CIMB Group, Affi n Investment Bank, AmInvestment Bank, HSBC, Standard Chartered Bank

5 Malakoff Malaysia Sukuk Domestic market public issue

1,521 3.4 Maybank, CIMB Group

6 IDB Trust Services Saudi Arabia

Sukuk Wakalah

Euro market public issue

1,500 3.3 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, First Gulf Bank, RHB Capital, Natixis, CIMB Group, Commerzbank Group

7 National Commercial Bank

Saudi Arabia


1,333 2.9 Saudi National Commercial Bank, JPMorgan, HSBC, Gulf International Bank

8 Cagamas Malaysia Sukuk Domestic market public issue

1,274 2.8 RHB Capital, Maybank, CIMB Group, AmInvestment Bank, HSBC

9 Republic of Turkey Turkey Sukuk Euro market public issue

1,250 2.8 Standard Chartered Bank, HSBC, QInvest

9 Ooredoo Qatar Sukuk Euro market public issue

1,250 2.8 Deutsche Bank, HSBC, DBS, Qatar National Bank, QInvest

11 TNB Western Energy

Malaysia Sukuk Ijarah and Wakalah


1,109 2.5 CIMB Group

12 National Higher Education Fund

Malaysia Sukuk Murabahah


1,074 2.4 Maybank, CIMB Group

13 Al Hilal Bank UAE Sukuk Mudarabah / Wakalah


1,000 2.2 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Citigroup, Al Hilal Bank, Emirates NBD

14 Syarikat Prasarana Negara

Malaysia Sukuk Ijarah Domestic market public issue

928 2.1 HSBC, RHB Capital, CIMB Group, AmInvestment Bank, Maybank, Kenanga Investment Bank

15 Rantau Abang Capital

Malaysia Sukuk Musharakah


781 1.7 Standard Chartered Bank, HSBC, CIMB Group, RHB Capital, Maybank, Bank Islam Malaysia

16 Sukuk Funding (No 3)

UAE Sukuk Musatahah


750 1.7 Standard Chartered Bank, Goldman Sachs, National Bank of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank

16 Government of Dubai

UAE Sukuk Ijarah Euro market public issue

750 1.7 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD

16 Emaar Malls Group UAE Sukuk Wakalah


750 1.7 Mashreqbank, Standard Chartered Bank, Morgan Stanley, National Bank of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank, Union National Bank, Abu Dhabi Islamic Bank, Emirates NBD, Noor Bank, Al Hilal Bank

19 Konsortium Lebuhraya Utara-Timur (KL)

Malaysia Sukuk Musharakah


718 1.6 CIMB Group

20 ICD UAE Sukuk Euro market public issue

700 1.6 Standard Chartered Bank, HSBC, Dubai Islamic Bank, Citigroup, Emirates NBD

21 Dar Al-Arkan International Sukuk

Saudi Arabia

Sukuk Wakalah


694 1.5 Goldman Sachs, Deutsche Bank, Emirates NBD, Bank of America Merrill Lynch, Bank Alkhair, Masraf Al Rayan, Al Hilal Bank, QInvest, Barwa Bank

22 DAMAC Real Estate Development

UAE Sukuk Euro market public issue

650 1.4 Deutsche Bank, National Bank of Abu Dhabi, Barclays, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

23 Pengurusan Air SPV Malaysia Sukuk Ijarah Domestic market private placement

613 1.4 RHB Capital, Bank Islam Malaysia, CIMB Group, AmInvestment Bank, Maybank

24 Saudi Telecom - STC

Saudi Arabia


533 1.2 Saudi National Commercial Bank, Standard Chartered Bank, JPMorgan

25 Turkiye Finans Katilim Bankasi


500 1.1 HSBC, Citigroup, Emirates NBD, QInvest

25 Kuveyt Turk Katilim Bankasi


500 1.1 Standard Chartered Bank, HSBC, Kuwait Finance House, Citigroup, Emirates NBD

25 Government of Ras Al Khaimah

UAE Sukuk Euro market public issue

500 1.1 Mashreqbank, Standard Chartered Bank, National Bank of Abu Dhabi, Citigroup, Al Hilal Bank

28 Aman Sukuk Malaysia Sukuk Musharakah


491 1.1 RHB Capital, Maybank, Bank Islam Malaysia, CIMB Group, AmInvestment Bank

29 Midciti Sukuk Malaysia Sukuk Murabahah


476 1.1 Maybank, CIMB Group, AmInvestment Bank

30 Sarawak Energy Malaysia Sukuk Musharakah


467 1.0 RHB Capital, Kenanga Investment Bank, AmInvestment Bank

45,294 100


LEAGUE TABLES

Top Managers of Sukuk 12 Months

Manager US$ (mln) Iss %1 HSBC 7,147 28 15.8

2 CIMB Group 6,746 44 14.9

3 Maybank 4,611 34 10.2

4 Standard Chartered Bank 3,357 21 7.4

5 RHB Capital 3,201 38 7.1

6 AmInvestment Bank 2,752 26 6.1

7 Saudi National Commercial Bank 2,539 3 5.6

8 Deutsche Bank 1,785 6 3.9

9 Emirates NBD 1,406 12 3.1

10 JPMorgan 1,344 3 3.0

11 Citigroup 1,316 9 2.9

12 National Bank of Abu Dhabi 999 9 2.2

13 QInvest 929 5 2.1

14 Banque Saudi Fransi 713 2 1.6

15 Dubai Islamic Bank 676 6 1.5

16 Al Hilal Bank 476 6 1.1

17 First Gulf Bank 406 3 0.9

18 Affi n Investment Bank 383 6 0.9

19 Gulf International Bank 333 1 0.7

20 Bank Islam Malaysia 308 3 0.7

21 Kenanga Investment Bank 308 2 0.7

22 DBS 285 2 0.6

23 Goldman Sachs 259 3 0.6

24 Qatar National Bank 250 1 0.6

25 Hong Leong Financial Group 247 7 0.6

26 Mashreqbank 218 3 0.5

27 Abu Dhabi Islamic Bank 211 3 0.5

28 Kuwait Finance House 202 2 0.5

29 BNP Paribas 188 2 0.4

30 Natixis 188 1 0.4

30 Commerzbank Group 188 1 0.4

Total 45,294 118 100.0

Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months

Legal Advisor US$ (million) No %

1 Allen & Overy 765 2 34.8

2 Baker Bott s 668 1 30.4

2 Chadbourne & Parke 668 1 30.4

4 Mohammed Al Zamil & Emad Al Kharashi Law Firm

97 1 4.4

Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months

Mandated Lead Arranger US$ (million) No %1 Banque Saudi Fransi 283 1 16.9

1 Public Investment Fund 283 1 16.9

3 Alinma Bank 281 2 16.8

4 Samba Financial Group 254 1 15.1

5 Al-Rajhi Banking & Investment 188 1 11.2

6 Bank Al-Jazira 95 1 5.7

6 Bank Albilad 95 1 5.7

8 KfW Bankengruppe 66 1 3.9

8 Mizuho Financial Group 66 1 3.9

8 Standard Chartered 66 1 3.9

Sukuk Volume by Currency US$ (billion) 12 Months

Sukuk Volume by Issuer Nation US$ (billion) 12 Months

Global Sukuk Volume by Sector 12 Months

Global Sukuk Volume - US$ Analysis

19.3

17.4

8.0

0.3

US dollar

Malaysian ringgit

Saudi riyal

Other

Qatar

19.1

1.3

2.3

3.3

5.6

13.3

0.3

Malaysia

UAE

Saudi Arabia

Turkey

UK

Indonesia

Finance

Real Estate/PropertyTelecommunications

GovernmentUtility & Energy

Other

10%

17%

5%34%

12%

22%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 3Q2Q1Q4Q3Q2Q2009 2010 2011 2012 2013 2014

0100200300400500600

02468

1012141618

US$mUS$bnNon-US$ US$


LEAGUE TABLES

Top Islamic Finance Related Financing Mandated Lead Arrangers Ranking 12 Months

Mandated Lead Arranger US$ (mln) No %1 First Gulf Bank 515 5 7.02 Dubai Islamic Bank 495 5 6.73 Abu Dhabi Islamic Bank 484 6 6.64 Noor Islamic Bank 467 5 6.35 Mashreqbank 393 3 5.36 National Bank of Abu Dhabi 313 2 4.37 SG Corporate & Investment Banking 267 2 3.67 Credit Agricole 267 2 3.69 Abu Dhabi Commercial Bank 264 4 3.610 Standard Chartered Bank 189 5 2.611 Deutsche Bank 187 1 2.512 Barwa Bank 174 3 2.413 Commercial Bank International 171 3 2.314 Commercial Bank of Dubai 167 2 2.315 HSBC 157 2 2.116 Al Hilal Bank 147 3 2.017 Emirates NBD 135 4 1.818 Arab Banking Corporation 128 3 1.719 BNP Paribas 126 2 1.720 Sumitomo Mitsui Financial Group 113 1 1.520 Saudi National Commercial Bank 113 1 1.520 Saudi Investment Bank 113 1 1.520 Samba Capital 113 1 1.520 Riyad Bank 113 1 1.520 Islamic Development Bank 113 1 1.520 Export Development Canada 113 1 1.520 Banque Saudi Fransi 113 1 1.520 Arab Petroleum Investments 113 1 1.520 Alinma Bank 113 1 1.520 Al-Rajhi Banking & Investment 113 1 1.5

Top Islamic Finance Related Financing Mandated Lead Arrangers12 Months

Bookrunner US$ (mln) No %1 Abu Dhabi Islamic Bank 767 3 33.1

2 Barwa Bank 350 1 15.1

3 Noor Islamic Bank 285 4 12.3

4 Standard Chartered Bank 150 4 6.5

5 Emirates NBD 85 2 3.7

6 Arab Banking Corporation 70 1 3.0

6 Abu Dhabi Commercial Bank 70 1 3.0

8 Mashreqbank 34 1 1.5

8 Askari Bank 34 1 1.5

10 United Bank 30 1 1.3

10 Al Hilal Bank 30 1 1.3

Top Islamic Finance Related Financing by Country 12 Months

Nationality US$ (mln) No %1 UAE 3,204 8 43.5

2 Saudi Arabia 2,226 2 30.2

3 Turkey 740 2 10.1

4 Qatar 621 2 8.4

5 Sri Lanka 150 1 2.0

Are your deals listed here?If you feel that the information within these tables is inaccurate, you may contact the following directly: Mandy Leung (Media Relations) Email: [email protected] Tel: +852 2804 1223

Top Islamic Finance Related Financing by Sector 12 Months

0US$ bln 1 32 654

Transportation

Telecommunications

Finance

Real Estate/Property

Mining

Global Islamic Financing - Years to Maturity (YTD Comparison)

0% 20% 40% 60% 80% 100%2008200920102011

201220132014

0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs

Top Islamic Finance Related Financing Deal List 12 Months

Credit Date Borrower Nationality US$ (mln)

30th Jun 2014 Ma'aden Waad al-Shamal Phosphate

Saudi Arabia 2,437

21st May 2014 Emaar Malls Group UAE 1,500

7th May 2014 Emirates Steel Industries UAE 1,300

26th Feb 2014 Mobily Saudi Arabia 761

31st Jul 2014 Emirates Airlines UAE 425

14th Feb 2014 Gulf Marine Services UAE 410

23rd Dec 2013 Kuveyt Turk Katilim Bankasi

Turkey 388

23rd Jun 2014 Turkiye Finans Katilim Bankasi

Turkey 351

24th Mar 2014 Ezdan Real Estate Qatar 350

12th Mar 2014 IMG Theme Park UAE 327


EVENTS DIARY

SEPTEMBER

22nd – 24th Islamic Treasury & Risk Management Products

Kuala Lumpur, Malaysia

24th Understanding Shariah Parameters on Murabahah


25th – 26th Islamic Fund & Asset Management


OCTOBER

13th –15th Basel III for Financial Institutions


13th –15th Shariah Audit for Islamic Business Banking


14th –15th Structuring Islamic Legal Documentation


15th –16th Shariah Governance, Corporate Governance and IFSA 2013


19th –21th Funds Transfer Pricing Manama, Bahrain

28th –30th Asset and Liability Management

Jakarta, Indonesia

NOVEMBER

9th –11th Asset and Liability Management

Doha, Qatar

10th –12th Advanced Sukuk and Islamic Securitization


SEPTEMBER

15th The Dubai Dialogue Dubai, UAE

16th The Global Exchange Dialogue Dubai, UAE

15th – 16th IFN Global Forum Dubai, UAE

29th IFN Kuwait Forum Kuwait City, Kuwait

OCTOBER

21st IFN Sri Lanka Forum Colombo, Sri Lanka

NOVEMBER

6th IFN Turkey Forum Istanbul, Turkey

17th IFN Saudi Forum Riyadh, Saudi Arabia

DECEMBER

8th IFN Africa Forum & IFN Egypt Forum Cairo, Egypt

APRIL 2015

22nd IFN Indonesia Forum Jakarta, Indonesia

MAY 2015

15th – 16th IFN Asia Forum Kuala Lumpur, Malaysia

JUNE 2015

10th IFN Europe Forum Luxembourg

trainingevents

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COMPANY INDEX

AAOIFI 16,28ABC Islamic Bank 32Abu Dhabi Investment Authority 32Abu Dhabi Islamic Bank 7,19,31,32Abu Dhabi Securities Market 5Ahli United Bank 19Al Amanah Islamic Investment Bank of the Philippines 29Al Baraka Banking Group 32Al Bilad Bank 18Al Hilal Bank 30,32Al Hilal Islamic Bank 31Al Rajhi Bank 18Al Rajhi Capital 31Al Salam Bank 32Alcatel 19Aldar Properties 4Alinma Bank 18Allen & Overy 20Almarai 18Alwyni International Capital 23Ameriprise Financial 28AMMB Holdings 13Astra Industries 19Atlantic Navigation Holdings 19Axiata Group 17Bahrain Bourse 5,32Bangladesh Bank 29Bank Indonesia 23Bank Internasional Indonesia 19Bank Islam 28,29,32Bank Muamalat Malaysia 6,32Bank Negara Malaysia 13,29Bank of New York Mellon 20Bank of Tokyo-Mitsubishi UFJ (Malaysia) 15,32Banking Regulation and Supervision Agency 28Barclays Saudi Arabia 18Barwa Bank 31BLME 6BNP Paribas 28Brunei Insurance and Takaful Association 13Bursa Malaysia 10,17,19Cagamas 28Cahaya Capital 11,17,27Capital Markets Authority (KSA) 1,18Central Bank of Oman 22Central Bank of Senegal 28Central Bank of the Philippines 29Chartered Institute of Arbitrators 29CIMB 27CIMB Group 11,28CIMB Investment Bank 20CIMB Islamic 6,28CIMB-Principal Islamic Asset Management 31CISFED 23Cobalt Underwriting 31Commercial Bank of Dubai 19Dallah Healthcare Holding Company 19Danajamin Nasional 32Dangote Cement 30Dar Al Arkan Real Estate Development Company 7,18,32Dar Al Sharia Legal & Financial Consultancy 21Dar Al-Istithmar 7DAR Capital 29Deutsche Bank 27Dhaka Stock Exchange 10Dubai Financial Market 10Dubai Islamic Bank 19,32EFG Hermes 30

EIIB Rasmala 12Emaar Malls Group 11,30Emaar Properties 4Emicool District Cooling 19Emirates Airlines 19Emirates Identity Authority 30Emirates NBD 7,31Emirates NBD Capital 20Emirates Steel Industries 11Etihad Credit Bureau 31Etihad Etisalat Company (Mobily) 19Export Development Canada 19EY 13,30,31Fawaz Abdulaziz Alhokair 18First Gulf Bank 19,27First Habib Modaraba 23Fitch Ratings 7,20,32Garuda Indonesia 19General Authority of Civil Aviation 18GIB Capital 27Goldman Sachs Group 7,18,27Gulf Finance House 19,28Habib Bank AG Zurich 23Habib Metropolitan Bank 23HSBC 5,11,17,20,27ICD 15,30IDB 18,27,30IdealRatings 28IHH Healthcare 17IILM 10,18,29IMF 30IMG Theme Park 19Imperial College Union 16INCEIF 29Insurance Association of Zambia 24IOSCO 5Irish Stock Exchange 7Islamic Bank of Britain 16Islamic Finance Council UK 16Islamic Supreme Council of Zambia 24Istanbul Stock Exchange 10J Aron & Co 7Jabal Omar Development 19JANY Sukuk 7Jazeera Airways Group 19Jebel Ali FreeZone 19Juris Corp 26Key Private Bank 32KFH-Bahrain 19Khazanah Nasional 11,17,27KL International Airport 32Kuwait Finance House 17,19,30Labuan International Financial Exchange 17Lahore Stock Exchange 10Latham & Watkins 1London Metal Exchange 25Ma’aden Waad al-Shamal Phosphate 11Malaysia Building Society 28Malaysian Resources Corporation 32Malaysian Takaful Association 13MARC 32Mashreqbank 19,32Maybank 27Maybank Group 28Maybank Islamic 6,28Maybank Singapore 19MetLife 13Mitsubishi UFJ Financial Group 32Mohammed Alsubeaei & Sons Investment Company 3,9

Moody’s Investors Services 8,17,20,32MSCI 5Muscat Securities Market 10Nakheel 4National Bank of Abu Dhabi 7,17,19,27National Bank of Kazakhstan 29National Bank of Tajikistan 29National Commercial Bank 18Natixis 27NCB Capital 7Nomura Holdings 18Noor Bank 19Parkson Retail Group 17Parthenon Group 30Parthenon-EY 30Pensions and Insurance Authority (Zambia) 24Perusahaan Penerbit SBSN Indonesia III 20Perwaja Group 27Perwaja Steel 27Petronas Gas 32Phoenix of Zambia Assurance Company 24PLUS Expressways 17Principal Bank for Development & Agricultural Credit 31Puncak Niaga Holdings 27Qatar Islamic Bank 7,19RAKBANK 32RAM Ratings 28,32Rantau Abang Capital 11,17RHB Capital 28RHEA Asset Management 31Riyadh Capital 3S&P 7,20,30,32Sabah Electricity 32Sadara 18Said Al Shahry Law Offi ce 22Salama Cooperative Insurance Co 32Saudi Arabian Monetary Agency 18,30Saudi British Bank 19Saudi Electricity Co 18Saudi Kuwait Finance House 31Securities and Exchange Commission of Pakistan 31Securities Commission Malaysia 28,29Shamil Bank 32Sharjah Islamic Bank 17,32Silverlake Group 30Simmons & Simmons 4Singapore Stock Exchange 17,20Standard Chartered Bank 17,18,20,27Standard Chartered Bank Brunei 29SWIFT 30Swiss Re Retakaful 13Tadawul 1Takaful Malaysia 29Tehran Stock Exchange 10Telekom Malaysia 17Tenaga Nasional 11,17TF Varlik Kiralama 18TheCityUK 16Umm Al Qura Cement Company 19 University Teknologi Malaysia 14Virgin Mobile 19Virgin Mobile Middle East & Africa 19Warba Bank 19White & Case 20World Bank 27World Federation of Exchanges 1XL Group 31

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