the world’s leading islamic finance news...

It’s the end of the year, and what a year it has been! We have a bumper IFN for you this week to celebrate our fi nal issue of 2015: including all the usual market news, analysis and insights, an exclusive cover story from CIMB outlining the prospects for the global Sukuk market in 2016, and — most excitingly — a brand new concept launch which we hope will intrigue, involve and inspire our readers to new heights in the new year. LAUREN MCAUGHTRY explains all.

It has been a volatile year. Federal reserve tightening along with a strengthening US dollar, volatile commodities, an oil price fi nally plunging below US$40 per barrel, weak growth in China, European quantitative easing and geopolitical troubles across the Middle East and Russia have ensured that global bond yields remain low; while emerging markets have seen headwinds buff et their future prospects and foreign investors pull billions of dollars back into safe havens. Deteriorating local currencies such as the Malaysian ringgit or Turkish lira have seriously impacted market confi dence, challenging banks and testing the capital market as 2015 draws to a close.

Against this turbulent backdrop, fi nancial institutions across the globe and especially in key Islamic markets

across the Middle East and Asia are facing new challenges as they struggle to handle declining deposits, tightening liquidity, increasingly stringent regulatory requirements, Basel III implementation and scarcer credit availability. With economic headwinds and low oil prices looking to continue into the new year, along with a new raft of mergers and consolidations expected to occur in core markets such

as Malaysia and growing competition within the industry, banks will have to broaden their horizons and seek new opportunities in order to survive.

So where can these opportunities be found? IFN fi rmly believes that the best way for the industry to thrive and grow is to expand its reach, open its doors and access new clients through dissemination, education and communication. Islamic fi nance has reached a size and stature where it is able to off er a viable and att ractive alternative to conventional corporate fi nancing — but how easy is it for the everyday corporate CFO or head of treasury to access these opportunities or discover their applications?

That is where we come in. Welcome to IFN CORPORATE — the new name in global Islamic fi nancial information.

A vital channel of communicationThe biggest challenge to the growth and dissemination of the industry remains education: and there is currently no resource to provide existing and potential corporate clients with the information and insight they require to

16th December 2015 (Volume 12 Issue 50)

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continued on page 3

COVER STORY

The World’s Leading Islamic Finance News Provider

A more spirited Turkish Islamic capital market in 2016?...8

Gloomy outlook for emerging markets… or is it?...9

South America to open doors to fi rst fully-fl edged Islamic bank...10

LA fi rm to capture Gulf wealth as Shariah investors turn to US property market...11

Capitalizing on corporates: A new opportunity for Islamic finance

REAL-TIME ONLINE ISLAMIC BANKING SOLUTION

www. e i g e r t r a d i n g . c om

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CORPORATE

CONTENTS

COVER STORY .............................................................1Welcome to IFN Corporate:

Islamic finance explained

CAPITAL MARKETS ...................................................4CORPORATE FINANCE.............................................5RETAIL FOCUS.............................................................6REGULATORY & COMPLIANCE .............................7FEATURE ........................................................................8SME opportunity: Islamic finance offers new

lifeline for small businesses

CASE STUDIES ........................................................10Vodafone

Emirates Airline

INTERVIEW ...............................................................12Chairman, Capital Market Authority, KSA

NEWS ...........................................................................13MARKET DATA. .......................................................15

Sharing the risk: An introduction to Islamic syndicated finance What are the benefits for corporates looking towards new channels of capital raising? Each issue of IFN Corporate will introduce you to a new sector, structure or strength of the Islamic capital markets to demonstrate the comprehensive range of options offered by the industry. This month, we bring you an overview of the Islamic syndicated finance market. 4

Vodafone Qatar’s conversion — the first non-finance company

in the region to go compliantVodafone Qatar in 2014 revealed plans to become 100% Shariah compliant in its operations. Receiving good market response, the company’s stock price increased 20% immediately following the announcement. Employing an agency (Wakalah) structure for the arrangement, the telecommunications company successfully... 10

Many people reading this will have a

basic understanding of the concept of

Islamic finance — and perhaps you have

even come across it in a commercial

context. But what can it do for you,

and how can it help your business? The

simple answer is that Shariah compliant

structures offer a unique alternative to

traditional forms of commercial banking

and finance, and can provide a valuable

and viable option for corporates of all

shapes and sizes: from international

conglomerates and government-related

entities seeking to raise finance all the

way to SMEs and family businesses

looking for business loans, capital raising

or letters of credit.

Impressive growthThe Islamic finance industry has from small beginnings developed into one of the fastest growing and prominent sectors of

the global financial market. With an average annual growth rate exceeding 15%, total assets in 2015 have reached approximately US$1.8 trillion, and are expected to exceed US$3.2 trillion by 2020 — and could reach as much as US$6.5 trillion, according to a recent report from the Asian Development Bank.

While retail banking is of course the bedrock of the industry, the capital markets are what drive Islamic finance forward – and Islamic bonds, or Sukuk, are the star player of the sector. They may only be a drop in the ocean compared to the conventional global bond market, but the three years from 2011-14 have seen the global Sukuk market double, with a compound annual growth rate of 33% for the previous decade. With annual Sukuk issuance increasing from just US$32 billion in 2010 to a record US$118 billion

Welcome to IFN Corporate: Islamic finance explainedWhat is Islamic finance, how does it work, and why should I care? These might seem like simple

questions, but behind them lies a wealth of information, understanding and analysis that IFN

believes is currently not available to the market in a comprehensive format. Welcome, therefore,

to the inaugural publication of IFN Corporate: the first journal to provide you with a clear and

concise introduction to the world of Shariah compliant finance from a straightforward commercial

perspective. Join us as IFN Group Managing Editor LAUREN MCAUGHTRY opens the door to a world

of opportunity.

continued next page…

LAUNCH ISSUE 2015O p e n i n g d o o r s t o n e w o p p o r t u n i t i e s

“ 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© 16th December 2015

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.

DEALSMalaysia issues RM3 billion (US$710.77 million) GII Murabahah

Export-Import Bank of Malaysia issues US$30 million Sukuk under its multicurrency Sukuk issuance program

Pakistani government to issue Sukuk Ijarah using Jinnah International Airport Karachi as underlying asset

Indonesia issues IDR1 trillion (US$71.4 million) Sukuk to prefund 2016 budget

Indosat lists Sukuk on Indonesian Stock Exchange

KDU University College to pay Sukuk profi t on the 28th December 2015

Majid Al Futt aim lists US$500 million Sukuk on NASDAQ Dubai

Nakheel makes Sukuk profi t payment on the 15th December

Special Power Vehicle redeems Islamic facility on the 15th December

NEWSAl Baraka Bank-Egypt to launch new saving certifi cate in the next few months

Abu Dhabi Islamic Bank-Egypt receives approval from ministry to provide Shariah compliant fi nancing to Egyptian Electricity Transmission Company

Bank of Maldives launches Wadiah Business Account for enterprises

Halal Industry Development Corporation introduces world’s fi rst Global Halal Data Pool

Otoritas Jasa Keuangan fi nalizing establishment

of independent dispute resolution body; to fully operate early next year

RHB Investment Bank to expand Islamic treasury off ering for 2016

ASSET MANAGEMENTTadhamon Capital exits investment in UK-Coxlease School; achieves total return on capital of over 60%

Al Meezan Investment Management launches Meezan Asset Allocation Plan-II

Al Wasatah Al Maliah Company obtains approval for public off ering of equity fund

KFH Capital Investment Company receives green light to market new property fund in Kuwait

TAKAFULThe UK’s insurance industry to operate under new Solvency II regime in 2016; regulator approves 19 insurers’ internal models

Phoenix Assurance of Zambia launches Takaful window

Islamic insurance in Bahrain commanded 21% of total gross contributions in 2014, says central bank

RATINGSWeakening operating performance and fi nancial profi le prompt negative outlook revision on UMW Holdings’s Islamic debt program

MARC downgrades ratings on Tesco Store’s Islamic and conventional medium-term note programs; outlook remains negative

Fitch revises outlook on National Bank of Bahrain and BBK to negative

Fitch accords ‘BBB-’ rating to Sberbank

Wego proposes Sukuk Musharakah to fi nance construction project; secures ‘AAA/Stable’ rating

Fitch affi rms rating on Mumtalakat’s Sukuk certifi cates at ‘BBB-’

Treet Corporation’s proposed Sukuk maintain ‘AA-’ rating

Kyrgyz Republic wins ‘B/B’ rating from S&P

Islamic International Rating Agency reaffi rms Bank of Khartoum ‘AA-(sd)/A-1(sd)’ ratings based on its standing as the nation’s largest commercial bank

Outlook on Bahrain and its central bank remains negative, says S&P

MOVESLondon Stock Exchange Group appoints Professor Lex Hoogduin and David Nish to its board

Grant Thornton strengthens Islamic fi nance off ering; hires KPMG’s Samer Hijazi to lead Abu Dhabi practice

Sabb Takaful Company appoints Anthony Bentley to its board replacing Harble Karlket

Rafe Haneef to start at CIMB Islamic as CEO on the 4th January 2016

President Zuma replaces fi nance minister again within the span of one week

Gulf African Bank appoints Nawaal Mohamed Salim to its board

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

IFN Reports:

• Turkey targets Gulf wealth with new listing rules;

a more spirited Islamic capital market in 2016?

• Gloomy outlook for emerging markets… or is

it? • IFN Global Trendswatch • South America

to open doors to fi rst fully-fl edged Islamic bank •

LA fi rm to capture Gulf wealth with new fund as

Shariah investors turn to US property market for

capital gains • IFSB gears up for 2016; names new

chairman, new members and approves new strategic

plan • Turkish banks to lean on Tier 2 issuance for

support amid economic uncertainties • Sovereign

Sukuk: The regular jurisdictions • IFN Weekly Poll:

As a Muslim investor/issuer, are you comfortable

dealing with gold in Shariah compliant fi nancial

transactions? .................................................. 8

IFN Analysis:

South Korea: Uphill batt le ...................................14

Luxury and lifestyle .......................................................... 15

Case Study:

PIA’s Islamic syndicated financing: A testament of

confidence from the market ......................................17

Columns:

Thinking big ..........................................................18

Daud speaks........................................... 19

IFN Country Correspondents:

Iran; Hong Kong ................................... 20

Event Report

Consolidation required to create institutions of

size ................................................................22

Special Reports:

Beyond Halal — An evolution of Shariah

compliant products ............................................... 23

Development of Islamic banking in Iraq ....24

The intrinsic link between Islamic fi nance and

the real economy ...........................................25

Takaful Feature:

Malaysian Takaful industry set for a busy year

despite ongoing challenges ............................... 27

The treatment of Qard in Takaful ..................... 29

Islamic Finance news ................................... 31

Deal Tracker ................................................. 38

REDmoney Indexes .................................... 39

Eurekahedge data ....................................... 41

Performance League Tables ....................... 43

Events Diary................................................. 47

Company Index ........................................... 48

Subscription Form ....................................... 48

Volume 12 Issue 50


COVER STORY

demystify and decipher the market. This is where IFN CORPORATE intends to change the game. Leveraging the market-leading expertise of Islamic Finance news and the unrivaled global network of REDmoney Group, IFN CORPORATE is a brand-new monthly publication aiming to revolutionize the commercial application of Islamic fi nancial services through education, information and communication.

Designed specifi cally for the global corporate market, IFN CORPORATE is a simple, sensible and straight-talking summary of Islamic fi nancial instruments, concepts, structures, products and trends that off ers an easy-to-understand avenue into the compelling opportunities of Shariah compliant alternatives.

Clear, concise and comprehensive, it off ers invaluable insight into the Islamic industry and creates an essential platform through which the

corporate world and Shariah compliant market can communicate.

Exciting opportunitiesThe current global asset value of the Islamic fi nance sector is in excess of US$1.6 trillion and is expected to reach US$3.4 trillion by the end of 2018. Yet while the sector as a whole has seen rapid growth, if we look at global debt capital markets, Islamic issuance accounted for just 2% of the US$5.7 trillion raised in 2014. This in itself is a remarkable achievement given the youth and size of the Islamic fi nance industry — but there is so much more that can be done.

The potential for growth is self-evident, but education and awareness remain key barriers to entry. In more mature markets, Islamic fi nance can already rival

the conventional: Islamic transactions already account for 49% of total bond and Sukuk volume in the GCC for 2015. However, in other

Capitalizing on corporates: A new opportunity for Islamic fi nanceContinued from page 1

continued on page 4

Corporate issuers will

remain cautious in implementing funding plans and only tap the Sukuk market if projected investment returns are higher than historical averages to buffer against slower economic conditions eroding pro it margins


COVER STORY

jurisdictions the sector is less established — and the opportunities less easy to access.

A global publication, IFN CORPORATE will provide a direct channel of communication to corporates worldwide. Building on IFN’s industry-leading brand and leveraging over a decade of experience, the new publication will target corporates and potential issuers across all relevant global jurisdictions: from emerging markets such as Indonesia and Turkey to established industry leaders such as Malaysia, Dubai and Saudi Arabia and on to developed nations in Europe and the US.

For banks, law fi rms, rating agencies, service providers and anyone else working within the Islamic fi nance industry, this new publication will provide a unique and invaluable platform through which to promote your products

and services to the people who matt er — and create new business opportunities that will directly generate revenue for your fi rm.

Each market will feature one lead industry sponsor and one service provider sponsor only: giving you exclusive access to your target market.

A challenging marketThe fi nancial markets are wary and the corporate world is tough to tap — especially in such stringent market conditions. “Corporate issuers will remain cautious in implementing funding plans and only tap the Sukuk market if projected investment returns are higher than historical averages to buff er against slower economic conditions eroding profi t margins,” warned Angus Salim Amran, the head of global fi nancial markets at RHB Investment Bank.

In tough times, people stick with what they know — tried and tested methods that may not be the most appropriate but are at least the most familiar. This makes it all the more imperative for Islamic institutions to develop a concise conduit for communication

with potential corporate clients — and only those who are able to

evolve, adapt and att ract new business will survive.

From blue chip fi rms to SMEs and everyone in between, Islamic fi nance off ers a

compelling opportunity to raise capital in a

challenging world — and has been recognized as such by

leading players within

both the Islamic and conventional fi nancial markets.

Looking to the future“Islamic fi nance is one of the most promising innovative

mechanisms to enhance SMEs’ access to fi nancial services,” emphasized Gloria Grandolini, the senior director of the fi nance and

markets global practice at the World Bank Group, speaking to IFN.

“Every potential issuer in the Islamic world should evaluate the possibility of raising debt on a Shariah compliant basis. Not going through the analysis is not prudent,” agreed Jawad Ali, the managing partner of King & Spalding’s Middle East Offi ces. “Issuers can benefi t from an informed publication that demystifi es the space and educates potential issuers.”

IFN CORPORATE off ers the ideal platform for effi cient education and dissemination to a world of awaiting opportunity. We are excited for what the future will bring…. Are you?

Capitalizing on corporates: A new opportunity for Islamic fi nanceContinued from page 3

Islamic inance is one of the

most promising innovative mechanisms to enhance SMEs’ access to inancial services

Issuers can bene it

from an informed publication that demysti ies the space and educates potential issuers

For more information, enquiries on sponsorship opportunities or to receive a sample issue of IFN Corporate, please contact Francois-Xavier Chenhalls-Walker, IFN Corporate Business Development Manager, at [email protected].

For all editorial enquiries, please contact Lauren McAughtry, group managing editor of REDmoney Group, at [email protected].

For any other enquiries, please contact Andrew Morgan, managing director of REDmoney Group, at [email protected].


COVER STORY

continued on page 6

IFN: What were the key trends of 2015?

MASLIZA: The overall market conditions in 2015 have been volatile to say the least. Despite this, the growth of Islamic fi nance has been nothing short of healthy. The (asset) size of the Islamic fi nance industry globally is estimated at US$1.8 trillion in 2014. We expect the Islamic fi nance market to record a compounded annual growth rate (CAGR) of 19% in terms of size between 2015-19. The growth is complemented by trends that suggest a deeper and more sustainable Islamic fi nance ecosystem. This has translated into positive results on the Sukuk front where 2015 saw a host of global

sovereign Sukuk issuances (totaling US$30.7 billion thus far) despite the expected global slowdown, including landmark issuances by Malaysia, Hong Kong and Indonesia, as well as other corporate issuers such as Axiata and PETRONAS; sending strong signals to the markets on the growing acceptance and att ractiveness of Islamic fi nance as a whole.

2015 also saw a rise in perpetual hybrid securities, where equity recognition for both accounting and rating purposes provided a powerful tool for companies to overcome any leverage constraints, defend and manage credit ratings as well as to help strengthen a company’s capital structure. Transactions out of Malaysia (which CIMB led-managed) included the fi rst-ever rated perpetual Sukuk transaction in the world by Malaysian Airports Holdings — which was also the largest corporate perpetual securities issuance in Malaysia to date; and the fi rst-ever single ‘A’-rated perpetual Sukuk transaction by DRB-HICOM. Arising from the continued investor education process, investors have developed a bett er understanding of the instrument and as a result have become more receptive toward perpetuals.

IFN: What were the biggest challenges, and what was your biggest achievement?

MASLIZA: Our ‘common’ challenges include lack of market awareness, as well as familiarity/acceptance/of the Islamic fi nancial products and services especially in the developed countries. From the origination perspective, an Islamic-friendly framework or jurisdiction needs to be in place to ensure that potential Sukuk issuers are accorded neutrality treatment from a tax, accounting and legal perspective when compared to a conventional bond issuance. Notwithstanding this, we have been seeing Islamic fi nance growing at a phenomenal rate over the last decade, with a growing number of prominent

issuers including sovereign issuers tapping the Sukuk

market actively especially in the last two years. These issuances will go a long way toward building benchmarks for other new issuers and pave the way for more Sukuk issuances in the

global market, going forward.

EXCLUSIVE: Past, present and future – a unique industry analysisThe past year has been turbulent while the prospects for 2016 are both promising and perilous. In an exclusive interview for IFN, group managing editor LAUREN MCAUGHTRY speaks to NOR MASLIZA SULAIMAN, the senior managing director and global head of capital markets for CIMB Investment Bank and MOHAMAD SAFRI SHAHUL HAMID, the senior managing director and deputy CEO for CIMB Islamic for an invaluable analysis of the global and Malaysian Islamic capital markets including a comprehensive review of the past year and key predictions for 2016.

In the Malaysian

market, we are conservatively projecting RM70-75 billion (US$16.19-17.34 billion) of corporate bond issuances for FY2016 in the ringgit bond market out of which Sukuk historically makes up about 70-80% of the annual issuance


COVER STORY

CIMB worked with Khazanah Nasional to establish the fi rst program approved under the Securities Commission Malaysia’s SRI Sukuk framework. The Sukuk issuance was the fi rst-of-its-kind in the Malaysian markets, allowing investors to participate in socially responsible fi nancing while also receiving returns from their investments. In addition to creating a new asset class for investors in the Malaysian market, the Sukuk issuance provides a new funding avenue for issuers promoting SRI projects and provides an opportunity for private sector participation in socially responsible fi nancing.

The recent sovereign Sukuk issuance from the government of Malaysia was a landmark transaction as the longest tenured Sukuk issued by a sovereign and the world’s fi rst sovereign Sukuk to adopt a structure using, among others, non-physical income-generating assets. CIMB was able to apply its expertise and capitalize on its wide investor network enabling the issuance to be priced inside of its theoretical comparable conventional curve.

The Republic of Indonesia also achieved a new milestone with its US$2 billion Sukuk issuance, which was the largest-ever single-tranched US dollar Sukuk issued globally where a quasi project fi nancing asset-based Sukuk issuance was successfully completed.

IFN: What will be the biggest factors infl uencing the global Islamic fi nancial market next year — how will we see Sukuk perform and what can we expect in terms of pricing and volume?

MASLIZA: The impending Fed rate hike in December will resolve the year-long market uncertainty as market rates are expected to react to the hike which means issuers will have greater certainty on their funding costs going forward. We expect markets to return to normal very soon after the Fed rate hike as the rate lift-off has been long anticipated by the market. This will bode well for issuers that are planning to raise funds in the capital markets. We expect there to be further increases in rates in 2016, but these are expected to be gradual, which should still provide comfort for issuers to continue tapping the markets next year.

If a period of relative stability in rates and credit follows, we would expect

the primary issuance of bonds/Sukuk in 2016 to be robust. In the Malaysian market, we are conservatively projecting RM70-75 billion (US$16.19-17.34 billion) of corporate bond issuances for FY2016 in the ringgit bond market out of which Sukuk historically makes up about 70-80% of the annual issuance. This estimate is on the back of (among others) infrastructure projects which had been deferred from 2015, and which are expected to come on stream in 2016 as well as corporate bonds maturing in the ringgit market amounting to approximately RM34 billion (US$7.86 billion).

Malaysia is expected to launch several infrastructure projects including roads and railways worth at least RM75-80 billion (US$17.34-18.5 billion) in 2016 as part of the government’s pump-priming measures, which bodes well for the Sukuk market considering Sukuk is an ideal choice for corporates looking to tap infrastructure funding given the wider investor base in the ringgit market. In this regard, we expect 2016 to potentially surpass 2015 in terms of Sukuk and overall bond sales.

On the global front, we continue to expect a continuous fl ow of issuers tapping the Sukuk markets as long as market conditions remain conducive and investors are still fl ushed with liquidity. Rates are still accommodative for longer-term fi nancing and following recent deals which we have arranged, we are seeing

investors opening up to longer-tenured Sukuk issuances — hence aff ording issuers the fl exibility to term out their debt maturity profi le. Corporates should be more open to tap the Sukuk market following the establishment of new benchmark sovereign Sukuk curves, hence providing corporates with pricing transparency and comparability.

IFN: What are your top three predictions for 2016 for the global Islamic fi nance market?

MASLIZA: We expect more Sukuk issues from Middle Eastern sovereigns and quasi sovereigns as a result of lower oil prices. The lower oil prices will have a larger impact on sovereign and quasi-sovereign issuers due to their higher reliance on direct oil revenues. Most oil-exporting countries in the Middle East are facing sizeable fi scal defi cits as a result of the depressed oil prices, and are expected to rely on a combination of Sukuk issuances and internal reserves to fi nance the defi cit. As such, we would expect to see higher sovereign Sukuk issuances going forward as these governments maintain their investment spending to sustain economic growth. The Kingdom of Saudi Arabia, the UAE and Qatar each have signifi cant pipelines of high-profi le infrastructure projects pending over the next few years. The Kingdom plans to boost capacity in its power and water industries while Dubai aims to complete various logistics megaprojects, including the US$32 billion Dubai World Central project.

We may also see higher issuances of unrated Sukuk out of Malaysia as these instruments are set to become fully tradable and transferrable beginning 2017. This will encourage issuers, especially household names, to tap the bond/Sukuk market in a more effi cient manner.

We also expect the growth in perpetual hybrid securities to continue given that it is a cheaper alternative to equity fundraising and its equity recognition for both accounting and rating purposes provides a powerful tool for companies to overcome any leverage constraints, defend and manage credit ratings as well as to help strengthen a company’s capital structure.

Continued from page 5

We may see higher

issuances of unrated Sukuk out of Malaysia as these instruments are set to become fully tradable and transferrable beginning 2017

continued on page 7


COVER STORY

IFN: What are your top predictions for the Islamic fi nance market? What will be your biggest challenges and key opportunities?

SAFRI: Our top three predictions for the local Islamic fi nance market are:

1. Sukuk issuances for 2016 to surpass the amount set in 2015Sukuk, being the darling of Islamic fi nance, would naturally top our list in terms of predicting the signifi cant outcomes of 2016. With a conservative projection of RM70-75 billion of corporate bond issuance for 2016 of which 70-80% is historically Sukuk issuance, on the back of deferred infrastructure projects and a large pipeline of corporate bonds maturing as well as several new infrastructure projects from Malaysia in an eff ort to sustain economic growth, we predict 2016 to potentially surpass 2015 in terms of Sukuk and overall corporate bond sales.

2. Growing Islamic deposits and customersThe size of the Islamic fi nance market (asset and liability) has been hovering at between 22-25% of the industry and market players generally have about fi ve years to literally double that to meet the central bank (Bank Negara Malaysia (BNM))’s target. 2016 will see banks competing for cheap and sticky deposits to maximize margin and meet Basel III Liquidity Coverage Ratio requirements. Banks may end up paying more to entice customers, and this will be an interesting development to watch out for. Wholesale deposits are expected to grow steadily as a result of government and agencies/GLCs’ push for Islamic products.

Listed companies will also emphasize Islamic deposits to maintain their status as Shariah compliant companies. On the asset management side, there will be substantial growth expected from commercial and corporate fi nancing customers in line with the Securities Commission Malaysia’s quantitative screening methodology.

3. Islamic banks merging and consolidatingWith news surrounding the central bank granting approvals for merger negotiations, we can expect a domino eff ect and further merger announcements on

the creation of more stand-alone mega Islamic banks in the future.

Some of the opportunities we foresee include:• Government incentives and

competitive advantage (Islamic fi nance tax exemptions)

• Further internationalization of Islamic fi nance

• Further requirements for companies to be classifi ed as Shariah compliant, and

• Increased infrastructure Sukuk issuance.

Some of the challenges we foresee include: • Stiff er competition

• Islamic product development in tandem with changing regulations (for instance, reclassifi cation of investment accounts), and

• Acquiring and maintaining Islamic fi nance experts/expertise within the local market.

IFN: What are your top goals for 2016 – what are the targets and focus areas for your bank? Where do you see growth, and where will you be

scaling back?

SAFRI: We will continue to experience intense competition as banks grapple to

acquire more customer deposits. There will be renewed consolidation and regulatory changes against a background of further liberalization of the industry in ASEAN.

However, there will also be continued opportunities for the bank to increase its market share in selected business segments while maintaining margins and ensuring Shariah compliance and governance standards across the entity.

We intend to continue to look out for more opportunities in the region to grow the Islamic banking business through a series of strategic actions including reasserting profi tability from our core businesses, product innovation and development, deepening of customer and client relationships, development of new fee income segments and increasing the deposit franchise.

IFN: What new products and/or pipeline do you have for the coming year?

SAFRI: CIMB is one of the youngest Islamic fi nancial institutions in the region (that started focusing on the Islamic balance sheet business in 2006), yet it is one of the fastest-growing Islamic banks in the world. In terms of initiatives, the bank through various collaborations, aims to promote research and product development in all aspects of Islamic banking, demonstrating the growing symbiosis between industry and academia, and most importantly, enhance and strengthen Malaysia’s position as a globally recognized marketplace for Islamic banking and Islamic fi nance.

Product-wise, CIMB seeks to continuously enhance products in tandem with the evolving Islamic fi nance landscape. With a fl urry of further Sukuk innovations expected in 2016, CIMB Islamic is expected to be in the forefront of more dynamic Sukuk issuances to come. In terms of product development, CIMB Islamic is working on a number of new initiatives to deepen Islamic off erings including the Islamic version of Stock Borrow & Lending (together with Bursa Malaysia) as well as Islamic equity derivatives.

We predict 2016 to

potentially surpass 2015 in terms of Sukuk and overall corporate bond sales

Continued from page 6


IFN REPORTS

Effi ciency, foreign investments, market vibrancy — these are the few goals Borsa Istanbul wishes to achieve with its new listing rules introduced recently. Will these measures of market liberalization support the stock exchange’s drive to enhance its appeal to att ract foreign capital? And more pertinent to our industry, how will these new rules aff ect the Islamic capital markets of Turkey? To help us navigate the new regulatory landscape, VINEETA TAN speaks to Mufi t Arapoglu, a partner and the head of capital market practice at Istanbul-based law fi rm, Balcioglu Selçuk Akman Keki Avukatlik Ortakligi (BASEAK), who tells us that interesting developments are indeed brewing for 2016.

Coming into eff ect the 30th November, the new Listing Directive, which consolidated 14 diff erent circulars, was rolled out as part of the restructuring of Borsa Istanbul in conjunction with the implementation of the new trading platform BISTECH, which was developed in cooperation with NASDAQ. Aiming to provide greater clarity and to ease listing processes on the exchange, the Listing Directive comprises substantial amendments including the creation of new sub-markets and a new category of companies.

The changes are comprehensive and touched a variety of elements including listing (and delisting) requirements, dual-listing, listing of Special Purpose Acquisition Companies and the creation of the Equity Market for Qualifi ed Investors, among others. In a nutshell: the new regime is more conducive and more issuer/investor-friendly. For example, there is no longer a need for a minimum issuance requirement for the listing of Sukuk or lease certifi cates as colloquially known, on the Debt Securities Market.

A more vibrant marketWith a more supportive regulatory infrastructure, we then can expect a more vibrant market — more issuances, more trading activities, more foreign investors — including in the Shariah space.

“The Islamic market has big potential to grow because it is one of the

government’s priorities to increase the market share of participation banks from 5% to 15% by 2023 — and positive steps are taken to achieve this goal,” explained Arapoglu. “These developments would defi nitely help Islamic issuances on the capital market side as state-owned banks are also becoming players on the participation banking side”

Government-backed Ziraat Bank is the latest entrant to the Turkish participation banking market and other state-owned banks are expected to join the fray sooner rather than later, which Arapoglu believes will help boost Sukuk issuances as the banks tap market liquidity.

It is also hoped that the new rules which facilitate dual-listing would drive up the fi gures of Sukuk listed by foreign entities; the number has traditionally stood in the range of 50-65%, with the Middle East accounting for a majority of that.

Tax reforms neededHowever, while this new progress bodes well for the burgeoning Turkish Sukuk market, however, it is also a reality that the market has in the main been driven by participation banks and the Treasury, with litt le activity from the corporate side. As in many emerging Islamic fi nance economies, taxation is a main hurdle.

Arapoglu agrees: “The new listing rules will encourage new issuances; however,

one of the issues that the market players are highlighting is amending tax legislation covering all issuance types so that we can see issuance from corporates as well.” He added: “We believe that the market’s message about amending the tax regime to expand the Sukuk issuances is taken into consideration by the regulatory bodies.”

Existing tax legislation covers mainly Ijarah transactions and is generally unfavorable toward other Shariah structures. This poses a challenge to asset-light corporates which are not able to utilize the Ijarah contract and are seeking to issue in other Shariah structures.

Fewer TRY issuances?So what else is in store for 2016? More regulatory changes, it seems.

Apart from the new Listing Directive, the Capital Markets Board also recently circulated a draft regulation relating to the debt capital markets, potentially imposing more stringent criteria on issuers as the regulator is calling for these companies to acquire ratings for their debt instruments.

“There have been some concerns in the market that the rating requirement in the draft legislation may negatively impact the domestic TRY bond issuances but until a fi nal draft is released, and the real impacts are seen, it is still too early to tell,” opined Arapoglu.

Wave of optimismDespite being bogged down by Russian sanctions and geopolitical pressures from Iraq and Syria, Turkey’s most recent parliamentary elections — won by the ruling party — has instilled back market confi dence and much-needed stability in the Turkish political sphere, and many investors are riding on this wave of optimism as they usher in the new year. There is anticipation for an uptick in the capital market space — both equity and debt — and Sukuk will most certainly factor prominently into the equation.

“As far as I can tell, the market is also trying to digest the new changes but the general sentiment is largely positive,” confi rmed Arapoglu.

Turkey targets Gulf wealth with new listing rules; a more spirited Islamic capital market in 2016?

Changes introduced under Listing Directive• National Market and Second

National Market dissolved; replaced with two new sub-markets: BIST Star and BIST Main

• Modifi ed listing requirements and delisting conditions

• Introduced listing of Special Purpose Acquisition Companies

• Established the Equity Market for Qualifi ed Investors

• Facilitated dual-listing• Modifi ed the structure of

Emerging Companies Market (Gelişen İşletmeler Piyasası), and

• Amended requirements for companies to remain listed.

Source: Arapoglu, BASEAK


IFN REPORTS

Emerging markets face their highest-ever debt levels, even as the US Fed prepares to raise rates and headwinds buff et their capital markets. The World Bank has warned that emerging economies are at a crossroads, and could be facing a whole new era of lower growth. As the year draws to a close, are we looking at a grim prospect for 2016? LAUREN MCAUGHTRY explores.

Poor performance and plummeting currencies for many emerging markets over the past few years have seen the sector receive a pummeling. The Malaysian ringgit has lost over 30% this year, the South African rand fell to a record low and lost almost 10% against the dollar last week and Turkey has seen almost US$8 billion in outfl ows from foreign investors. The IMF in its most recent growth forecast warned of a slowdown in emerging markets growth for 2016 even as developed economies pick up speed. With many of these markets key jurisdictions for Islamic fi nance, and banks in some markets already struggling, if this gloomy outlook continues, the industry could be severely aff ected by such under-performance.

For the third year in a row, the MSCI Emerging Markets index underperformed the MSCI World Index (representing developed markets), on the back of the China slowdown. The Institute of International Finance also warns that foreign capital infl ows into emerging markets are expected to fall. Companies and governments in developing nations owe US$262 billion of notes in all currencies outside domestic markets in 2016, according to Bloomberg – more than half the US$444 billion they sold this year. Debt levels are set to rise further in 2017 to US$352 billion, while emerging market borrowers missed payment on US$5.6 billion of the debt this year, the highest since 2002. A Federal Reserve rate hike, strong dollar and low commodity prices will continue to exert downward pressure, with returns on emerging market debt expected to be a low 1-3% in the fi rst half of 2016, according to JPMorgan forecasts. With non-fi nancial corporate debt estimated at 76.2% across emerging markets in 2015, a potential debt crisis amid worsening economic conditions is a real concern. “We see overall weaker growth in emerging markets,” confi rmed Andrew Balls, the chief investment

offi cer for global fi xed income at global investment management fi rm PIMCO, presenting his fourth quarter cyclical outlook for emerging market economies.

Yet many investors are more positive than you might expect, with an optimistic outlook for the new year that defi es the seemingly gloomy forecast. Asset managers on both the debt and equity side are once more allocating to emerging markets, with Balls noting that: “We will be cautious but we will be looking for

good opportunities across local debt, external debt, across corporate debt.”

“Our outlook for 2016 is more constructive than this time last year because of signifi cantly improved valuations,” Mohieddine Kronfol, the chief investment offi cer for global Sukuk and Middle East fi xed income at Franklin Templeton, told IFN. “Despite the fact that many themes, such as the probable Fed rate hike, the trajectory of Chinese growth and lower commodity prices, remain in focus today, valuations of the investments we are making imply scenarios that appear too pessimistic to us.”

A contributing factor is that of cheap currencies and rebounding growth, especially driven by initiatives such as the new ASEAN Economic Community, which are likely to att ract international investors back into the area, while fi scal stimulus measures, positive growth and growing confi dence could translate to more bullish demand. “One of the high conviction positions we have in our portfolios is to be underweight [on] emerging Asian currencies versus the US dollar, refl ecting the slowdown in the region and the policies in the region,” noted Balls.

“We fi nd value in domestic currencies in Asia and in several credits across the GCC and Turkey, and importantly, fi nd the prospect for increased sovereign and bank issuance out of the GCC as a catalyst for continued market development,” agreed Mohieddine. “2016 may prove to be volatile, but the global Sukuk market is well positioned for continued strong relative performance with att ractive diversifi cation benefi ts.”

Gloomy outlook for emerging markets… or is it?

Despite the fact that

many themes, such as the probable Fed rate hike, the trajectory of Chinese growth and lower commodity prices, remain in focus today, valuations of the investments we are making imply scenarios that appear too pessimistic to us


IFN REPORTS

What’s going on in the world this week? IFN brings you a selection of relevant, important and downright interesting economic, global and regional events, issues and trends that have the potential to aff ect the Islamic fi nance industry.

• ASEAN Economic Community is formally created, aiming to integrate a single market. The 10-member group is due to be established on the 31st December 2015 to permit a free fl ow of services, investment, labor and capital between countries.

• China to re-regulate IPO approvals within two years, a move seen as important for streamlining capital allocation and encouraging young companies to raise funds.

• The US joins infl uential ‘high ambition coalition’ pushing for climate change measures that are being resisted by emerging economies including China, India, Malaysia and

Saudi Arabia, which met in Paris at the COP21 meeting.

• A new McKinsey report warns that Saudi Arabia must signifi cantly increase the pace of reform to avoid “a rapid economic deterioration over the next 15 years”. The fi rm called on the Kingdom to treble its job creation to meet an expected 10 million strong labor market by 2030, warning that unemployment could rise to 22% and household income could decline to US$3,000 per month.

• The World Bank warns that emerging markets are at a crossroads, and could be facing a new era of lower growth. For the third year in a row, the MSCI Emerging Markets Index underperformed the MSCI World Index (representing developed markets), on the back of the China slowdown. The Institute of International Finance also warns that foreign capital infl ows into emerging markets are expected to fall.

• Investors have withdrawn over US$7.6 billion from Turkey this year, according to Bloomberg fi gures, including US$1.4 billion during election month in November. The Istanbul Borsa benchmark index has lost around 10% in November and has returned a negative 12.92% year-to-date, while the iShares MSCI Turkey has returned a negative 31.24% as of the 11th December.

• Large current account defi cit and declining rand leave South Africa vulnerable, says the Rand Daily Mail; while in the past three months, foreign investors have sold ZAR33 billion (US$2.19 billion) in South African equities and ZAR7 billion (US$463.56 million) in bonds. Could the nation be on the verge of a defi ning economic event? “Investors need to be on the lookout for a potential risk event,” warned Lesiba Mothata, the chief economist at Investment Solution.

IFN Global Trendswatch

South America and the Caribbean are poised to welcome their fi rst fully-fl edged Islamic bank, a hopeful indication, VINEETA TAN writes, for positive Islamic fi nance developments in a region virtually left untouched by Shariah fi nance.

Engaging the advisory services of the Islamic Corporation for the Development of the Private Sector, Trust Bank, a Suriname-based private fi nancial institution, is one step closer to converting its operations to fully comply with Islamic laws with the full support of the multilateral fi nancier since announcing its intentions to adopt Islamic principles in June.

“[The] ICD will scale up its continuous advisory support and technical assistance to Trust Bank to deliver the best value and achieve the ultimate goal of converting Trust Bank to become the fi rst Shariah compliant bank not only in Suriname but the whole of [the] Caribbean and South America,” affi rmed Khaled Al Aboodi, CEO of the ICD.

The Christian-majority Republic may be the smallest nation in South America but its economic prowess is formidable owing to its rich natural

resource and biodiversity which has catapulted the country to become one of the best-performing economies of the Caribbean. And now Suriname is looking toward the rising Islamic world for more opportunities demonstrated by it undertaking a two-year (2014-15) Interim Member Country Partnership Strategy (MCPS) with the IDB, after which a fully-fl edged MCPS will follow.

With a stronger relationship with the IDB and the presence of a fully-fl edged Islamic bank, the country would be able to build a stronger case for Islamic fi nance, which has been mainly concentrated in Brazil — the world’s largest Halal meat producer — but even so, such activities have been few.

Maureen Badjoeri, CEO of Trust Bank, revealed that the bank will focus primarily on boosting the SME segment. “Once becoming an Islamic bank, and with the collaboration with [the] ICD, Trust Bank wants to facilitate SMEs in more ways than just fi nancially. With this approach, SMEs will be able to start-up or expand production of goods and services with a spin-off in job creation, trade, export and adding to [the] GDP growth and strengthening of the Surinamese currency and economy.”

South America to open doors to irst fully- ledged Islamic bank

With a stronger

relationship with the IDB and the presence of a fully-ledged Islamic bank,

the country would be able to build a stronger case for Islamic inance


IFN REPORTS

Sophisticated Muslim investors are among the target market of a California-based real estate private equity fi rm which is looking to raise US$250 million for its new property fund, with a Shariah compliant feeder, focused on assets across the US. VINEETA TAN takes a closer look at the deal.

If the target is met, the Ethika Investment Diversifi ed Opportunity Fund II will allow Ethika Investments to fund new acquisitions of nearly US$1 billion over the next few years in 30 key US markets, building on the success of its fi rst fund which is expected to deliver a net internal rate of return of 22.3% and 2.1x net equity multiple to investors from investing in 17 properties across 13 diff erent markets.

“Nearly six years beyond the last period of signifi cant commercial real estate acquisition, now is an opportune time for Ethika to launch our second fund dedicated to seeking out value-added investments, with a focus on maximizing end values,” shared Andres Szita, the co-founder of Ethika Investments. The Los Angeles fi rm, with a large portion of its clientele (nearly 45%) from outside the US, employs an integrated

investment strategy which includes sourcing underpriced real estate assets in top markets across the US, conducting physical upgrades, improving property management and executing fresh marketing initiatives to draw in private and institutional buyers. For its latest fund, Ethika will capitalize on growing industries including fi nancial services, energy, technology, health care and education.

“These underperforming assets are still very well-priced with a great deal of upside potential, versus core real estate assets that have been overbought and overpaid for over the last several years,” explained Szita.

Shariah dollar is steadily fl owing into the US property market as it grows in appeal

as a preferred real estate investment destination for Muslim investors. Cities such as New York, San Francisco and Los Angeles are prime markets for investors, particularly sovereign-related investors; however, other cities are also gaining popularity.

Over the past year, several signifi cant Islamic real estate transactions took place including: Kuwait-based Warba Bank’s acquisition of The Nathaniel in New York as part of a US-focused real estate strategy fund managed by the Wafra Investment Advisory Group; and SEDCO Capital’s purchase of three properties across the US including a neighborhood retail center in Florida, senior housing in Chicago and the construction of a private school in Texas, collectively worth US$145.5 million.

London-based 90 North Real Estate Partners is also an active player in the US market having made three US acquisitions in 2014: the Lenovo Global Server Division headquarters in Raleigh, North Carolina; The Reserve at Deer Park, suburban Chicago, Illinois; as well as an interest in the FBI headquarters in Denver, Colorado.

LA irm to capture Gulf wealth with new fund as Shariah investors turn to US property market for capital gains

Passing the torch from Indonesia to Egypt, the IFSB in 2016 will welcome a new chairman who will oversee the implementation of a more robust Strategic Performance Plan (SPP) as the Islamic fi nance standard-sett ing body pledges to maintain the resilience of the industry in the wake of rising interconnectedness with the wider global fi nance market. VINEETA TAN brings an overview of the new changes at the Islamic fi nance organization.

Tarek Amer, the recently-appointed governor of the Central Bank of Egypt tasked with resolving the country’s foreign exchange crisis, is to assume the IFSB chairmanship on the 1st January, succeeding his Indonesian counterpart Agus DW Martowardojo. The IFSB Council in its latest meeting also named the governor of the Iranian apex bank, Dr

Valiollah Seif, as Tarek’s deputy.

The council concurrently admitt ed six new entities as members including the Bank of England (associate member), a positive recognition of both the organization and the Islamic fi nance industry from global players. The other new entrants are: the National Bank of the Kyrgyz Republic, the Securities and Exchange Commission of Pakistan, Abu Dhabi Islamic Bank (Egypt), Sri Lanka’s Amana Bank and Turkey’s Ziraat Katilim. The National Bank of Kazakhstan on the other hand gained voting rights as its associate membership has been upgraded to full membership.

Supported by a wider membership base, the standard-sett ing body will initiate its second three-year SPP next year which takes into consideration the

impending plans by its international peers namely the Basel Committ ee on Banking Supervision, the International Association of Insurance Supervisors and the International Organization of Securities Commissions as well as the Financial Stability Board.

“It builds on the previous SPP, and the lessons learnt in executing it, along with the recognition of the need for the IFSB to evolve in response to changes in its operating environment,” said the IFSB.The SPP 2016-18 includes revamped strategic key results areas and a remodeled IFSB Strategic Results Framework as well as a more streamlined and detailed technical and awareness-raising plan across the Shariah banking, Takaful and Islamic capital market segments for the organization over the next three years.

IFSB gears up for 2016; names new chairman, new members and approves new strategic plan


IFN REPORTS

In the past week, governments have fairly increased their eff orts as the year comes to an end. Over the last few days, the market saw Malaysia issue its regular Murabahah paper, Pakistan realigning its plans to issue Sukuk before year-end, and Indonesia’s pre-emptive measure in making an issuance to prefund its 2016 budget. As usual, NABILAH ANNUAR keeps updated with the latest developments in the sovereign Sukuk space.

The government of Malaysia on the 11th December 2015 issued its RM3 billion (US$689.5 million) government investment issues (GII) Murabahah at a profi t rate of 3.99%. According to an announcement on Bank Negara Malaysia (BNM)’s website, the issue will mature on the 15th October 2025 and BNM may purchase up to 10% of the issuance size.

In a bid to prefund its 2016 budget requirements, the Indonesian government on the 10th December issued IDR1 trillion (US$70.7 million) in Sukuk Ijarah via Perusahaan Penerbit SBSN Indonesia. According to a statement, the privately-placed facility underpinned by state-owned assets and projects outlined in its 2015 state budget carries a fi xed annual coupon rate of 7.75% and will mature on the 25th January 2018.

Moving over to South Asia, the State Bank of Pakistan will auction a government of Pakistan Sukuk Ijarah with Jinnah International Airport Karachi as the underlying asset, the central bank announced in a statement on the 9th December. No auction date has been announced for the three-year paper; however, industry participants expect the sale — anticipated to be worth about PKR300 billion (US$2.84 billion) — to take place before the end of the year.

Separately, the government has also announced new plans for its recently delayed Sukuk. Originally scheduled for the end of November after the maturity of its PKR212 billion (US$2 billion) Sukuk Ijarah on the 21st November, the government of Pakistan’s PKR315 billion (US$2.98 billion) Sukuk Ijarah (GIS-16) sale did not take place and has been delayed. According to an industry source, details of the delayed auction will be made available in the last week of December.

Sovereign Sukuk: The regular jurisdictionsUpcoming sovereign SukukCountry Amount Expected dateTunisia US$500 million 2015Jordan JOD200-300 million Before end of 2015UAE TBA 2015Indonesia IDR150 trillion 2016Pakistan TBA Second quarter of

2016Shandong Province CNY30 billion TBAEgypt TBA 2015/16 fi scal yearSindh Province US$200 million TBAKazakhstan TBA 2016Turkey US$1.1 billion TBABangladesh TBA TBAHong Kong US$500 million to US$1 billion TBANingxia Hui Autonomous Region US$1.5 billion TBAKenya TBA 2016South Africa TBA 2016Senegal TBA TBANiger XOF150 billion TBALuxembourg TBA TBA

Turkey’s economy may be hit by the raft of sanctions orchestrated by Russia, casting a further shadow over its fi nancial health in 2016 which has already been weighed down by escalating geopolitical confl ict and domestic concerns. However, VINEETA TAN reports that analysts are confi dent that the Republic’s banking sector remains well-positioned to weather the storm, especially as banks plan to bolster capital levels under a new regulatory regime in the new year.

Assigning a stable outlook to the Turkish banking sector, Fitch Ratings noted that impending Basel III implementation (translating into higher minimum capital requirements and increased risk weights) and a weakening lira, among other factors, are likely to spur banks to boost capital levels — either through equity or

Tier 2 issuances — to support solvency ratios over the near and medium-term.

“Now that election season is over, some Turkish banks are seeking to take advantage of greater market stability to tap international markets,” said Fitch. Citing Kuveyt Turk’s expected Basel III-compliant Tier 2 Sukuk as an example, the rating agency added: “We understand that other banks are also considering Tier 2 issues, seeking to lock in still relatively low interest rates. We expect Turkish banks to retain external market access for new capital issues and to roll over outstanding senior borrowings.” Albaraka Turk earlier in December issued the fi rst Basel III-compliant Tier 2 Sukuk out of the country, with a US$250 million subordinated Tier 2 trust certifi cated issuance listed on the Irish Stock Exchange.

Beginning from next year, Turkish banks will need to augment their Tier 1 capital conservation buff er equal to 2.5% of risk weighted assets (RWAs) under the more stringent Basel III rules expected to be fully executed by 2019.

“They will also have to hold a buff er, with size dependent on systemic importance. This buff er will range from 1-3% of RWAs, but we understand it is set to be capped at 2% for the larger banks. The minimum CET1 ratio will therefore rise to 9% for larger institutions by 2019 from 4.5%, initially stepping up to 5.625% in 2016,” explained Fitch.

At ‘BBB-’, Turkey holds the lowest investment grade according to Fitch’s scale — a rating similar to that from Moody’s Investors Service (‘Baa3’), and higher than the ‘BB+’ junk rating by S&P.

Turkish banks to lean on Tier 2 issuance for support amid economic uncertainties


IFN REPORTS

Gold — commodity or currency? This is a question common in the fi nancial universe and refl ects the uniqueness of the yellow metal, a uniqueness that holds particularly true in the Islamic world. Yet despite the special place it has, there is a general uneasiness when it comes to dealing with gold in Shariah compliant fi nancial transactions. VINEETA TAN explores.

While deemed as legal tender, gold may also take on other forms including as a commodity or usable element in technology and ensuring its Shariah compliance may be more complicated than desired as in addition to Sarf (currency exchange) rulings, these transactions may also be subjected to other Shariah principles.

From the time aspect (spot basis), to counter values of exchange and issues of segregation and allocation of gold, there are many elements to consider when it comes to gold and these perceived complexities have largely kept many Muslims (both investors and issuers) at bay — evident by the result of this week’s IFN poll.

“Gold is a class of its own and I think it can get rather complicated — so just to be safe, I invest in other asset classes,” shared one Muslim investor to IFN. And this sentiment is refl ected in the holding of gold by Muslims worldwide.

“Statistics show that the global Islamic community owns only 1% of gold,” confi rmed El Mostafa Belkhayate, the CEO of Konooz Capital, a Dubai-based Islamic fi nancial fi rm which is working on launching a gold reserve Sukuk. “Ideally, 5-10% of an institution’s investment portfolio should be in gold; however, Islamic banks have generally trailed behind.”

Shariah complexities aside, Mostafa explained to IFN that another reason why gold does not feature prominently in the Islamic investment landscape is due to the pervasiveness of other asset classes such as the US dollar — a motivation for him to create a gold Sukuk product to fi ll that gap. Approved by three prominent scholars, the US$5 billion trust certifi cate program will be listed on NASDAQ Dubai for trading. Mostafa revealed that the fi rst tranche will be worth US$100 million.

So while Shariah investors and Islamic fi nance players may not have warmed up to the idea of gold as of yet, however that is gradually changing. Products such as Konooz’s gold reserve Sukuk aside, many more Islamic banks are exploring gold-based instruments such as gold deposit accounts and gold certifi cates.

And we can expect more institutions to jump on the bandwagon as the World Gold Council is determined to introduce

a much-needed internationally-accepted Shariah standard on gold (See IFN Report Vol 12 Issue 39: ‘Shariah standard on gold to broaden Islamic investment options for consumers’).

As one Islamic asset manager tells IFN: “There are more technical aspects to consider in terms of regulations and what not, but with an international Shariah gold standard, this will defi nitely provide greater clarity and confi dence for players, including us, to come into [the] market with gold products.”

IFN Weekly Poll: As a Muslim investor/issuer, are you comfortable dealing with gold in Shariah compliant inancial transactions?

60%

As a Muslim investor/issuer, are youcomfortable dealing with gold inShariah compliant nancial transactions?

Yes

No

40%

IFN ONLINE DIRECTORY

Over 6,599 individual companies directly involved in the Islamic fi nance industry


ANALYSIS

Regulatory landscapeSouth Korea has had a long and frustrating journey trying to pass legislation favorable to Islamic fi nancial transactions but to no avail. Prepared and submitt ed for the fi rst time in September 2009, the Ministry of Strategy and Finance was unsuccessful in gett ing the amendment to the Special Tax Treatment Control Act, containing provisions which would neutralize the existing double tax treatment of Sukuk transactions, approved by the National Assembly’s Strategy and Finance Committ ee.

Amendments were introduced again in February 2011 only to be rejected again due to strong opposition from Korean Christian groups, and there have been no signs from the government in att empting to re-introduce a bill which would create a level-playing fi eld for Shariah fi nancial transactions.

Recent activitiesDespite the inability of the Islamic fi nance industry to take off due to a matrix of religious sensitivity, the dearth of human capital and a lack of political will, however there is a resilient minority on the ground still steadily pushing for Shariah fi nance including the Islamic Finance Forum (IFF) established in 2013 by the Korea Institute for International Economic Policy, a government think tank.

Since its inception, the IFF has been producing research articles as well as conducting annual seminars on Islamic fi nance. In addition to that, it has been hosting bi-monthly meetings to discuss Islamic fi nance-related developments. Abu Dhabi Islamic Bank (ADIB) and Emirates NBD, which off ers Shariah compliant products, in December 2013 both signed MoUs with Construction Guarantee, a South Korean government organization to aid South Korean construction companies in the GCC.

And while political actors are pressured to appease domestic religious groups,

the Bank of Korea — the nation’s central bank — in March 2014 joined the IFSB as an associate member. In the same year, Korea Investment and Securities revealed plans to att ract oil wealth by partnering with Shariah compliant fi nancial institutions in Malaysia as it embarks on an overseas expansion drive.

In March 2015, the country’s largest bank, Woori Bank, and Qatar’s pioneering fully-fl edged Islamic bank, Qatar Islamic Bank (QIB), sealed a partnership aimed at facilitating bilateral trade fi nance and corporate businesses between both existing and future Qatari and South Korean entities in Qatar and/or South Korea.

The Export-Import Bank of Korea (KEXIM) also has the ability to issue Sukuk through its RM3 billion (US$689.5 million) in nominal value conventional and/or Islamic medium-term note (MTN) programs. The programs were assigned ratings of ‘AAA/AAAID’ by MARC in March 2015. The affi rmed ratings incorporate MARC’s assessment of support uplift from the government of the Republic of Korea to KEXIM’s stand-alone rating.

Middle Eastern tiesThe QIB-Woori agreement is built upon strong bilateral trade relations between Qatar and South Korea, and explains why South Korea is still interested in entering the Islamic fi nance market despite the challenging domestic atmosphere – to strengthen its ties with the Gulf. According to QIB, South Korea is a leading importer of Qatar-supplied liquefi ed natural gas, with 30% of the Republic’s energy demand being met by oil and gas products provided by the Middle Eastern state. Qatar on the other hand imports electronics and automobiles from South Korea.

The relationship between South Korea and the GCC dates back to the 1970s and is deeply embedded in trade due in large part to the abundance of oil

in the Gulf and the sophistication of South Korea’s manufacturing industry. Construction is another area of investment; in fact, the MoU between Emirates NBD and Construction Guarantee focuses on joint marketing to South Korean contracting companies in the GCC given the industry opportunities ahead of Expo 2020 in Dubai and the FIFA World Cup in Qatar in 2022. It was reported that the Korean Finance Corporation is working with a MENA fi nancial institution to establish a Shariah compliant investment fund.

Challenges and market outlookDouble taxation, the lack of enabling regulations, and unfavorable public perception about Islam along with an absence of a strong Islamic fi nance talent pool are some of the major impediments to the development of Shariah fi nance in South Korea.

Yet despite so, the Republic cannot ignore the fact that an increasing number of MENA players — who are the country’s major trade partners — are gravitating toward utilizing Islamic fi nance instruments and are demanding the same from their partners. In order to diversify foreign investment to maintain stability and long-term capital, the government realizes that it has to make a greater concerted push for Islamic fi nance.

But the reality is, the current environment in South Korea makes it challenging for domestic fi rms to tap this burgeoning market and therefore, perhaps the game plan forward is not to focus inwards but to look outwards at other established Islamic fi nancial markets to circumvent legal (and social) obstacles back at home and instead take advantage of the existing infrastructures, network and expertise of existing industry players as well as established markets to enter into the Islamic fi nance space.

IFN COUNTRY ANALYSISSOUTH KOREA

South Korea: Uphill battleIn terms of regulatory development for Islamic fi nance, progress has largely stagnated for South Korea due to the social and religious atmosphere in the country. Yet, despite development being curtailed, market participants are not giving up in trying to build a presence in the industry to att ract Middle Eastern capital. VINEETA TAN provides a market snapshot of South Korea’s arduous Islamic fi nance journey.


ANALYSIS

Luxury investments are a growing trend for the super rich — in 2014, the Knight Frank Luxury Investment Index grew 6% (compared to -2.72 for the FTSE 100) with the group highlighting the benefi t of luxury investments as a valuable diversifi cation tool within a long-term portfolio. “The general outlook for luxury spending continues to be positive. Almost a third of respondents to The Wealth Report’s Att itudes Survey expect their wealthy clients to spend more on luxury goods in 2015,” confi rmed the latest Knight Frank Wealth Report. Over the past decade, the index has risen 205%.

And the Islamic world is a key player in the space. The Knight Frank Big Spenders Index 2015 (based on six factors including luxury store footprint; premium travel and spending; big-ticket luxury goods spending; wealth growth; spending on luxury imported items; and ultra-high-net-worth individuals (UHNWI) population) lists three GCC countries in its top 10 — Qatar in third place, Saudi Arabia at number six and Kuwait at number 10. Interestingly, all three countries scored 10/10 for spending on luxury imported goods, and Qatar and Saudi Arabia also scored 9/10 for premium travel and spending — while Qatar topped the table for wealth growth with 10/10.

The report notes that wealth growth and international luxury goods consumption are key trends for 2015, while Africa was

noticeably absent from the top players due to a weakening in commodity-fuelled wealth — something that going forward is likely also to aff ect high-net-worth players in key Islamic markets in Asia such as Malaysia and Indonesia.

Investments“Since 2007, an increasing number of millionaires have shown interest in alternative investments, such as art, classic cars, wine, jewelry, gems and watches, which in times of economic uncertainty can deliver higher returns than equities,” according to WealthInsight’s 2020 Foresight Luxury Investment Report, which forecasts luxury investments to grow at a compound annual growth rate (CAGR) of 10.34% to reach US$621 billion by 2017. In the fi ve years from 2008-13, luxury investments grew at a CAGR of 14.58% from US$210 billion to US$362 billion. And while developed markets contributed the largest share, millionaires from emerging markets registered the strongest growth at a CAGR of 22.24% since 2007, with luxury investments growing from US$43 billion in 2008 to US$96 billion in 2013. With the global economy volatile and capital markets shaky, high-net-worth individuals are likely to look increasingly toward real assets, collectables and luxury classes as a replacement and diversifi cation tool for their traditional investments.

Key investment areas for Islamic high-net-worth players include art, luxury and

collectable cars, all of which have seen strong performance in recent years. The Historic Automobile Group International (HAGI) Top Index, published by the Financial Times and which is an acknowledged benchmark for classic cars as an alternative asset class, returned 15.52% year-to-date as of November 2015 — compared to a negative 4.79% return for the S&P Global 1200, for example. Over the past 10 years, the HAGI Top Index has risen by an astonishing 487%. The art market is also performing well, with the sector seeing 15% growth last year according to data from Art Market Research. Coins are another asset performing well, with 13% gains last year.

FundsLuxury funds are a growing area that is useful as a diversifi cation tool. While there is litt le information on Islamic-specifi c funds, the majority of luxury and lifestyle funds are equity-based and therefore (unless investing in hotels, casinos or other Halal areas) Shariah compliant. “[The] luxury consumer follows the fast-growing trend in aspirational spending,” explains luxury fund provider Dominion. “This trend is heavily infl uenced by the global growth in wealth, the rapid growth of middle classes in developing markets, and fi nally by the global trend of urbanization which is driving growth in consumer spending.” Year-to-date, the Dominion

IFN SECTOR ANALYSISLUXURY AND LIFESTYLE

Luxury and lifestyleWhile the high-net-worth Muslim population is cagey about its investments and few concrete fi gures are to be found regarding trends and opportunities — even regarding private banking and wealth management, let alone specifi c asset classes, there is no doubt that luxury and lifestyle fi nancing is a lucrative (if opaque) market. LAUREN MCAUGHTRY off ers a brief update on a secretive sector.

continued...

Table 1: The Big Spenders Index 2015Rank Country Luxury store

footprintWealth growth Premium

travel and spending

Spending on luxury imported items

Big-ticket luxury goods spending

UHNWI population

1 UK 9/10 5/10 8/10 7/10 5/10 5/102 China 10/10 7/10 2/10 6/10 7/10 7/103 Qatar 7/10 10/10 9/10 10/10 2/10 2/104 Canada 9/10 8/10 5/10 10/10 3/10 4/105 India 8/10 10/10 10/10 5/10 1/10 4/106 Saudi Arabia 8/10 5/10 9/10 10/10 4/10 3/107 Switz erland 10/10 8/10 6/10 6/10 3/10 4/108 Mexico 9/10 8/10 6/10 6/10 3/10 4/109 Hong Kong 9/10 9/10 9/10 2/10 2/10 3/1010 Kuwait 6/10 7/10 8/10 10/10 2/10 2/10Source: Knight Frank Wealth Report


ANALYSIS

Euro IC fund share class has risen 3.82%, and has grown over 42% over the last fi ve years.

Amundi Asset Management, majority-owned by French bank Credit Agricole and with an Islamic funds vehicle listed in Luxembourg, also off ers an Equity Global Luxury & Lifestyle vehicle, which has seen its euro sub-fund return 14.61% in the past year and 75.38% in the past fi ve years. In 2013 RHB, which also has a strong Islamic off ering, launched its Leisure, Lifestyle & Luxury Fund which year-to-date (as of October 2015) returned 26.63%.

In the last year, hedge funds have also begun targeting luxury brands for diversifi cation, driven by the strong demand for luxury brands in the Middle East and Asia — especially China. With share prices of luxury brands falling as the global economy struggles and purchasing power in key regions declines, funds are snapping up bargains.

Opportunities Muslim high-net-worth individuals hold an estimated US$3.35 trillion in total wealth while the 2014 New Wealth World Report identifi es Muslims as one of the fastest-growing millionaire groups globally. Knight Frank in its 2015 Wealth Report identifi es Indonesia and Kazakhstan as two of the top fi ve countries with the highest forecast growth in UHNWI for 2014-24.

The opportunities are clear and with the turbulence expected to continue in the global markets, the demand for diversifi cation and new asset classes will only increase. The question is, why so few Shariah compliant vehicles exist to meet this growing need? Yes, private banks and wealth managers target clients by wealth rather than religion, and many off er a Shariah compliant solution.

And yes, many luxury and lifestyle funds are equity-based and generally compliant anyway. But surely targeting and branding these solutions and marketing them to a growing and enthusiastic Islamic audience would both raise the profi le of the sector and off er new opportunities to providers and investors alike? It seems an obvious opportunity for a high-net-worth population so focused (both by inclination and religion) on long-term asset-based investment and luxury spending.

IFN SECTOR ANALYSISLUXURY AND LIFESTYLE

Continued

8th March 2016Grand Hyatt Muscat

This half-day seminar will focus on the opportunities available today in the Omani market for

both capital raising and investment in the Shariah compliant space. With an expected audience

of approximately 100, this intimate event will gather the leading players with an active interest

in the local and international Islamic financial markets. This Seminar will be filmed and made

available exclusively on IFN-TV to a truly global audience.

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CASE STUDY

Traditionally tapping the banks for its requirements on its balance sheet and cash fl ows, Pakistan International Airlines (PIA) turned to the market again with a successful closure of a US$120 million structured syndicated Islamic facility in late November. Speaking to Mashreqbank, the joint initial mandated lead arranger, bookrunner and coordinator for the facility, NURUL HALIM provides a detailed account of the exciting transaction.

Utilizing the structured syndicated Islamic facility as it is deemed as one of the most natural structures for such transactions, the three-year tenor facility is secured against irrevocable assignment of receivables from IATA and World Pay. The proceeds from the facility will be used to support the airline’s ongoing strategic growth plans and general corporate purposes.

“It has been a pleasure to work with PIA and help realize their aspirations. The successful closure of this transaction is evidence of the banking community’s confi dence in PIA’s strategic growth

plans being delivered,” concurred Iqbal Hassan Khanyari, the head of the International Corporate Division and Islamic banking.

In terms of the market participants of the syndication, Iqbal highlighted: “This transaction once again reiterates the multitude of synergies developing between the Middle East and Pakistan”. Typically, PIA raises fi nancing from its relationship banks in Pakistan and the UAE and the latest deal received an overwhelming response from the market and oversubscribed by a diverse set of banks spread across the GCC and South Asia — of which many were not its existing relationship banks. Participating banks in the syndication included Askari Bank, National Bank of Pakistan, Noor Bank, United Bank, Warba Bank and Bank Islam Brunei Darussalam.

Some of the unique features of the transaction are as follows: the fact that the transaction received an overwhelming response proved to be a testament of market confi dence in PIA’s growth plan; oversubscribed by a diversifi ed pool of banks of which many were not existing relationship banks; and structured around the cash fl ows of the company.

Commenting on the challenges, Iqbal said: “Arranging a syndicate comprising a diverse set of banks across [the] GCC and South Asia was a key challenge as the transaction involved a government of Pakistan-owned enterprise without any sovereign guarantee.”

Employing about 16,000 people, PIA is one of the Republic’s largest public sector entities and holds strategic importance to the government. The airline has previously raised 100% Shariah compliant secured debt instruments from international markets.

PIA’s Islamic syndicated inancing: A testament of con idence from the market

Pakistan International Airlines

US$120 million

23rd November 2015

Obligor Pakistan International Airlines (PIA)

Aggregate principal amount

US$120 Million

Type of facility Structured syndicated Islamic facility

Structure Syndicated and structured in accordance with Shariah principles based on the Airline Ticket Voucher Distribution structure

Use of proceeds To support the company’s ongoing strategic growth plans and general corporate purposes

Tenor Three years

Benchmark 3-month US dollar LIBOR

Margin 4%

Profi t rate 3-month US dollar LIBOR +4%

Repayment Over three years

Frequency of profi t payment

Monthly

Mandated lead arranger(s)

Mashreqbank and Citibank, Askari Bank, National Bank of Pakistan, Noor Bank, United Bank and Warba Bank

Lead arranger(s) Bank Islam Brunei Darussalam

Arranger(s) Bank Alfalah

Documentation agent and coordinator

Mashreqbank and Citibank

Investment agent Mashreqbank

Legal advisor Hogan Lovells (Middle East)

Governing law English law

Arranging a syndicate

comprising a diverse set of banks across [the] GCC and South Asia was a key challenge as the transaction involved a government of Pakistan-owned enterprise without any sovereign guarantee


COLUMN

By Kavilash Chawla

For my fi nal column of 2015, I would like to focus my commentary on 2016 more explicitly, and a key step the Islamic fi nance industry can take in 2016 to continue its growth, both with its current consumer base, and in increasing its crossover appeal to ethical and purely fi nancial return-focused customer segments.

In 2015, two key underlying forces that signifi cantly infl uenced not just the fi nancial services space but the global economy more broadly were the continued integration of big data into business strategy and operations, and the complimentary acceptance that, in a data-driven, digital world, we compete in a truly global marketplace. The eff ect of these two parallel forces within any given business is twofold. Firstly, business leaders have accepted that leveraging big data requires both a strategic commitment to building a data-driven organization, and an investment of fi nancial and human resources to deliver on the strategy. Secondly, business leaders have realized that global competitiveness requires a fi ne balance between supporting an innovative and entrepreneurial culture while developing effi cient, outcome-driven operations.

In 2015, these two underlying trends (big data integration and global competition) were evident in the funding fl ows toward internal and external research. Specifi cally, 2015 witnessed an increasing level of cooperation and partnership between academia and industry. In the Islamic fi nance space, for instance, the Qatar Faculty of Islamic Studies hosted a roundtable discussion in Doha that brought a select handful of Islamic banking CEOs and Islamic fi nance academics together to discuss key issues in the industry. In the impact investment industry, we saw a signifi cant investment by a family offi ce to have a top 10 US business school do a customized research piece on the fi nancial and social impact return for private equity investors within the impact investment space. In terms of internal investment, we have seen leading corporates invest in cutt ing-edge research toward helping them bett er assess and respond to global risk; and there are leading fi nancial service providers investing in the collection of

deep consumer insights, and building customized research teams to exploit that data toward creating and strengthening their competitive advantage.

In 2015, investments in research were signifi cant, especially outside of the Islamic fi nance space, though we did see some snippets of activity within the industry itself. In terms of ‘thinking big’ for 2016, research is a key factor in staying competitive globally and leveraging big data to drive performance. Two specifi c areas of research that could help fundamentally support the growth of the Islamic fi nance industry in 2016 include:

1. Consumer analytics: a litt le less than a decade ago, one of the fundamental questions being raised within the Islamic fi nance industry was the question of Islamic retail banking’s cost competitiveness against its conventional counterpart. Understanding the cost competitiveness was important, but so was understanding the price elasticity of demand. In other words, what percentage of consumers would be willing to pay a premium for Islamic banking

services and, of those willing to pay a premium, how much of a premium were they willing to pay? Broadly speaking, Islamic retail banking has become more cost-competitive with its conventional counterpart over the past decade, but Islamic fi nance institutions, by and large, still lack the depth of consumer insight to fully understand and deliver value-added retail banking products to their consumers. In other words, Islamic retail banks are not winning as many customers as they can, and they are not deriving as much revenue per customer as they can because they do not fully understand the current day customer and tomorrow’s target customer.

2. Capital markets: the risk-return performance diff erences between Sukuk and conventional bonds are well known within Islamic fi nance circles, and within a limited number of conventional institutional investors. Where a signifi cant awareness gap exists is with the broad majority non-OIC investors and asset managers, including pension funds. Given a research and data-heavy tradition within fi nancial services globally, and with western investors and asset managers in particular, an academic-industry research partnership into Sukuk could be seminal. Deeper

research into the risk-return performance of Sukuk against other fi xed income assets, and the demonstration of the role Sukuk assets play in constructing well-balanced portfolios can provide a signifi cant body of research and data to support the global

development of Islamic fi nance.

‘Thinking big’ for 2016 means moving beyond accepting, and

even beyond embracing the fact that we live in a data-driven world where our competitors span the globe. ‘Thinking big’ for 2016 means investing in a global, data-driven reality through research, through

fostering a culture of innovation and entrepreneurship, and in building

effi cient, outcome-focused organizations.

In terms of ‘thinking

big’ for 2016, research is a key factor in staying competitive globally and leveraging big data to drive performance

Thinking big


COLUMN

By David Vicary Abdullah

Another busy month as the end of 2015 approaches. Travel, as ever, was included. During this period I had the opportunity to visit Australia, Belgium and the UK (twice). The discussions in all locations revolved primarily around quality, responsible fi nance and talent development.

Let me try to draw these threads together and to give, I hope, an encouraging message for the end of the year, despite the trying and troubling times that we live in currently. I have for a long time writt en, spoken about and encouraged the need for greater professionalism in everything that we do as well as the need for examples of the demonstration eff ect of the value proposition of Islamic fi nance. With audiences from Brisbane to Antwerp, while including London several times along the way, what is resonating with those audiences are facts and relevant analysis.

How do you show you are bett er? Why is this a bett er way to raise

capital? Is this system really more responsible? These are some of the questions that are being asked of us continually. We must respond with facts, fi gures, data and analysis to provide the demonstration eff ect. That is why research is so vital to everything that we do, linked with thought leadership, critical thinking and robust professional

standards. It is no longer satisfactory to talk about

concepts and theories, interesting though they may be to some. What is required is empirical research, a clear demonstration eff ect and robust arguments that support the theories.

Here education, talent development and industry-focused research have a vital role to play. We must

not only play the game, but also up our game with

continuous improvement. We must be prepared to debate, discuss and to demonstrate our value

proposition. We must be willing to subject ourselves to the

closest possible scrutiny and be confi dent that we have

both convincing and empowering answers. If we do not take up these challenges, then we will remain on the boundary, marginalized and ineff ective. The challenge is now and we must rise to it.

In readiness for the new year that is just around the corner, I wish you all well. Stay focused, be professional and be prepared.

As ever, there is much to do and not a moment to lose!

Research is so vital to

everything that we do, linked with thought leadership, critical thinking and robust professional standards

Daud speaks

RESEARCHGot questions?

We can answer them… What you need, when you need it.

Please visit www.islamicfinancenews.com/ifn-research or call +603 2162 7800 for more information

Building on over a decade of market-leading industry insight through our publishing, events and training arms, REDmoney now offers a new service for the Islamic finance industry – a comprehensive product suite of national, regional, global and sectoral research.

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IFN COUNTRYCORRESPONDENTS

IRAN

By Masoud Gholampour

Novin Investment Bank has issued the fi rst Sukuk Istisnah in the Iranian capital market on behalf of Tose'e Melli Mining and Industries Company, raising IRR1.62 trillion (US$54.15 million) on the Tehran Stock Exchange on the 23rd November 2015. The Sukuk pay 23% profi t annually with quarterly payments and will mature in three years. The proceeds from this issue are to facilitate the completion of two iron ore concentrate and pellet plants, with a 2.5 million ton annual output. The plants are located in the city of Sangan in northeastern Khorasan Razavi Province. One is 60% complete while work on the second plant has progressed by only 25%.

Istisnah or ‘production order securities’ are an Islamic form of fi nancing used to fund the manufacturing of goods. Based on the contract, the issuer fi nances the originator for a specifi ed product that can later be given to the issuer to operate via other Islamic contracts, such as Ijarah and Murabahah.

For this fi rst Sukuk Istisnah in the Iranian capital market, where Novin Investment Bank is the advisor and underwriter, Novin's brokerage is the broker and Tose'e Melli Investment Company is

guaranteeing the principal, the total amount of IRR1.62 trillion was fully subscribed with a total demand of IRR9 trillion (US$300.85 million).

Iran's capital markets are rapidly expanding. The two-year bear market that has reigned on equities has redoubled the conviction of the regulator Securities and Exchange Organization to expedite the process of introducing newer fi nancial products. According to the Tehran Chamber of Commerce, Industries, Mines and Agriculture, the capital markets raised IRR292 trillion (US$9.76 billion) in the 2013-14 fi scal year — 7.6% of total fi nancing — through capital increases, IPOs and the sale of Islamic corporate bonds (including Musharakah, Murabahah and Ijarah).

To gain market share from banks in Iran, the exchanges are off ering fi nancial instruments that provide versatility to investors and companies looking for funding or risk management tools.

Sukuk Ijarah (in addition to Murabahah and Musharakah) have been traded for a few years now. This year, stock futures were legalized, along with stock options, though they have not yet been put up for trading.

Iran Mercantile Exchange's CEO recently said that they are sett ing up their exchange to off er foreign exchange futures. In the fi xed income category, along with the more mainstream Sukuk Musharakah, Islamic treasury notes were off ered for the fi rst time this year to start building a sovereign debt market.

Masoud Gholampour is the manager of the Research and Marketing Department at Novin Investment Bank. He can be contacted at [email protected].

First Sukuk Istisnah in Iran IFN Country CorrespondentsAFGHANISTAN: Dr Alam Khan Hamdard president, Afghanistan Islamic Finance and Consulting Co AUSTRALIA : Dr George Mickhailsenior lecturer, School of Accounting, Economics and Finance, University of Wollongong, Australia BAHRAIN: Dr Hatim El-Tahirdirector of Islamic Finance Knowledge Center, Deloitt e & Touche BANGLADESH: Md Shamsuzzamandeputy managing director, Islami Bank BangladeshBELGIUM: Prof Laurent Marliere, CEO, ISFIN BERMUDA: Belaid A Jheengoordirector of asset management, PwC BRAZIL: Fábio Figueirapartner, Veirano AdvogadosBRUNEI: Dr Aimi Zulhazmi, Islamic fi nance consultant, Draznine Advisory CANADA: Jeff rey S Grahampartner, Borden Ladner Gervais CHINA: Abdullah Hanpartner, Al-Sadiq ConsultingEGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Kader Merbouhco-head of the executive master of the Islamic fi nance, Paris-Dauphine UniversityHONG KONG: Amirali Bakirali Nasirchairman, The Law Society of Hong Kong working party on Islamic fi nanceINDIA: 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 ITALY: Stefano Padovani, partner and head of Banking & Finance, NCTM Studio Legale Associato JAPAN: Kaoru Haraguchifounding att orney, Haraguchi International Law Offi ceJORDAN: Nafi th Al Hersh Nazzal, Islamic banking specialist, certifi ed fi nancial and investment advisorKAZAKHSTAN: Timur Rustemov, deputy chairman, association for development of Islamic fi nanceKENYA: Mona K Doshi senior partner, Anjarwalla & Khanna AdvocatesKOREA: Yong-Jae Chang, partner, Lee & KoKUWAIT: Alex Saleh, partner, Al Tamimi & CoLEBANON: Johnny El Hachempartner – corporate, Bin Shabib & Associates LUXEMBOURG: Said Qaceme, senior manager of Advisory & Consulting, Deloitt e Tax & Consulting MALAYSIA: Ahmad Mukarrami Ab Muminhead, Shariah division, RHB Islamic BankMALDIVES: Aishath Muneezadeputy minister, Ministry of Islamic Aff airs, MaldivesMALTA: Reuben Butt igiegpresident, Malta Institute of ManagementMAURITIUS: Mohammad Akshar MaherallyDirector (taxation), International Financial Services MOROCCO: Ahmed Tahiri Joutimanaging consultant, Al Maali Consulting GroupNEW ZEALAND: Mohamed Nalartrustee and board member, Awqaf New ZealandNIGERIA: Auwalu Ado; Shariah auditor, Jaiz BankOMAN: Muhammad Abdullah DewayaIslamic fi nance scholarPAKISTAN: 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: Suhaimi Zainul-Abidin, advisor, 5PillarsSRI LANKA: Imruz Kamilhead of Islamic banking, Richard Pieris Arpico FinanceSWITZERLAND: Khadra Abdullahiassociate, Investment banking, Faisal Private BankSYRIA: Gabriel Oussi,general manager, Oussi Law FirmTANZANIA: Yassir Masoud head, Islamic banking, retail banking, National Bank of CommerceTURKEY: Ali Ceylanpartner, Baspinar & PartnersUAE: Rima Mradpartner, Bin Shabib & Associates UK: Fara Mohammaddirector of Islamic fi nance, Foot Anstey US: Joshua Brockwellinvestment communications director, Azzad Asset ManagementYEMEN: Moneer Saif; head of Islamic banking, CAC BankIFN 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]

To gain market share

from banks in Iran, the exchanges are offering inancial instruments that provide versatility to investors and companies looking for funding or risk management tools


IFN SECTORCORRESPONDENTS

IFN COUNTRYCORRESPONDENTS

HONG KONG

By Amirali Nasir

The government of Hong Kong continues to be optimistic about the prospect of developing Islamic fi nance in Hong Kong, initially by facilitating the launch of Sukuk. Two sovereign Sukuk have been issued after appropriate legislative changes, training and establishing links at diff erent levels locally and internationally.

The Hong Kong government facilitates the development of the fi nancial market by the private sector through free market policies with strong regulatory controls according to international standards. Given these free market conditions and the simple tax structure in Hong Kong, at least compared to other jurisdictions, it is surprising that issuers have not chosen Hong Kong as a place for the issuance of Sukuk.

An Islamic fi nance market has to be an integrated market with banks, Takaful companies, trainers and investment companies all committ ed to the development of such a market. With the fast-paced development of Islamic fi nance in the west and other areas of Asia and in particular Malaysia, Hong Kong has to analyze the reasons for issuer reluctance to enter Hong Kong, if it is to catch up with the international markets. This is crucial as Hong Kong is ideally located to take advantage of the future development of Islamic fi nance through China’s ‘One belt, one road’ initiative, which is the largest long-term international project available to issuers.

The ‘One belt, one road’ initiative involves many countries in the Middle East and Asia, where banks, Takaful companies and investors will be looking for Shariah compliant investment opportunities. The majority of the ‘One belt, one road’ initiative involves infrastructure development, which is the purest form of underlying investment structures that could be hoped for in structuring an Islamic contract. Hong Kong has to develop its Islamic fi nance platform to take advantage of the opportunities off ered by the ‘One belt, one road’ initiative.

The IFN Seminar in Hong Kong on the 29th October 2015 was a great success, att ended by a large contingent from mainland China signifying their interest, commitment and focus toward alternative forms of investment opportunities. Hong Kong has to match that commitment if it is to succeed in establishing an Islamic fi nance market. Hong Kong can play a key role in the ‘One belt, one road’ initiative and secure a strong foundation upon which to build an Islamic fi nance market. Government-led initiatives will be a key determinant and broader and more liberal policies will be required to facilitate these initiatives.

While Hong Kong’s low and simple tax structure is clearly a competitive advantage, it does not seem to be enough. Perhaps a tax break is required, even for the short term, to compete and att ract business. This would inevitably bring in invisible earnings from which the government, treasury and local businesses could benefi t, albeit indirectly.

Amirali Bakirali Nasir is the managing partner and solicitor at Nasirs Solicitors and the chairman of the Law Society of Hong Kong working party on Islamic fi nance. He can be contacted at [email protected].

China’s ‘One belt, one road’ initiative

Hong Kong has to analyze the

reasons for issuer reluctance to enter Hong Kong, if it is to catch up with the international markets

IFN Sector CorrespondentsCROSS-BORDER FINANCINGFara Mohammad, director of Islamic fi nance, Foot Anstey

CAPITAL MARKETS : Suhail Ahmad, CEO, Hikmah Capital Corp

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

GLOBAL ECONOMIC OUTLOOKTariq Alrifai, expert, Islamic investment products and market trends

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 : Youssef Aboul-Naja, Ijarah specialist, a supranational banking institution

MERGERS & ACQUISITIONS : Tushar Garg, associate, bulge bracket investment bank MICROFINANCE (ASIA):Dr Mahmood Ahmed, executive vice-president and director training, Islami Bank Training and Research AcademyMICROFINANCE (AFRICA): Mansour Ndiaye, director of microfi nance, Assistance and Consulting for DevelopmentPRIVATE BANKING & WEALTH MANAGEMENT: Thomas Woods, product development, wealth management, The Islamic Bank of Asia

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 PartnersREAL ESTATE (MIDDLE EAST): Yahya Abdulla, head of capital markets — Middle East, Cushman & Wakefi eldREGULATORY ISSUES (ASIA)Intan Syah Ichsan , chief operating offi cer, Samuel Aset ManajemenREGULATORY ISSUES (MIDDLE EAST): Mohammad Abdullah Malik Dewaya, head of Shariah compliance and audit, Maisarah Islamic Banking ServicesRETAIL BANKING : Chowdhury Shahed Akbar, offi cer, Southeast Bank, Bangladesh.

RISK MANAGEMENT : Dr Ken Baldwin, CEO, Islamic Financial Analytics

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

SYNDICATED FINANCEDamir Galiev, portfolio manager, AK BARS Bank

TAKAFUL & RE-TAKAFUL : Dr Sutan Emir Hidayat, assistant professor and academic advisor for Islamic fi nance, University College of BahrainTAKAFUL & RE-TAKAFUL (AFRICA):Uwaiz Jassat, acting head of Islamic banking, Absa Islamic BankingTAKAFUL & 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 Al Hersh Nazzal, Islamic banking specialist, certifi ed fi nancial and 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]


EVENT REPORT

WORLD ISLAMIC BANKING CONFERENCE IN BAHRAIN

By Sajida Ali

The conference, structured under the theme of ‘New Realities, New opportunities’, discussed the progress of the Islamic fi nance industry, identifi ed key opportunities and challenges in the Islamic fi nance market, and discussed what could be done to stimulate future growth in order for the Islamic fi nance market to operate as a sector within a broader ethical fi nance industry. The deliberations were supported by strong participation and contributions from high-level policymakers and regulators which included central bank dignitaries from Turkey, Bahrain, Kazakhstan, Oman, Pakistan, Sudan, South Africa, and Indonesia as well as global Islamic leaders from the US, the UK, Nigeria, Australia, Azerbaijan, Russia and China.

In addition, the debate included discussions on technology and its role in facilitating fi nancial services inclusion and to integrate Islamic fi nance not just with Muslim communities but to reach out to non-Muslim countries.

Emphasis on developing Islamic capital markets On the fi rst day of the event, the International Islamic Financial Market (IIFM) hosted a pre-conference seminar on Islamic fi nancial markets speaking about the way forward in standardizing and harmonizing various Shariah compliant products as per market requirements. The seminar highlighted global Sukuk market trends and potential opportunities and challenges that contribute to the development of Sukuk markets internationally and locally.

The seminar also discussed the impact of adopting more comprehensive standardized documentation, the importance of Islamic hedging products and its benefi ts in minimizing and mitigating risk as well as developments to broaden the availability of Islamic hedging alternatives.

Speaking at the IIFM seminar on Islamic fi nancial markets, Ismail Dadabhoy from the IIFM said: “Sukuk will play a major part in the next two years and we will see more issuance of Sukuk from Morocco, Kazakhstan and Pakistan.”

To promote the growth of Sukuk markets, Islamic fi nance market players need to develop diff erent platforms of Sukuk especially for domestic markets as there is currently no real focus on domestic markets which is needed to create more local opportunities.

The pre-conference day also included the launch of Islamic fi nance country reports from Thomson Reuters on Kazakhstan and Canada which aimed to capture growth opportunities in those emerging markets.

Consolidation urgedOn the fi rst offi cial day of the WIBC, the governor of the Central Bank of Bahrain (CBB), Rasheed Al Maraj, in his keynote address renewed his emphasis on the merger and acquisition of Bahraini Islamic banks, particularly, Islamic investment banks in order to create institutions of size and increase the chances of survival.

Rasheed also announced that the CBB is introducing a centralized Shariah Board with a broad mandate, which includes overseeing product development by Islamic fi nancial institutions and Islamic windows, strengthening Shariah compliance, providing guidance to the CBB in issuing rules and regulations for the sector, providing guidance to the courts in legal cases involving Islamic fi nancial institutions and acting as the Shariah Board for the CBB.

Referring to human resources development, the CBB has taken several initiatives toward raising human resources capabilities to be a key driver of the future growth and success of the Islamic fi nance industry worldwide.

Rasheed also said that a number of training programs had been

launched with the Bahrain Institute of Banking and Finance, including the Advanced Diploma in Islamic Commercial Jurisprudence program and the Advanced Shariah Reviewer Development program, to broaden the horizon of resources and plug knowledge gaps.

The executive president of the Central Bank of Oman, Hamood Sangour Al-Zadjali, said: “The Islamic fi nance industry will benefi t from and lead wider socioeconomic development once an operational framework is set up.”

Some of the sessions addressed and assessed the impact of oil prices which is seen as one of the largest macro forces aff ecting Islamic fi nance’s development and growth.

Overall, the three-day event provided a practical platform for industry dialogue which debated growth challenges in the face of prevailing global and regional economic constraints. Some of the key takeaways can be summarized on three fronts:• Addressing good governance practice

in relation to regulatory compliance• An emphasis on upholding Shariah

compliance and practice integrity, and• Development of talents, leadership

and human capital.

Sajida Ali is a business analyst at the Deloitt e ME Islamic Finance Knowledge Center (IFKC) of Deloitt e & Touche-Bahrain. She can be contacted at SajAli@deloitt e.com.

Consolidation required to create institutions of sizeThe world’s largest annual gathering of international Islamic fi nance leaders, the World Islamic Banking Conference (WIBC) was a three-day event (1st-3rd December 2015) held under the patronage of prime minister Prince Khalifa Salman Al Khalifa at the Gulf Hotel in Bahrain. Over 1,300 Islamic fi nance leaders from more than 50 countries att ended representing over 300 organizations.


SPECIAL REPORT

HALAL PRODUCTS

By Mujtaba Khalid

Although growing rapidly, averaging double-digit growth in the past decade, the modern Islamic fi nance industry faces a number of challenges. Practitioners and academics alike have pinpointed a number of issues including a lack of secondary markets for Shariah compliant products, a lack of consistency of standards in diff erent jurisdictions and a shortage of qualifi ed professionals (lawyers, bankers and academicians among others) who adequately understand both the Islamic and conventional sides of the equation. Most importantly though, for an industry based on faith, credibility presents a fundamental challenge for Islamic fi nance to demonstrate how Shariah compliant products provide an authentic alternative to interest-based conventional products.

Islamic fi nance appears to have entered into a new era in its evolution where previously frowned upon areas are now coming to the fore. Sectors such as derivatives, hedge funds, the extensive use of Tawarruq/commodity Murabahah and other structuring methods to create eff ective cash raise many questions on the authenticity and direction of the industry. This phenomenon has been referred to as Shariah arbitrage, that is, Islamic structured products created using wrappers to overcome restrictions. This excessive engineering of basic structures and products designed to clone conventional structures will eventually result in the Islamic banking industry losing the opportunity to defi ne its diff erentiating factor.

This article looks at creating a higher certifi cation within the Halal products universe which not only complies with Shariah concepts but fulfi lls the actual spirit and Maqasid of Islamic teachings – an Islamic version of corporate social responsibility certifi cations which uses Maqasid Shariah as a benchmark. The approach is about moving beyond compliance to the law, and providing something extra and benefi cial, be it in the product or behavior. Concepts such

as Tayyab, Mandoob (recommended) and Makruh (disliked) are equally relevant when creating a certifi cation and eventually a range of products that provides a choice to the ultimate user of Halal products to opt for enhanced value.

De inition of TayyabThe Quran mentions the word Tayyab over 40 times in a number of contexts but the general meaning purports to goodness within an action or object. We read it to describe food, income, spouses, wealth, agricultural products, character, property, speech and manners. The meaning of Tayyab, therefore, covers a range of goodly descriptions: wholesome, enjoyable, delicious, pure, beautiful, soft, safe, fertile, chaste and fresh.

Its applicability is vast and is arguably a subjective concept but in Arabic, to appreciate the meaning of a word, one must look at its antonym; which in this case is Khabeeth. This is understood to mean that which is fi lthy, foul, corrupt, and dirty. Tayyab is its opposite. Tayyab can only be understood once consideration is given to the Halal. Ibn Khatir notes that Tayyab has been mentioned many times in the Hadith in conjunction to what is Halal. However, Tayyab is more than just Halal.

It is mentioned in the Quran: “He (the Prophet) will make good things (Tayyibat) lawful to them and forbid them the bad things (7:157).” Ibn Al Qayyum explains this verse as meaning those things permitt ed by the Prophet were already among the ‘good things’ in life. By declaring it lawful, he had vested another level of goodness in them. The things which are Tayyab are naturally Halal. Conversely, Ibn Al Qayyum explains that Allah has only forbidden deeds that are shameful (Khabeeth) from the perspective of any reasonable person. In the Quran, Allah states that: “A good (Tayyib) deed is like a good (Tayyib) tree: The roots are fi rm and its branches are in heaven (14:24).”

Proposed applications: Private equity and equity investments One possible use of the Tayyab methodology, among many others, is

using Maqasid Shariah-based equity investment decisions as well as within equities trading. This is not only to appease the devout Muslim investor, but according to conventional academic research, social responsibility has a positive impact on a fi rm’s profi tability and investors’ earnings.

For example, King and Lenox (2001) showed that an increase in the value of US fi rms is directly related to a fi rm adopting environmental standards. Feldman et al (1996) from their analysis found that improvements in a fi rm’s environmental performance result in the stock price being less susceptible to market movements, which in turn leads to an increase in a public company’s stock price thus making it a bett er investment. Similarly, according to Abramson et al (2000), socially responsible screened portfolios off er competitive returns both in the short and long run, compared to the benchmark return.

Moving forwardCurrent Islamic fi nance products and structures — both fi nancial and otherwise — have a single dimension of either being Halal or Haram (permissible or non-permissible). The evolution of the Halal economy would be the formation of a new genre of products and services that are based on being Tayyab – being wholesome and more benefi cial than basic Halal options. Moving forward, broadly, the following paradigms should be assessed vis-a-vis Islamic teachings in both the fi nancial and business arena to defi ne the next generation of Islamic products:

• Corporate governance and general internal business practices

• External business practices (including social responsibility)

• Financial product structuring, and• Underlying asset selection.

Mujtaba Khalid is a senior associate at the IFC UK and also an assistant professor at COMSATS IIT. He can be contacted at [email protected].

Beyond Halal — An evolution of Shariah compliant productsFocusing on the spirit and purpose (Maqasid) of Shariah, MUJTABA KHALID proposes a move past Halal and Haram, to emphasize the clear gradations in the actions of a Muslim that have been defi ned in Islamic teachings.


SPECIAL REPORT

IRAQ

By Khaled Saqqaf and Dana Abduljaleel

In response, the Iraqi government has proactively worked to create a legal environment more accommodating to the needs of Islamic banking stakeholders. These included provisions for the establishment of Islamic banking windows at conventional banks, as well as regulations and instructions organizing the activities and operations of Islamic banks in 2011.

More recently, the Iraqi parliament has endorsed, for the fi rst time, a federal law dealing exclusively with Islamic banks; namely the Islamic Banks Law No.43 of 2015 (the Islamic Banks Law). The Islamic Banks Law is expected to come into force in 2016. It defi nes the incorporation and licensing requirements applicable to Islamic banks and details the activities which Islamic banks may and may not undertake. For instance, under the Islamic Banks Law, Islamic banks are prohibited from:

1. Dealing with interest (usury), whether by accepting or granting the same

2. Investing in or funding any product or project contrary to Shariah, and

3. Funding brokerage transactions relating to real estate projects.

The said restrictions aside, Islamic banking activities are widely defi ned under the Islamic Banks Law, and include activities such as funding of and investment in any project or activity (provided the same is not contrary to Shariah), the establishment of investment portfolios and the issuance of Sukuk in accordance with the Central Bank of Iraq’s instructions, purchase, sale or leasing of assets, and (subject to obtaining the Central Bank’s approval) acquiring or participating in the share capital of certain companies.

The Islamic Banks Law also defi nes certain compliance and risk controls applicable to Islamic banks as follows: Islamic banks shall appoint a Shariah Compliance Committ ee composed of fi ve members, of whom at least three members shall possess Islamic jurisprudence expertise and two members shall be experienced in banking, legal and fi nancial works. The said committ ee shall be responsible for monitoring the extent of the bank’s compliance with Shariah, and shall give its opinion on the workings, activities, and agreements of the bank in accordance with Shariah.

Islamic banks are further required to dedicate an Internal Shariah Audit Department responsible for auditing the bank’s works and evaluating the extent of the bank’s compliance with the principles and provisions of Shariah, the AAOIFI standards and the instructions

issued by the bank’s Shariah Compliance Committ ee.

Islamic banks shall further ensure that the value of fi xed assets acquired for its use shall not exceed 30% of its net core assets, and that the percentage of its investments in fi xed assets (including the aforesaid 30%) shall not exceed 50% of the value of its investment portfolio,

Such controls are particularly important in the Islamic banking sector, on account of the need to balance between the requirements of Shariah ideology and between ensuring the fi nancial sustainability of the bank.

In addition to the controls imposed on Islamic banks, Article 13(2) of the Islamic Banks Law exempts Islamic banks and branches of foreign Islamic banks from taxes and fees accruing on sale and purchase agreements of real estate, lands and vehicles under Murabahah, Musharakah and Ijarah-Muntahia-Bil-Tamlik transactions, with the exception of real estate acquired by the bank as part of the sett lement of a debt or as housing for its employees.

This is perhaps the most signifi cant change brought about by the Islamic Banks Law, and is expected to allow for the more cost-effi cient structuring of Islamic fi nancial and lending products in Iraq, thereby enabling Islamic banks to eff ectively compete in Iraq’s fi nancial market.

The Iraqi banking sector continues to undergo major changes and development and these changes, including in particular, the introduction of the new Islamic Banks Law, are to be welcomed as a key step to establishing a developed and eff ective fi nancial sector in Iraq.

Khaled Saqqaf is a partner and head of the Jordan and Iraq offi ces at Al Tamimi & Company while Dana Abduljaleel is an associate in the Banking and Finance Department of the same company. They can be contacted at [email protected] and [email protected] respectively.

Development of Islamic banking in IraqThe Islamic banking industry in Iraq has, for many years, operated under the umbrella of laws and regulations aimed at conventional banks. Aligning conventional banking structures with the requirements of Shariah laws and ideology has had a profound impact on the ability of Islamic banks to prosper and grow within the Iraqi market. Importantly, most Islamic banking products entail the purchase, sale or leasing of moveable or immoveable property; resulting in signifi cant taxes, charges and fees, and thereby, more often than not, aff ecting the att ractiveness and profi tability of the Islamic fi nancial product. KHALED SAQQAF and DANA ABDULJALEEL explore.

The Islamic Banks Law

is expected to come into force in 2016. It de ines the incorporation and licensing requirements applicable to Islamic banks and details the activities which Islamic banks may and may not undertake


SPECIAL REPORT

ASSET MANAGEMENT

By ICD

While there is consensus that regulatory failures played a major role in steering the entire global fi nancial system to the brink of collapse in 2008-09, a much more alarming discovery has been made in connection with the state of modern fi nancial intermediation, and that is the glaring absence of ethical foundations and moral compasses. A fl urry of irresponsible mortgage lending by fi nanciers set the ball rolling, coupled with the assumption of unhealthy risk and debt levels by stakeholders, while numerous institutions (more prominently, involving rating agencies) pursued their self-interest fi rst to the detriment of others. As a result, the proliferation of events ultimately led to the devastating loss of trust in fi nancial systems.

After the turbulent episode of 2008-09 and with half a decade’s hindsight, signifi cant reform eff orts were carried out in order to enhance the resilience of the fi nancial sector. At the same time, the potential of Islamic fi nance as an alternative and more equitable model for the global fi nancial system began to appeal to the masses, especially given the fact that the Islamic fi nance industry weathered through the storm and was relatively unscathed compared to its conventional peers. Meanwhile, the recent shift toward a more socially-responsible fi nancial system has shed light on its commonalities with the underlying principles of the Islamic fi nancial system, such as risk-sharing contracts and the prohibition of interest payments, excessive uncertainty and gambling, and the focus on ethics and promotion of social-welfare activities. This is a stark contrast to traditional fi nance, which typically focuses on the eff ort to maximize risk-adjusted returns.

Indeed, the fi nancial crisis of 2008-09 was a stark reminder that the fi nancial system needs to be more closely-linked

to real activity. The core proposition of Islamic fi nance derives from its inherent features and the values that it brings to the economy, and the enormous potential that it off ers in supporting sustainable economic growth and in safeguarding fi nancial stability. Islamic fi nance rulings are derived from Shariah, which dictates that Islamic fi nancial transactions

must be supported by underlying productive activities. Therefore, based on Shariah principles, Islamic fi nance warrants a close relationship between fi nancial transactions and the real economy, where intermediation must be aligned to generating productive economic activities. In addition, risk-sharing re-allocates the emphasis from creditworthiness of the borrower to be placed on the value creation and economic feasibility of investments that generate new wealth. All in all, the prohibition of assuming excessive leverage, risk, and speculative elements insulates the Islamic fi nancial system, thus supporting fi nancial stability and long-term sustainability.

In this regard, the Islamic Corporation for the Development of the Private Sector (ICD) has been instrumental in supporting the growth of the industry and the role that it plays in the economy. The ICD continues to provide lines of fi nance to private sector projects through Shariah compliant means, targeting projects that are specifi cally geared to contribute to economic development, such as the creation of employment opportunities and contribution to exports.

The intrinsic link between Islamic inance and the real economyThe role of the fi nancial system, which include fi nancial institutions and markets, is to facilitate the fl ow and effi cient allocation of funds between lenders and savers for the purpose of generating productive economic growth. In essence, the fi nancial system functions to serve the real economy.

The ICD recognizes

that the Islamic inance industry

requires effective holistic measures to focus on efforts to facilitate and ensure inclusive inancial sector development


SPECIAL REPORT

Furthermore, the ICD has recently adopted a strategy that will focus on the development of what is called ‘Islamic Finance Channels’. These channels are designed to widen the reach of Islamic fi nance products and services with the objective of contributing signifi cantly to the developmental goals of ICD member countries and thus, sustainable economic development. This will be achieved substantially through the sett ing up of Islamic banks, investment and Ijarah companies, Takaful and re-Takaful companies in member countries via the ICD’s numerous advisory services programs.

In addition, the unprecedented growth of the industry has put increasing pressure on the supply of high-quality human capital. As a result, there is an urgent need for Islamic fi nance-tailored programs which are able to produce highly competent and motivated professionals with the required knowledge of conventional banking and fi nance as well as knowledge of Shariah. As a means of addressing this shortfall, the ICD established the Islamic Finance Talent Development Program in 2011 to develop superior talents and best practice for the industry.

More recently, the ICD recognizes that the Islamic fi nance industry requires eff ective holistic measures to focus on eff orts to facilitate and ensure inclusive fi nancial sector development. In collaboration with Thomson Reuters, the annual ICD-Thomson Reuters Islamic Finance Development Indicator Report, now in its third consecutive year, assesses the current overall health of the Islamic fi nance industry and measures growth potential across 108 countries. The indicator is the leading global reference for Islamic fi nance development for all users including policymakers and regulators, investors and fi nance institutions, Shariah scholars, and research and training departments interested in Islamic fi nance.

Moving forward, as Islamic fi nance is one of the fastest-growing segments of the global fi nancial industry, it will continue to create value for the global economy by facilitating the growth of various economic sectors and the infrastructure needed to support business activity. In some countries, Islamic fi nance has become systemically important and, in many others, it is too big to be ignored.

Continued

The active integration process in CIS markets towards the formation of the Eurasian Economic Union

coupled with the increased awareness of Islamic finance in Russia and CIS countries such as Kazakhstan,

Kyrgystan and Azerbaijan have spurred investor interest but locally as well as internationally.

REDmoney Events in partnership with the Islamic Business and Finance Development Fund (IBFD Fund)

will organize the IFN CIS & Russia Forum on the 15th March 2016 in Moscow. The event is expected to

draw market players and regulators from key Islamic finance markets globally and within Russia.

Russia and the CIS: Realizing potential and exploring Islamic

finance opportunities in a promising new market

REGISTER NOW atwww.REDmoneyevents.com

IFN CIS & RUSSIA FORUM15th March 2016

Renaissance Moscow Monarch Centre

LEAD MEDIA PARTNEREXECUTIVE PARTNERASSOCIATE PARTNER

MEDIA PARTNERS

W: www.redmoneyevents.com | E: [email protected] | T: 603 2162 7800 ext. 43

SUPPORTED BY


TAKAFUL FEATURE

TAKAFUL

By Ahmad Mahfuz Ismail

According to Bank Negara Malaysia, earned contribution income for the General Takaful sector in the fi rst half of 2015 amounted to RM803.5 million (US$187.88 million) compared to RM706.7 million (US$165.25 million) in the fi rst half of 2014. For the Family Takaful segment, net contribution for the fi rst half of 2015 increased to RM2.64 billion (US$617.31 million) compared to the fi rst half of 2014 which recorded RM2.36 billion (US$551.84 million).

Growth in the second half of 2015, however, will depend on external and internal factors that dictate the market. For example, the weakening of the ringgit could aff ect the purchasing power of consumers and this could lower the expectation for new business.

Nonetheless, we are expecting Takaful contributions this year to grow by around 10% for General Takaful and by about 12% for the family-based portfolio.

The implementation of the Goods & Services Tax or GST in the fi rst half of 2015 has not been a deterrent for the industry to grow.

Industry challengesA major concern would be the growth rate for the sector which is expected to moderate with the current economic environment. At the same time, Takaful operators will have to prepare to compete in a more liberalized market environment and to comply with the regulatory requirements, such as the ongoing Risk-Based Capital (RBC) Framework and the Life Insurance and Family Takaful or LIFT Framework.

The RBC and LIFT frameworks will bring in a new operating environment for the Takaful industry and help to boost the market for Takaful products.

Capturing opportunitiesTakaful operators would have to look at overall cost and to focus on the smaller contribution-based products. They should look into products where there is continuous demand with lower pricing, such as personal accidents, medical cards or even disability cover. A change of strategy in managing their risk pool would also help in managing the claims ratio.

In certain segments where there is a de-tariff of the General Takaful pricing, such as for motor products, pricing and services will have an edge for operators who are ready. However, the key will be the outcome of the LIFT framework, where we expect a more competitive pricing of products under the family segment.

The role of brokersTakaful brokers such as Marsh focus on delivering insights of risks and Takaful solutions that benefi t clients by helping them to focus on their business activities. They work directly, though independently, with Takaful operators, to develop the capacity to underwrite risks through clear objectives.

It is a misconception in the Malaysian market that the Takaful brokerage service is seen as a ‘cost-add-on’, and ‘another intermediary’. Brokers enhance clients’ bargaining power by way of stimulating market competition, and challenging the present paradigm, thus optimizing their investment in risk management and Takaful contribution altogether. In addition, many brokers are equipped with resources to manage the challenges in the employee health and benefi ts and General Takaful portfolio. For Takaful operators, brokers can assist in mitigating clients’ services liability exposures.

Overall, Takaful broker services are usually rigorous and specialized, providing risk advisory services for both the clients and the industry that remove the need for investment in additional specialist advisory services.

Current Takaful solutionsSince the mechanism for Takaful products diff ers from that of conventional products, the biggest consideration for clients is usually to look at the components that are Shariah compliant. Takaful adopts mainly the Wakalah contract, which is used to help manage expected distribution of the operators, which is cost-eff ective for the client.

In terms of product development and innovation, currently we are still in the ‘plain vanilla ‘stage, but with the upcoming liberalization of the market, it is hoped that more products to support the growth of the Takaful market would be made available. For example, the Islamic Financial Services Act 2013 (IFSA 2013) emphasizes responsibilities to the industry’s players. This could lead to risks being breached and fi nancial institutions and industry players could be held responsible in paying out the penalty. There are also potential risk exposures in the Halal industry. With these in mind, Takaful operators should take the opportunity to create products

Malaysian Takaful industry set for a busy year despite ongoing challengesGenerally, the Takaful sector has been making steady progress over the years. Growth in the fi rst half of this year has been positive and encouraging, amid the moderating current growth rate of the Malaysian economy. AHMAD MAHFUZ ISMAIL provides IFN with an overview of the industry and an outlook for 2016.

Since the mechanism

for Takaful products differs from that of conventional products, the biggest consideration for clients is usually to look at the components that are Shariah compliant

continued...


TAKAFUL FEATURE

that help protect them from these unique risks.

A new regulatory landscapeThe IFSA 2013 requires a Takaful operator other than a professional re-Takaful operator with a composite license to separate its Family Takaful business from its General Takaful business. Each fi rm is given a grace period of fi ve years to separate its entities and this is currently in its third year.

The challenge here lies with the shareholders wanting to gain their return on investment soon, and Family Takaful has more att ractive margins. With this, it is strategic for Takaful operators to choose a partner or share with other General Takaful operators to save operational costs and time.

With the liberalization of the market, the landscape is changing. What General Takaful operators with larger underwriting capacity can do is to merge with foreign partners and acquire expertise to create a more competitive and robust General Takaful market. It is also expected that these operators may acquire a public company status, enabling them to become a wholly commercial venture.

While this is not prohibited under Shariah, it will be bett er if the Takaful companies also have the option to set themselves up as co-operatives or mutuals. Furthermore, tighter Shariah governance is expected with the new landscape and this will defi nitely incur further cost in compliance. In the end, there could be further changes in pricing and margins of products in the coming years.

Market outlookDespite the challenges faced by Takaful brokerage and risk advisory, we see the Takaful sector to be very positive in the long-run. We remain optimistic about the growth of the Takaful sector not only in Malaysia, but also in the region. This is because we have seen a steady growth of more than 20% in our Takaful business since the establishment of Marsh Takaful in 2008.

Ahmad Mahfuz Ismail is CEO of Marsh Takaful Brokers. He can be contacted at [email protected].

Continued

We are pleased to announce the launch of the 10th Islamic Finance news Deals of the Year Awards.

Over 450 individual deals in 32 categories were nominated in 2014. The size and scope of the annual IFN Deals of the Year Awards continues to grow, ensuring it remains the most respected and sought-after accolades in the industry.

Islamic Finance news is categorically recognized as the industry's leading publication and authority on the Islamic banking and finance industry. With a world-wide readership in excess of 23,000 industry practitioners and

regulators, the Islamic Finance news Deals of the Year Awards offer its winners a truly global audience and a phenomenal vehicle in which to reach ones clients, potential clients and peers.

There are 22 global categories at stake this year, in addition to the individual country awards.

Below is the full list of categories for which accolades will be awarded. Individual deals may be nominated for more than one category. However, only one deal per category. Submission guidelines and a list of criteria are also provided.

* Country accolades will be awarded to those countries which have witnessed a minimum of three non-private placements during the calendar year. Verification may be required of these transactions.

Submission Guidelines

Submissions must be no more than two pages in length, in

bullet format

State clearly at the top of the deal page, which categories that

particular deal is being nominated for. If it is not clearly stated

it will not be considered.

Please mark ‘Confidential’ if certain information should not be

published

Only one submission per category (Individual deals may be

nominated for more than one category)

Only those deals which were closed after the 1st January 2015

will be considered

Only those deals which have been completed may be

submitted

Submissions to be provided in soft format in either excel, word

or PDF format

Closing date for submissions: Friday 18th December 2015

Deals which close between the 18th December and the 31st

December 2015 may be submitted up to and including

Thursday the 31st December 2015

All submissions should be emailed exclusively to:

[email protected] will be announced in the Wednesday 6th January 2016

issue of Islamic Finance news

•

•

•

•

•

•

•

•

•

•

•

THE CATEGORIES

• Deal of the Year• Best Country Deals*• Cross Border• Corporate Finance• Commodity Murabahah• Equity• Ijarah• Initial Public Offering• Most Innovative• Mudarabah• Murabahah & Trade Finance• Musharakah

• Perpetual Sukuk• Project & Infrastructure Finance• Real Estate• Regulatory Capital• Restructuring• Hybrid• Social Impact• Sovereign• Structured Finance• Sukuk• Syndicated Finance

SUBMISSIONSNOW OPEN!

DEALS OF THE YEAR

2015Closing Date:

18th December 2015

Submissions criteria to include the following (where applicable): Instrument, Issuer, Issuer principal activities, Issue size & Pricing, Date, Issuances, Bookrunner, Arrangers, Legal counsel for issuer, Legal counsel for arrangers, Guarantor, Trustee, Shariah advisor, Method of issue, Purpose of issue, Rating, Road-shows, Subscription, Investors, Time, and a short brief on why this deal is being nominated.

The decision of the “Awards Committee” is final. A short brief will be published for each award providing the committee's reasoning. All criteria of the submitted deals will be considered.

Awards Dinners

• Kuala Lumpur: 22nd February 2016 (Shangri-La Hotel)• Dubai: 29th February 2016 (Ritz Carlton DIFC)

If you have any questions regarding the submission of your deals then please contact [email protected]


TAKAFUL FEATURE

TAKAFUL

By Camille Paldi

Takaful is almost the same concept as conventional mutual insurance, except that the Takaful operator can inject an interest-free loan called Qard Hasan into the fund in the event of insolvency. Islamic insurance is based on cooperative risk-sharing and joint guarantee, which is a concept already widely used in the west and favored by ethical people, Christians, Muslims, and Jews.

Takaful can be considered a form of investment insurance with coverage and is a valuable fi nancial tool for people seeking coverage, investment returns, diversifi cation of portfolios, wealth management, and innovative retirement plans. It is also quite useful and widely used by people of all faiths, nationalities, and backgrounds in international trade fi nance. If marketed properly, Takaful can become a wildly popular mass consumer product in the west and the world. This short article aims to describe the Takaful concept and gives an overview of the Takaful business while addressing the treatment of Qard Hasan or the interest-free loan in the operation of a Takaful fund.

A conventional insurance company speculates on the risk by making an assessment of the risk and then pre-determining profi t based on the estimated payout versus the premium. It is in a sense gambling. Proprietary insurance is concerned with risk transfer, insured risks being transferred from the insured to the insurer in return for a premium. Takaful is concerned with risk-pooling, whereby policyholders (Takaful participants) mutually insure one another in a common risk pool fi nanced by their contributions (premium payments).

Takaful, or Islamic insurance, is a cooperative scheme where participants pay a premium in the form of a donation or Tabarru in a common pool in return

for the ability to draw upon that pool upon a valid claim. The word Takaful originates from the Arabic world Kafalah, which means ‘guaranteeing each other’ or ‘joint guarantee’. Takaful is essentially a concept where the participants are both the insurer and the insured.

In a Takaful fund, the participants may get a return on investment plus the premiums returned at the end of the policy. The funds remaining in the Takaful fund on maturity of the policy are distributed back to the participants after deduction of the charges due to the operator and according to the type of Takaful management model utilized by the fund. In a situation where the Takaful fund is not able to meet its current and future obligations, the Takaful operation will be deemed insolvent (ie the Takaful fund has less assets than liabilities). The term solvency means the fi nancial ability to pay debts when they become due. The fund’s inability to pay claims is contrary to the intent of the participants in joining the scheme and hence, a primary objective of everyone concerned is to ensure that fund solvency is maintained at all times.

The Takaful operator plays an important role that the management of a conventional mutual fund does not play in the event of a periodic defi cit in a Takaful fund that exceeds the reserves of the fund, thereby making it potentially insolvent. In this case, the Takaful operator acts as a lender of last resort by providing a Qard Hasan or interest-free loan to the Takaful fund. Such a loan shall be repaid out of future underwriting surpluses.

However, the terms and conditions of repayment are often unclear and sometimes not stipulated. In the event of non-recovery of a Qard Hasan, is the Takaful operator willing to write it off as the defi cit increases? What will happen to the Qard Hasan in the event of insolvency? From the operator’s perspective, the Qard Hasan is a temporary injection of operator capital

into the risk fund and is a particular use of the operator’s capital (which ultimately comes from shareholders of the operator). There is an opportunity cost for the Takaful operator when the operator’s capital is used for the Qard Hasan. It is the availability of aff ordable capital (either for the Takaful operator to inject into the Takaful fund as a Qard Hasan or as the surplus available in the Takaful fund, which is not locked up to ensure continuing solvency) that determines the speed at which a Takaful business can grow. Thus, the use of the Qard Hasan may stifl e profi tability, growth, and/or expansion of the Takaful business.

The Takaful operator grants a Qard or interest-free loan in the event of a defi cit in the Takaful fund (in contrast to mutual insurance). The Takaful operator is expected to off er a Qard loan facility, which can be drawn down if the fund is unable to meet its obligations (because of a defi cit or lack of liquidity). The loan does not remove a defi cit, as it increases the fund’s liabilities simultaneously with the assets, but it provides liquidity to enable the fund’s obligations to be met. The loan should be recoverable by the Takaful operator through future

The treatment of Qard in TakafulTakaful or Islamic insurance is a booming industry around the world. In fact, many western insurance companies already engage in the Takaful business abroad in the Middle East and Malaysia including AIG and Lloyd’s. CAMILLE PALDI believes that Takaful can be launched as a major insurance product in the west, as cooperative insurance is not a new or foreign concept in Western countries especially in the shipping and construction industries; in fact, westerners are excited about the Takaful concept, which includes return on investment and return of premiums at the end of the policy.

In contrast to conventional

insurance companies, Takaful companies must make disclosures about the underwriting pools and underlying assets

continued...


TAKAFUL FEATURE

underwriting surpluses. As a Qard Hasan is considered a loan injection into the Takaful fund, repayment of such loans should take precedence over surplus distribution to participants.

Considering that the Takaful fund is under the direct management of the Takaful operator, such a loan may fall under the broader context of ‘related party.’ Related party transactions must be publicly disclosed and only carried out on an arm’s-length basis without any unduly favorable terms. In some jurisdictions, independent valuations and appraisals are required before the regulatory authorities will allow substantial related-party transactions to take place. This is in order to avoid the directors and management of the company manipulating the movement of funds or assets of the company in favor of certain parties who are related to or favored by them.

Should the requirement to publicly disclose the Qard facility be similarly imposed on Takaful operators on the basis that it is a related-party transaction? Should the existence of the facility be disclosed or only the loan if the facility is actually drawn down? While it would seem desirable to disclose the existence and amount of the facility, transparency would also require the disclosure of the drawdown amount when made.

Furthermore, certain safeguards may also be required in order to ensure that the Qard is not employed in a manner that favors certain pools among the many pools of Takaful funds under the management of a Takaful operator. In countries such as Malaysia, Takaful operators are obliged to give an undertaking to the regulator to provide a Qard facility to be drawn down in the event of a defi cit of a Takaful fund. Without proper regulation of the Takaful industry, there is room for nepotism-like behavior, corruption, and non-transparent, inadequate, and inaccurate fi nancial reporting, which may result in the fi nancial collapse and bankruptcy of many Takaful companies and damage to the reputation of Takaful and the Islamic fi nance industry as a whole.

As only three countries possess comprehensive Takaful legislation (Malaysia, Brunei and Pakistan), the global Takaful industry is heavily under-regulated as well as lacks a proper dispute

resolution mechanism. A unique and harmonized regulatory and reporting regime is required for Takaful for many reasons including the two-tier structure of Takaful companies, which includes shareholder and policyholder funds. Shareholder and policyholder funds are managed separately and capital may not be fungible or transferable between the two separate accounts. Furthermore, Takaful funds have unique policyholder entitlements and rights, diff erent structures, and face diff erent risks compared to conventional insurance.

One of the main diff erences between conventional and Islamic insurers lies in the fact that in Islamic fi nance, the assets underlying the underwriting pools are owned by policyholders, whereas assets in conventional proprietary insurance companies are owned by shareholders and must at all times be suffi cient to cover their obligations to policyholders. Accordingly, in contrast to conventional insurance companies, Takaful companies must make disclosures about the underwriting pools and underlying assets.

The AAOIFI regulations FAS 12 General Presentation and Disclosure in the Financial Statements of Islamic Insurance Companies and FAS 13 Disclosure of Bases for Determining and Allocating Surplus or Defi cit in Islamic Insurance Companies address many of these issues. The AAOIFI standards require disclosures on policyholders’ funds and the determination and allocation

of surplus and fi nancing of defi cits. However, the requirements in respect of movements between the funds should be enhanced and the individual rights of policyholders should be clearly stated in the fi nancial statements.

There is also a lack of transparency in the fi nancial statements of some Takaful companies with regards to undistributed fund balances. Overall, the current fi nancial reporting practices of Takaful companies do not provide adequate information regarding the company’s investment strategy, funds allocation, and revenues and expenses accruing to their particular investment funds. Exacerbating the situation, Takaful companies have not yet adopted a single framework for fi nancial reporting and this has resulted in the lack of transparency and comparability of fi nancial statements.

In many jurisdictions, solvency and capital requirements for Takaful companies remain simple; however, several countries including Malaysia, Indonesia, and certain GCC countries are moving toward risk-based capital (RBC) regulation. In terms of capital adequacy regulation, it may be diffi cult to apply ratio-based methods as it can be diffi cult to accommodate them to the diff erent structures adopted by Takaful operations and their diff erent risk profi les. For this and other reasons, it is more advantageous to develop RBC regulation for the Takaful industry. In the RBC, calculating the capital requirement is combined with evaluating management practices and internal controls. In this process, there is a major role for the regulator in reviewing and evaluating the process by which the calculated capital requirement was arrived at and imposing additional capital add-ons if the regulator is not satisfi ed with the insurer’s risk management.

Camille Paldi is CEO of Franco-American Alliance for Islamic Finance. She can be contacted at [email protected].

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Takaful companies

have not yet adopted a single framework for inancial reporting and this has resulted in the lack of transparency and comparability of inancial statements


NEWS

DEAL TRACKER Full Deal Tracker on page 38EXPECTED DATE COMPANY'S NAME SIZE STRUCTURE ANNOUNCEMENT

DATE

Dec-15 Government of Pakistan PKR300 billion Sukuk Ijarah 10th December 2015


First quarter of 2016 Government of Egypt TBA Sukuk 7th December 2015

TBA Ahmad Zaki Resources RM1 billion Sukuk Murabahah 7th December 2015

TBA Scientex TBA Sukuk Murabahah 3rd December 2015

TBA Barwa Bank US$2 billion Sukuk 27th November 2015

TBA Sime Darby up to RM3 billion Sukuk 27th November 2015

TBA Samalaju Industrial Port up to RM950 million Sukuk Murabahah 27th November 2015

Dec-15 Government of Kuwait TBA Sukuk 30th November 2015

TBA WAPDA PKR144 billion Sukuk 26th November 2015


Dec-15 Government of Ivory Coast XOF150 billion Sukuk 23rd November 2015

DEALSMalaysia issues GII MurabahahMALAYSIA: The government of Malaysia issued its RM3 billion (US$710.77 million) government investment issues (GII) Murabahah at a profi t rate of 3.99% on the 11th December 2015. According to an announcement on Bank Negara Malaysia (BNM)’s website, the issue will mature on the 15th October 2025 and BNM may purchase up to 10% of the issuance size.

EXIM Bank issues SukukMALAYSIA: The Export-Import Bank of Malaysia (EXIM Bank), via EXIM Sukuk Malaysia, on the 10th December issued a US$30 million Sukuk due 2018 under its US$1 billion multicurrency Sukuk issuance program, according to an announcement on Bank Negara Malaysia’s website. The proceeds will be utilized for EXIM Bank’s Shariah compliant working capital, general banking and fi nancing activities as well as for other Shariah compliant corporate purposes.

SBP to auction government SukukPAKISTAN: The State Bank of Pakistan (SBP) will auction a government of Pakistan (GoP) Sukuk Ijarah with Jinnah International Airport Karachi as the underlying asset, the central bank

announced in a statement on the 9th December. No auction date has been announced for the three-year paper; however, industry participants expect the sale — anticipated to be worth about PKR300 billion (US$2.83 billion) — to take place before the end of the year.

Indonesia issues Sukuk for 2016 budgetINDONESIA: The Indonesian government on the 10th December issued IDR1 trillion (US$71.4 million) in Sukuk Ijarah via Perusahaan Penerbit SBSN Indonesia to prefund 2016 budget requirements. According to a statement, the privately-placed facility underpinned by state-owned assets and projects outlined in its 2015 state budget carries a fi xed annual coupon rate of 7.75% and will mature on the 25th January 2018.

Indosat lists SukukINDONESIA: Indosat on the 10th December listed two tranches of Sukuk Ijarah: a seven-year IDR65 billion (US$4.64 million) facility and a IDR41 billion (US$2.93 million) 10-year paper on the Indonesian Stock Exchange, according to Republika.

KDU to make Sukuk pro it paymentMALAYSIA: According to an announcement on Bank Negara Malaysia’s website, KDU University College (KDU) will make profi t

payments for its RM350 million (US$80.92 million) nominal value Islamic medium-term notes program on the 28th December 2015.

MAF lists Sukuk UAE: NASDAQ Dubai has welcomed the listing of Majid Al Futt aim (MAF)’s US$500 million Sukuk, bringing the total value of Sukuk listings carried out on the exchange during 2015 to US$13.25 billion and the total nominal value of Sukuk listed in Dubai to US$36.8 billion. According to a statement, the Sukuk is the second to be listed by MAF.

Nakheel makes Sukuk pro it paymentUAE: Nakheel announced in a statement that it has made a profi t payment of AED220 million (US$59.88 million) on its trade creditor Sukuk on the 15th December 2015, with Deutsche Bank, the registrar and the paying agent for the Sukuk, instructed to make the profi t payment to Sukukholders.

S Power redeems IMTNMALAYSIA: Special Power Vehicle (S Power) has partially redeemed the secondary stock (stock code: VN050177) under its Class B Islamic medium-term note (IMTN) facility of RM5.55 million (US$1.28 million) on the 15th December 2015, according to an announcement on Bank Negara Malaysia’s website.


NEWS

ASIABML introduces Islamic deposit accountMALDIVES: Bank of Maldives (BML) has introduced a new Islamic deposit account, the Wadiah Business Account, for enterprises, according to Haveeru Online. Under the new service, customers’ deposits will be collected in a separate fund which will be used for processes that are Shariah compliant.

HDC launches GHDPMALAYSIA: Halal Industry Development Corporation (HDC) on the 14th December launched the Global Halal Data Pool (GHDP), a central depository of authenticated Halal trade information to connect Malaysia to the international Halal supply chain, confi rmed a press statement. The GHDP was developed in collaboration with GS1, an international non-profi t organization dedicated to developing and supporting global supply chain standards and technologies.

LAPSPI to take over dispute resolution activities from OJKINDONESIA: Otoritas Jasa Keuangan (OJK) is fi nalizing the establishment of an agency that will take over its mediation function in dispute resolution activities, according to The Jakarta Post. The agency, the Indonesian Alternative Agency for Banking Dispute Resolution

(LAPSPI), will be part of the Indonesian Alternative Agency for Dispute Resolution that commenced handling disputes in the insurance and capital market sectors on the 10th December. Still under the purview of OJK, LAPSPI will operate independently and will commence full operations early next year (with banking dispute resolution to be added later) featuring three services (adjudication, mediation and arbitration) as stated in a 2014 OJK regulation.

RHB to expand Islamic treasury offering MALAYSIA: RHB Investment Bank plans to expand its treasury portfolio for the coming year in a bid to diversify its products to meet client requirements in a challenging economic environment. “A key strategy is to increase the depth and breadth of treasury products and services... to meet the diversifi ed hedging, investment and funding requirements of our clients throughout Malaysia and across Asia,” confi rmed Angus Salim Amran, the head of global fi nancial markets, speaking to IFN.

BDB Infra secures Islamic inancing facility

MALAYSIA: BDB Infra, a subsidiary of Bina Darulaman, has secured a RM40.4 million (US$9.34 million) Islamic fi nancing facility from OCBC Al-Amin Bank to fund the construction of a new asphalt plant and quarry facilities in

the state of Kedah as well as to fi nance existing quarry operations and road construction projects. The company said in a statement that the fi nancing cost of the facility is not expected to have a signifi cant impact on the group’s earnings per share and net tangible assets per share for the current and incoming years.

AFRICASEgypt’s Al Baraka to launch new productEGYPT: Al Baraka Bank-Egypt is seeking to off er a new saving certifi cate in Egyptian pounds in early 2016 and is waiting for approval from the Central Bank of Egypt. According to Amwal Al Ghad quoting the bank’s CEO Ashraf

El-Ghamrawy, the Islamic bank is planning to issue a three-year investment certifi cate, generating a monthly yield to be sold at variable profi t rates.

ADIB-Egypt’s inancing bid approvedEGYPT: Abu Dhabi Islamic Bank (ADIB)-Egypt’s bid to secure a Shariah compliant fi nancing facility ranging

between EGP2-3 billion (US$251.3- 376.93 million) to be repaid over 15 years for the Egyptian Electricity Transmission Company (EETC) has been approved by the Ministry of Electricity. According to Amwal Al Ghad quoting unnamed sources, the state-run electricity company is reportedly negotiating fi nancing worth EGP7 billion (US$ 879.52 million) with local banks to fund a number of projects.

EUROPEGatehouse boosts PRS investmentUK: Following its initial investment of GBP110 million (US$165.76 million) to build over 900 homes in Greater Manchester and Merseyside in the

second half of 2014, Gatehouse Bank will be investing a further GBP100 million (US$150.69 million) to develop a portfolio of private rented sector (PRS) homes across the UK, according to a press release. The Islamic bank’s PRS program is in partnership with Sigma Capital Group, a UK-listed residential and urban regeneration specialist.

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NEWS

GLOBALInvestcorp acquires new propertiesGLOBAL: The US-based real estate arm of Investcorp has, through four separate transactions, acquired a portfolio of offi ce and industrial properties in Atlanta, San Francisco and Boston for approximately US$400 million. According to a statement, the fi rm’s real estate group has approximately US$1.4 billion in assets under management as of the 30th June 2015, primarily in commercial, offi ce and residential properties within the top 30 largest markets in the US.

Lebanese banks welcomed in IranGLOBAL: Iran and Lebanon are set to strengthen their economic ties and will work to expedite and expand their cooperation in the fi eld of fi nancial and banking exchanges. According to IRNA, a preferential trade agreement was signed between the countries and a working group was formed to examine the details of the agreement. The Islamic Republic also welcomes Lebanese banks to open branches in the country, Central Bank of Iran governor Valiollah Seif was quoted as saying.

Tough month for Pan Arab marketsGLOBAL: The S&P MENA Sukuk index in November dropped 1.02%, a trend replicated in the S&P MENA Bond Index which fell 1.44%. S&P Dow Jones Indices, however, noted in a statement that: “With fi nancials largely suff ering, November provided our Shariah indices with a chance to shine; excluding Europe, they outperformed in each of the major markets shown in this report — the Middle East included.” For the month of November, S&P GCC Composite Shariah Index rose 0.08%, S&P TOPIX 150 Shariah was up 2.31%, S&P Developed BMI Shariah appreciated 0.05%, while S&P Europe 350 Shariah declined 2.1%, S&P Pan Arab Composite Shariah fell 0.08%, S&P Pan Arab Investable Shariah dropped 6.16% and S&P Emerging BMI Shariah was down 1.9%.

Saudi and Algiers bourses collaborateSAUDI ARABIA: The Saudi Stock Exchange and the Algiers Stock Exchange have entered into an MoU to deepen

and formalize the existing cooperation between the two exchanges and explore future opportunities in matt ers relating to capital market development among others, according to a bourse fi ling.

Stable outlook for GCC banking sector in 2016 GLOBAL: According to Moody’s in a statement, public spending will continue to support operating conditions for banks in the GCC, allowing performance to remain resilient into 2016, but liquidity will continue to tighten. The rating agency notes that the outlook for the GCC banking sector in 2016 is stable. Credit is forecasted to grow in the 4-10% range as private sector declines are moderated by new government borrowings from local banks helping to support profi tability and margins.

Substance over form for AOSSGGLOBAL: The Islamic Finance Working Group of the Asian-Oceanian Standard-Sett ers Group (AOSSG) has welcomed the explicit statement that “a faithful representation provides information about the substance of an economic phenomenon instead of merely providing information about its legal form” as outlined by the IASB ED/2015/3 Conceptual Framework for Financial Reporting. In its published comments on issues specifi c to Islamic fi nancial reporting, the AOSSG also noted its support to the statement that “providing information only about a legal form that diff ers from the economic substance of the underlying economic phenomenon would not result in faithful representation”.

Oil price slump takes its toll on GCC banksGLOBAL: The outlook for GCC banks in 2016 is negative as the oil price weakness is slowing economic growth and taking its toll on bank liquidity and earning, according to Fitch in a statement. With Kuwait an exception, the rating agency forecasts that GDP growth for Saudi Arabia, Qatar and Oman will decline in 2016 to 1.9%, 3.7% and 2.7% respectively, while a moderate downturn is forecasted for Bahrain and the UAE. Approximately 16% of ratings assigned to GCC banks are on a negative outlook with the bulk of these concentrated in Saudi Arabia. Fitch, however, expects capital levels to remain sound for rated GCC banks.

IIFM plans more standards in 2016GLOBAL: In line with its standardization initiatives, the International Islamic Financial Market (IIFM) is planning to complete the Islamic FX Forward standards for risk mitigation and develop the Islamic Credit Support Arrangement in 2016. According to a statement, the standard-sett ing body will also develop a standard on risk participation arrangements to support the Islamic corporate and trade fi nance segment.

Separately, the IIFM has welcomed NASDAQ Dubai’s CEO Hamed Ali as a new director on its board.

ADB seeks Islamic inancing opportunities GLOBAL: Asian Development Bank (ADB) is looking to co-fi nance projects in a Shariah compliant manner in collaboration with new partners and Asian Infrastructure Bank, according to Pakistan’s Observer quoting the ADB’s country director Werner Leipach. The bank also plans to provide fi nancing of around US$1.2-1.5 billion in 2016, mainly in the fi eld of infrastructure under the public-private partnership mode, Leipach added.

Iran and Kazakhstan sign MoUGLOBAL: The export credit agencies of Iran and Kazakhstan have signed an MoU to deepen collaboration between the two countries especially in the reinsurance segment. According to the Times of Oman, the agreement will see the Export Guarantee Fund of Iran and KazExportGarant exchange technical information and jointly support reinsurance projects.

ICD and EBRD collaborateGLOBAL: Independent Egyptian oil services company Advanced Energy Systems SAE has secured a US$170 million syndicated loan facility, of which US$25 million will be provided for by the Islamic Corporation for the Development of the Private Sector, according to a press release. Led and arranged by the European Bank for Reconstruction and Development (EBRD), the Islamic tranche is the fi rst transaction cooperation between the ICD and the EBRD.


NEWS

MIDDLE EASTUAE banks’ Basel III compliance on the cardsUAE: The Central Bank of the UAE will begin engaging with banks nationwide for full compliance with the Basel III set of global banking regulations, according to Reuters. Although he did not specify when the engagement would begin, the central bank’s governor Mubarak Rashed Khamis Al Mansoori was quoted as saying that full implementation is targeted by the end of 2018.

AAOIFI welcomes new memberPALESTINE: Palestine Islamic Bank has joined AAOIFI, allowing the bank to participate in the latest accounting and auditing standards applied, which will refl ect positively on its performance and growth, as it aims to apply bett er accounting practices, according to a statement.

Qatar’s economy to remain resilient in 2016QATAR: Moody’s, in a statement, estimated that Qatar’s average real GDP growth to remain at around 5% until 2017, driven by growth in the non-hydrocarbon sector and the Barzan gas project coming on stream. Steff en Dyck, a vice-president-senior analyst at Moody’s, observed: “However, we expect low oil prices to lower the government’s revenue streams. Qatar Petroleum (‘Aa2/Stable’)’s profi ts, which accounted for 33% of total government revenues in 2014, will likely decline, although they will remain at fairly high levels.” The rating agency

also expects that the government’s fi scal surplus will decline to 6.4% of GDP in 2015, from 16.7% in 2014 and will turn into a small defi cit of 2.4% of GDP in 2016, based on its Brent crude oil price projections of an average US$55 per barrel in 2015 and US$53 in 2016 and assumptions regarding spending growth. Qatar’s debt-to-GDP ratio is projected to reach about 35% in 2016.

Stable outlook for the UAE’s banking systemUAE: Moody’s has maintained a stable outlook on the UAE’s banking system based on its expectation of resilient capital and liquidity buff ers as well as how bank creditworthiness will evolve in the system over the next 12 to 18 months, according to a statement. Credit growth is expected to slow down to 3-5% annually for 2015 and 2016 from around 9% for 2014 while asset quality is expected to remain stable. The rating agency also expects the UAE authorities to remain highly supportive of local banks over the outlook period despite fi scal pressure from falling oil revenues.

GIB to provide Murabahah facility to SASCOSAUDI ARABIA: Saudi Automotive Services Company (SASCO), on the 13th December, completed the signing of a banking facility agreement of SAR150 million (US$39.96 million) against a signed promissory note with Gulf International Bank (GIB). According to a bourse fi ling, a fi ve-year Murabahah Islamic medium-term loan of SAR50 million (US$13.32 million) is part of the facility in addition to a lett er of guarantee amounting to SAR100 million (US$26.64

million). The facility is intended to fi nance working capital requirements among others.

UAE issues new law to boost Islamic economyUAE: Mohammed Rashid Al Maktoum, the vice-president and prime minister of the UAE as well as the ruler of Dubai, has issued a new law, which will see the establishment of the Emirates Global Center for Accreditation. According to Emirates News Agency, the center aims to strengthen Dubai’s position as the global Islamic economic capital among others.

SIB to increase capitalSAUDI ARABIA: Saudi Investment Bank (SIB) announced in a fi ling to Tadawul that it has obtained approval from the authorities to increase its capital by 7.7% from SAR6.5 billion (US$1.73 billion) to SAR7 billion (US$1.86 billion) to support the bank’s capital base and meet future increases in activities. The capitalization will be conducted through the transference from its retained earnings (SAR500 million (US$133.17 million)) representing a distribution of 1 bonus share for every 13 shares.

BIM to support petchem projectsIRAN: The Bank of Industry and Mine (BIM) is willing to underwrite petrochemical projects once sanctions on the Republic are lifted, according to IRNA quoting the bank’s managing director, Ali Ashraf Afk hami. The country according to the news agency has 67 half-completed petrochemical projects up for grabs.

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NEWS

TAKAFULNew regulatory regime for UK insurersUK: The UK insurance industry will operate under a new regulatory regime, Solvency II, eff ective from the 1st January 2016, according to a statement by the Bank of England. Under Solvency II, an insurer can apply for use of an internal model in order to calculate the amount of capital it needs to hold in recognition of the risks it faces.

The Prudential Regulation Authority has also approved 19 insurers’ internal models for use under the new regime. A number of insurers are planning to apply

for model approval later than the 1st January as these insurers are continuing to develop internal models to the standards required by the directive.

Phoenix Assurance of Zambia launches Takaful windowZAMBIA: Phoenix Assurance of Zambia (Phoenix) launched its Takaful window on the 4th December, according to Zambia Daily Mail News. The Pension and Insurance Authority (PIA) had earlier consulted with international insurance companies before granting the license to Phoenix, PIA’s registrar Martin Libinga was quoted as saying. The fi rm has collected over ZWK3 million (US$274,260) in premiums through its

Takaful products due to an increase in policy cover in the last year.

Marginal growth for Bahraini Takaful segmentBAHRAIN: The Bahraini Takaful sector in 2014 generated BHD57.29 million (US$149.12 million) in gross contributions (against BHD57.22 million (US$148.94 million) in 2013), accounting for 21% of the year’s total gross premiums, according to a statement by the Central Bank of Bahrain. Gross contributions for the Kingdom’s reinsurance and re-Takaful sectors grew 23% year-on-year to reach BHD412.52 million (US$1.07 billion) in 2014.

RESULTSPalestine Islamic BankPALESTINE: For the third quarter of 2015, Palestine Islamic Bank’s pre-tax profi t exceeded US$10 million, registering a 22.77% year-on-year growth, while its net profi t amounted to US$7.6

million. According to CPI Financial, total assets for the reported period surpassed US$635 million, referring to the increase in net equity of up to US$70.8 million.

Gulf African BankKENYA: Gulf African Bank posted an after-tax profi t of KES577 million

(US$5.85 million) in the third quarter, a 114% year-on-year growth. According to the bank, total assets increased by 24% to KES23.7 billion (US$229.4 million) as of September 2015 from KES19.1 billion (US$184.88 million) in the similar period last year.

ASSETMANAGEMENTPublic offering for Wasatah Saudi Equity Fund approvedSAUDI ARABIA: The Capital Market Authority of Saudi Arabia has approved the public off ering of the Wasatah Saudi Equity Fund by Al Wasatah Al Maliah Company, according to a fi ling to Tadawul.

CMA grants license to KFH Capital Investment KUWAIT: The Capital Market Authority (CMA) of Kuwait has granted KFH Capital Investment Company a license to privately market the KFHC

US Real Estate Fund I, a Cayman Islands-domiciled fund established with a capital up to US$100 million and a nominal value of 1 US cent per unit. According to a statement by the regulator, the maximum limit of units allowed by the company to market in Kuwait is 250,000.

Tadhamon exits Coxlease School investmentGLOBAL: Tadhamon Capital, the Bahrain-based investment arm of Tadhamon International Islamic Bank, announced in a statement that it has exited from its investment in Coxlease School, a UK-based specialist residential education facility for children aged 9 to 19 with severe behavioral, emotional and social diffi culties. The investment achieved a total return on capital

exceeding 60%, translating to an internal rate of return of over 12%, with a minimum annual cash dividend of 9% distributed quarterly to investors over the last fi ve years.

Al Meezan unveils MAAP-IIPAKISTAN: Al Meezan Investment Management announced in a statement the launching of its Meezan Asset Allocation Plan-II (MAAP-II), an asset allocation plan for investors who wish to earn a potentially high return through asset allocation between Shariah compliant equity schemes and Shariah compliant income/money market schemes and want an actively managed investment portfolio with diversifi cation. The plan, with an initial term of two years, is now open for subscription.

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NEWS

RATINGSRAM revises UMW’s Sukuk to negativeMALAYSIA: RAM announced in a statement that it has revised the outlook on the long-term ratings of UMW Holdings’s Islamic debt programs to negative on the premise of its weakening operating performance and fi nancial profi le which may not recover to previous levels in the short term. The rating agency has concurrently reaffi rmed the ‘AAA’ and ‘P1’ ratings of the programs.

Tesco Store’s IMTN rating downgradedMALAYSIA: MARC has downgraded the long-term ratings on Tesco Store’s RM3.5 billion (US$829.23 million) Islamic and conventional medium-term note programs to ‘AA-(cg)’ and ‘AA-ID(cg)’ from ‘AA(cg)’ and ‘AAID(cg)’ respectively. The rating agency noted in a statement that the outlook on all ratings remains negative.

Fitch revises Bahraini banksBAHRAIN: Fitch has revised the outlook on the National Bank of Bahrain and BBK to negative from stable while affi rming their long-term issuer default ratings at ‘BBB-’, according to a statement. The revision refl ects the increased likelihood of a downgrade of the support ratings and support rating fl oors following the weakening of Bahrain’s ability to support its domestic banks as indicated by the negative outlook on the sovereign rating and a downgrade of both banks’ viability ratings if the operating environment weakens.

Sberbank af irmed at ‘BBB-’RUSSIA: Sberbank of Russia, which is exploring Islamic fi nance opportunities in the region, has had its long-term foreign and local currency issuer default ratings affi rmed at ‘BBB-’ by Fitch with a negative outlook, according to a statement.

RAM assigns top rating to Wego’s proposed SukukMALAYSIA: Wego is proposing a Sukuk Musharakah of up to RM210 million (US$49.1 million) to fi nance the construction cost of six Islamic religious schools, awarded to it by the Perak state government under a 17-year concession

agreement dated the 18th February 2015. The proposed Sukuk has been assigned a preliminary ‘AAA/Stable’ rating by RAM based on a performance guarantee of up to RM210 million extended by United Overseas Bank (Malaysia) (‘AAA/Stable/P1’), eff ective during the construction period. According to a statement, the rating is also further supported by Wego’s superior debt-servicing ability.

Mumtalakat’s Sukuk af irmed at ‘BBB-’BAHRAIN: Bahrain Mumtalakat Holding Company (Mumtalakat)’s US$600 million Sukuk certifi cates due 2021 have been affi rmed at ‘BBB-’ by Fitch, according to a statement. Concurrently, its long-term issuer default rating (IDR) and senior unsecured rating have been affi rmed at ‘BBB-’ with its short-term IDR at ‘F3’. Fitch also revised the company’s outlook to negative from stable.

TCL proposes Sukuk PAKISTAN: JCR-VIS Credit Rating Company has reaffi rmed the preliminary rating of ‘AA-’ on Treet Corporation (TCL)’s proposed Sukuk issue with a stable outlook, according to a press release. TCL is planning a perpetual Sukuk amounting to PKR539.5 million (US$5.09 million) to meet working capital requirements.

Concurrently, the rating agency also reaffi rmed TCL’s entity ratings at ‘AA-/A-1’ and the rating of its participation term certifi cates at ‘AA’.

‘B/B’ for Kyrgyzstan KYRGYZSTAN: The Kyrgyz Republic has received ‘B/B’ long and short-term foreign and local currency sovereign credit ratings from S&P. According to a statement by the rating agency, the stable ratings are constrained by the Republic’s low GDP per capita and narrow economic base, as well as perceived weak governance, monetary policy fl exibility and external profi le. The ratings are supported by the government’s modest debt, which consists mainly of offi cial concessional loans.

IIRA reaf irms BoK’s ratingsSUDAN: The Bank of Khartoum (BoK)’s ‘AA-(sd)/A-1(sd)’ national scale credit ratings have been reaffi rmed by the Islamic International Rating Agency (IIRA), with a stable outlook based on the

bank’s position as the country’s largest commercial bank as well as a diverse and cost-eff ective retail deposit base.

The Islamic bank, which recently expanded into Bahrain, also had its fi duciary score reassessed in the range of 71-75, refl ecting adequate fi duciary standards whereby the rights of various fund providers are adequately defi ned and protected, said the IIRA in a statement.

S&P maintains negative outlook on BahrainBAHRAIN: S&P has maintained a negative outlook on the Kingdom of Bahrain and the Central Bank of Bahrain, refl ecting uncertainties in the rating agency’s fi scal forecast. According to a statement, the Kingdom’s long and short-term foreign and local currency sovereign credit ratings and its central bank’s long and short-term foreign and local currency issuer credit ratings have both been affi rmed at ‘BBB-/A-3’.

MARC af irms Alpha Circle’s SukukMALAYSIA: MARC has affi rmed the respective ‘AA-IS’ and ‘AIS’ ratings on Alpha Circle’s RM540 million (US$124.11 million) senior Sukuk Musharakah and RM55 million (US$12.64 million) junior Sukuk Musharakah with a stable outlook. In a statement, the rating agency noted that the ratings incorporate Alpha Circle’s steady cash fl ows from an assured payment stream from the Malaysian government for undertaking the registration of foreigners and the issuance/renewal of work permits.

MRCB Southern Link’s Sukuk downgradedMALAYSIA: RAM has downgraded the respective ratings of MRCB Southern Link’s RM845 million (US$194.21 million) senior Sukuk and RM199 million (US$45.74 million) junior Sukuk to ‘BB3’ (from ‘BB1’) and ‘C3’ (from ‘B1’) with a negative outlook.

The rating agency noted in a statement that the downgrade is premised on the company’s tightening liquidity and the delay in its proposed refi nancing plans. The heightened likelihood of a deferment on its profi t payments due on the 23rd December 2015 also contributed to the rating downgrade of the junior Sukuk.


NEWS

MOVESLSEGUK: The London Stock Exchange Group (LSEG) has appointed the chairman of LCH.Clearnet Group Professor Lex Hoogduin and the former CEO of Standard Life David Nish as non-executive directors to its board, eff ective from the 4th December 2015, according to a statement.

CIMB IslamicMALAYSIA: Following IFN’s announcement in September of Rafe Haneef tendering his resignation as CEO of HSBC Amanah to succeed Badlisyah Abdul Ghani as CEO of CIMB Islamic, CIMB on the 14th December confi rmed in a bourse fi ling that Rafe will assume the

role of CEO/executive director of CIMB Islamic and CEO of the group’s Islamic banking division, eff ective the 4th January 2016.

Gulf African BankKENYA: Gulf African Bank has appointed Nawaal Mohamed Salim to its board of directors, according to a notice by the bank.

South African Ministry of FinanceSOUTH AFRICA: Following the removal of Nhalanhle Nene as South Africa’s fi nance minister on the 10th December who was replaced with David van Rooyen, president Jacob Zuma on the 14th December replaced van Rooyen with Pravin Gordhan, who previously served

as the fi nance minister from 2009-14, according to a press release.

Grant Thornton UAE: KPMG’s global Islamic fi nance leadership team head, Samer Hijazi, has joined Grant Thornton as a partner and head of Islamic fi nance, leading the accounting fi rm’s practice in Abu Dhabi, according to a statement.

Sabb Takaful CompanySAUDI ARABIA: Anthony Bentley has been appointed to the board of directors of Sabb Takaful, replacing board member Harble Karlket, and has also become a representative of HSBC with eff ect from the 13th December 2015. The appointment will be ratifi ed at the next ordinary general assembly meeting.

Lebanon af irmed at ‘B’LEBANON: Lebanon’s long-term foreign and local currency issuer default ratings (IDRs) have been affi rmed by Fitch at ‘B’ with a negative outlook, according to a statement. The ratings refl ect political risks exacerbated by the ongoing Syrian war, very weak public fi nances and anaemic economic performance. Concurrently, Lebanon’s country ceiling and short-term foreign currency IDR have been affi rmed at ‘B’.

RAM reaf irms QatarQATAR: Strong external position, vast savings in its sovereign wealth fund and steady economic growth are factors that have prompted RAM’s reaffi rmation of Qatar’s respective global and ASEAN-scale sovereign ratings of ‘gAA3(pi)/Stable’ and ‘seaAAA(pi)/Stable’.

Underpinning its credit strength are the country’s huge sovereign wealth — accumulated from past fi scal surpluses — and reserves totaling 172% of its GDP, which should help it weather a period of low oil and gas prices. Qatar is still expected to record a current account surplus of 4.6% of GDP in 2015 as the downtrend in liquefi ed natural gas prices lags that of oil. Nonetheless, persistently low hydrocarbon revenue and continuous capital expenditure are expected to tip the fi scal balance into defi cits of between 1% and 3% of GDP in 2016 and 2017, in sharp contrast to previous years.

No annual rating review of Aspion’s Islamic facilityMALAYSIA: Aspion is planning to terminate its RM150 million (US$34.47

million) Islamic commercial paper/Islamic medium-term note (ICP/IMTN) program (2012/2018) (currently rated at ‘AAA(bg)/Stable/P1(bg)’) ahead of its maturity, upon completion of the debt-refi nancing exercise by year-end. According to RAM in a statement, there will be no annual rating review for the facility at the request of the client and the ratings of the ICP/IMTN will be withdrawn following the cancellation of the debt facility.

IFFIm’s IDRs af irmedGLOBAL: The International Finance Facility for Immunization (IFFIm) which issued its second Sukuk in September, has had its long-term issuer default rating (IDR) affi rmed at ‘AA’ by Fitch, with a stable outlook. Concurrently, its short-term IDR has been affi rmed at ‘F1+’, according to a statement.

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.

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.

REDmoney Ideal Ratings Indexes


DEAL TRACKER

Expected date Company's name Size Structure Announcement DateDec-15 Government of Pakistan PKR300 billion Sukuk Ijarah 10th December 2015


First quarter of 2016 Government of Egypt TBA Sukuk 7th December 2015

TBA Ahmad Zaki Resources RM1 billion Sukuk Murabahah 7th December 2015

TBA Scientex TBA Sukuk Murabahah 3rd December 2015

TBA Barwa Bank US$2 billion Sukuk 27th November 2015

TBA Sime Darby up to RM3 billion Sukuk 27th November 2015

TBA Samalaju Industrial Port up to RM950 million Sukuk Murabahah 27th November 2015

Dec-15 Government of Kuwait TBA Sukuk 30th November 2015



Dec-15 Government of Ivory Coast XOF150 billion Sukuk 23rd November 2015

TBA Kuveyt Turk US$400 million Sukuk 13th November 2015

TBA Widad Capital RM120 million Sukuk Murabahah 13th November 2015

TBA Oman Telecommunications OMR50 million Sukuk 10th November 2015

TBA Hascol Petroleum PKR2 billion Sukuk 9th November 2015

TBA Emirates Airline US$500 million-US$1 billion

Sukuk 9th November 2015

TBA CIMB Islamic RM5 billion Sukuk 6th November 2015

2016 Government of Indonesia IDR150 trillion Sukuk 9th October 2015

TBA MMC Corporation RM1.5 billion Sukuk Murabahah 13th October 2015

TBA Country Garden Real Estate RM1.5 billion Sukuk Murabahah 6th October 2015

First quarter of 2016 National Home Mortgage Finance Corp

PHP2 billion Sukuk 29th September 2015

By end of 2015 HNA Group US$150 million Sukuk 11th September 2015

TBA Government of Jordan JOD200-300 million Sukuk 4th September 2015

TBA Saudi Electricity Company US$1.5 billion Sukuk 1st September 2015

TBA Turkiye Finans TRY1.5 billion Sukuk 1st September 2015

2016 Government of Indonesia IDR12.2 trillion Sukuk 1st September 2015

By 2017 KT Bank EUR100 million Sukuk 11th June 2015

Before end of 2015 National Commercial Bank SAR2 billion Sukuk 24th August 2015

TBA TIME dotCom UP to RM1 billion Sukuk 19th August 2015

2016 Government of South Africa TBA Sukuk 13th February 2015

TBA Government of Niger XOF150 billion Sukuk 26th February 2015

Third quarter of 2015 Government of Tunisia US$500 million Sukuk 13th January 2015

2016 Al Baraka Bank (Egypt) US$100 million Sukuk 12th August 2015

2016 Jordan Islamic Bank US$100 million Sukuk 12th August 2015

2016 Al Baraka Bank (South Africa) US$50 million Sukuk 12th August 2015

2015 Government of UAE TBA Green energy Sukuk 12th March 2015

TBA Turkiye Finans US$400 million Sukuk 20th July 2015

TBA Eskom TBA Sukuk 25th June 2015

Fourth quarter of 2015 Republic of Turkey TBA Sukuk 25th June 2015

TBA 1Malaysia Development RM5 billion Sukuk 18th June 2015

TBA Toyota Capital Malaysia TBA Sukuk 17th June 2015

TBA Sindh Province US$200 million Sukuk 15th June 2015

TBA Grand Sepadu RM210 million Sukuk Murabahah 5th June 2015

TBA Abu Dhabi Islamic Bank US$3 billion Sukuk 29th May 2015

2015 Government of Oman US$1 billion Waqf Sukuk 26th May 2015

TBA Masraf Al Rayan TBA Sukuk 14th May 2015


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

1550

1690

1830

1970

2110

2250

Dec-2015Nov-2015Oct-2015Sept-2015Aug-2015Jul-2015Jun-2015

All Cap Large Cap Medium Cap Small Cap

650

1020

1390

1760

2130

2500

DecNovOctSepAugJulJun800

880

960

1040

1120

1200

DecNovOctSepAugJulJun


500

660

820

980

1140

1300



680

984

1288

1592

1896

2200



500

630

760

890

1020

1150



500

630

760

890

1020

1150




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

DecNovOctSepAugJulJun 450

620

790

960

1130

1300




500

850

1200

1550

1900

2250




500

890

1280

1670

2060

2450





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 North America Islamic Fund Index

Inde

x Va

lues

Based on 45.64% of funds which have reported November 2015 returns as at the 14th December 2015


Top 10 Monthly Returns for Globally Investing Islamic Funds

Fund Fund Manager Performance Measure Fund Domicile

1 QInvest JOHCM Sharia'a J O Hambro Capital Management 2.15 Cayman Islands

2 WSF Global Equity - USD I Cogent Asset Management 1.15 Guernsey

3 QInvest GAM Sharia'a GAM International Management 0.73 Cayman Islands

4 Watani KD Money Market National Bank of Kuwait 0.04 Cayman Islands

5 Watani USD Money Market National Bank of Kuwait 0.01 Cayman Islands

6 Al Rajhi Commodity Mudarabah - USD Al Rajhi Bank 0.00 Saudi Arabia

7 BLME Sterling Liquid Bank of London and The Middle East -0.29 Luxembourg

8 BLME Umbrella Sicav - SIF - USD Income - Class B Bank of London and The Middle East -0.32 Luxembourg

9 Al Rajhi Global Equity UBS -0.52 Saudi Arabia

10 Emirates Islamic Global Balanced EIS Asset Management -0.64 Jersey

Eurekahedge Islamic Fund Index (1.99)

Top 10 Sortino Ratio for ALL Funds


1 CIMB Islamic Money Market CIMB-Principal Asset Management 59.11 Malaysia

2 Atlas Pension Islamic - Debt Sub Atlas Asset Management 25.51 Pakistan

3 Meezan Tahaff uz Pension - Debt Sub Al Meezan Investment Management 24.63 Pakistan

4 AlAhli US Dollar Sukuk and Murabaha NCB Capital Company 3.50 Saudi Arabia

5 Atlas Pension Islamic - Money Market Sub Atlas Asset Management 3.30 Pakistan

6 BLME Sterling Liquid Bank of London and The Middle East 2.77 Luxembourg

7 Pacifi c Dana Murni Pacifi c Mutual Fund 2.31 Malaysia

8 Emirates Global Sukuk Limited USD Institutional Share Class (Acc)

Emirates NBD Asset Management 2.29 Jersey

9 BLME Sharia'a Umbrella SICAV-SIF Global Sukuk - Class A USD

Bank of London and The Middle East 2.27 Luxembourg

10 QInvest Edgewood Sharia'a QInvest 2.19 Cayman Islands

Eurekahedge Islamic Fund Index 0.14

556065707580859095

100105110115120125130135140145150155160165170175180

Dec

-99

Apr

-01

Aug

-02

Dec

-03

Apr

-05

Aug

-06

Dec

-07

Apr

-09

Aug

-10

Dec

-11

Apr

-13

Aug

-14

Nov

-15


FUNDS TABLES


Top 10 Islamic Fixed Income Funds by 3 Months Returns


1 CIMB Islamic Enhanced Sukuk CIMB-Principal Asset Management 2.67 Malaysia

2 Meezan Islamic Income Al Meezan Investment Management 1.58 Pakistan

3 CIMB Islamic Sukuk CIMB-Principal Asset Management 1.04 Malaysia




7 AlAhli Diversifi ed US Dollar Trade The National Commercial Bank 0.14 Saudi Arabia

8 AlAhli International Trade The National Commercial Bank 0.12 Saudi Arabia

9 BIMB Dana Al-Fakhim BIMB UNIT Trust Management (BUTM) 0.06 Malaysia

10 AlAhli Euro Murabahat The National Commercial Bank 0.00 Saudi Arabia


Top 10 Sortino Ratio from ALL Funds


1 CIMB Islamic Money Market CIMB-Principal Asset Management 59.11 Malaysia



4 AlAhli US Dollar Sukuk and Murabaha NCB Capital Company 3.50 Saudi Arabia

5 Atlas Pension Islamic - Money Market Sub Atlas Asset Management 3.30 Pakistan

6 BLME Sterling Liquid Bank of London and The Middle East 2.77 Luxembourg


8 Emirates Global Sukuk Limited USD Institutional Share Class (Acc)

Emirates NBD Asset Management 2.29 Jersey

9 BLME Sharia'a Umbrella SICAV-SIF Global Sukuk - Class A USD

Bank of London and The Middle East 2.27 Luxembourg

10 QInvest Edgewood Sharia'a QInvest 2.19 Cayman Islands


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 Fixed Income Index over the last 5 years Eurekahedge Islamic Fund Fixed Income Index over the last 1 year

Perc

enta

ge

Perc

enta

ge


90

95

100

105

110

115

120

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Nov

-15

85

90

95

100

105

Nov

-14

Dec

-14

Jan-

15

Mar

-15

Mar

-15

May

-15

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep-

15

Oct

-15

Nov

-15


LEAGUE TABLES

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

0250500750100012501500

02468

1012

5 12111098761112109876432 54321 1

20152014

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 4Q3Q2Q1Q 4Q3Q2Q1Q4Q3Q2Q2010 2011 2012 2013 2014 2015

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

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers3rd Dec 2015 Prasarana

MalaysiaMalaysia Sukuk Domestic market

public issue459 RHB Capital, Maybank, Kenanga Investment

Bank, CIMB Group, AmInvestment Bank

26th Nov 2015 Rantau Abang Capital

Malaysia Sukuk Domestic market public issue

238 RHB Capital

24th Nov 2015 Albaraka Turk Katilim Bankasi

Turkey Sukuk Euro market public issue

250 Standard Chartered Bank, Nomura, Dubai Islamic Bank, Emirates NBD, QInvest, Barwa Bank, Noor Bank

23rd Nov 2015 Jimah East Power Malaysia Sukuk Domestic market public issue

2,100 HSBC, Maybank, CIMB Group

13th Nov 2015 Axiata SPV2 Malaysia Sukuk Euro market public issue

500 Deutsche Bank, CIMB Group

13th Nov 2015 Cagamas Malaysia Sukuk Domestic market public issue

114 CIMB Group

3rd Nov 2015 MMC Corporation


279 RHB Capital

2nd Nov 2015 DanaInfra Nasional


727 HSBC, RHB Capital, Maybank, CIMB Group, AmInvestment Bank

27th Oct 2015 Majid Al Futt aim Properties

UAE Sukuk Euro market public issue

500 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank

20th Oct 2015 Qatar Islamic Bank

Qatar Sukuk Euro market public issue

750 Standard Chartered Bank, HSBC, Citigroup, QInvest, Barwa Bank, Noor Bank

19th Oct 2015 Arab Petroleum Investments

Saudi Arabia

Sukuk Euro market public issue

500 Saudi National Commercial Bank, Standard Chartered Bank, Goldman Sachs, First Gulf Bank, Emirates NBD, Noor Bank

13th Oct 2015 Malaysia Building Society


217 RHB Capital

13th Oct 2015 Jana Kapital Malaysia Sukuk Domestic market public issue

217 RHB Capital

8th Oct 2015 Rantau Abang Capital


358 CIMB Group, AmInvestment Bank

5th Oct 2015 IDB Trust Services

Saudi Arabia


336 Natixis

18th Sep 2015 International Finance Facility for Immunisation

UK Sukuk Euro market public issue

200 Standard Chartered Bank, National Bank of Abu Dhabi, Maybank, Emirates NBD, National Commercial Bank Jamaica

15th Sep 2015 Pengurusan Air SPV


362 Maybank, Bank Islam Malaysia, CIMB Group

8th Sep 2015 Arab National Bank

Saudi Arabia

Sukuk Domestic market public issue

533 JPMorgan, Deutsche Bank, HSBC, Arab National Bank

2nd Sep 2015 SapuraKencana TMC


200 Maybank

26th Aug 2015 Almarai Saudi Arabia


427 HSBC, Samba Capital


LEAGUE TABLES

Top 30 Issuers of Global Sukuk 12 MonthsIssuer Nationality Instrument Market US$

(mln)Iss(%)

Managers

1 Jimah East Power Malaysia Sukuk Domestic market public issue

2,100 6.5 HSBC, Maybank, CIMB Group

2 Perusahaan Penerbit SBSN Indonesia III

Indonesia Sukuk Euro market public issue

2,000 6.2 JPMorgan, HSBC, Dubai Islamic Bank, CIMB Group

3 Dubai Islamic Bank UAE Sukuk Euro market public issue

1,750 5.5 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Sharjah Islamic Bank, Emirates NBD, Al Hilal Bank, Noor Bank, First Gulf Bank, Maybank

4 DanaInfra Nasional Malaysia Sukuk Domestic market public issue

1,670 5.2 RHB Capital, Maybank, CIMB Group, Affi n Investment Bank, AmInvestment Bank, HSBC

5 Malaysia Sovereign Sukuk

Malaysia Sukuk Euro market public issue

1,500 4.7 Saudi National Commercial Bank, Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, RHB Capital, Dubai Islamic Bank, Gulf International Bank, Natixis, CIMB Group

6 IDB Trust Services Saudi Arabia


1,336 4.2 Saudi National Commercial Bank, Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, RHB Capital, Dubai Islamic Bank, Gulf International Bank, Natixis, CIMB Group

7 Petronas Global Sukuk

Malaysia Sukuk Euro market public issue

1,250 3.9 RHB Capital

8 National Shipping Co of Saudi Arabia

Saudi Arabia


1,040 3.2 JPMorgan, HSBC, Samba Capital

9 Hong Kong Sukuk 2015

Hong Kong


1,000 3.1 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, CIMB Group

9 Government of Ras Al Khaimah


1,000 3.1 JPMorgan, National Bank of Abu Dhabi, Citigroup, Al Hilal Bank

11 Prasarana Malaysia Malaysia Sukuk Domestic market public issue

999 3.1 RHB Capital, Kenanga Investment Bank, CIMB Group, Affi n Investment Bank, AmInvestment Bank, Maybank

12 Danga Capital Malaysia Sukuk Domestic market public issue

992 3.1 RHB Capital, CIMB Group

13 Khadrawy UAE Sukuk Euro market public issue

913 2.8 Standard Chartered Bank, JPMorgan, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

14 Qatar Islamic Bank Qatar Sukuk Euro market public issue

750 2.3 Standard Chartered Bank, HSBC, Citigroup, QInvest, Barwa Bank, Noor Bank

15 Jana Kapital Malaysia Sukuk Domestic market public issue

622 1.9 RHB Capital

16 Rantau Abang Capital


595 1.9 CIMB Group, AmInvestment Bank

17 Jambatan Kedua Malaysia Sukuk Domestic market public issue

560 1.7 RHB Capital, Maybank, Kenanga Investment Bank, AmInvestment Bank

18 Arab National Bank Saudi Arabia


533 1.7 JPMorgan, Deutsche Bank, HSBC, Arab National Bank

19 Pengurusan Air SPV Malaysia Sukuk Domestic market public issue

525 1.6 Maybank, Bank Islam Malaysia, CIMB Group

20 Sharjah Islamic Bank


500 1.6 Standard Chartered Bank, HSBC, Kuwait Finance House, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Emirates NBD, Al Hilal Bank, Noor Bank

20 Noor Bank UAE Sukuk Euro market public issue

500 1.6 Standard Chartered Bank, Dubai Islamic Bank, South Indian Bank, Citigroup, Emirates NBD, Al Hilal Bank, QInvest, Barwa Bank

20 Axiata SPV2 Malaysia Sukuk Euro market public issue

500 1.6 Deutsche Bank, CIMB Group

20 Arab Petroleum Investments

Saudi Arabia


500 1.6 Saudi National Commercial Bank, Standard Chartered Bank, Goldman Sachs, First Gulf Bank, Emirates NBD, Noor Bank

24 Majid Al Futt aim Properties


499 1.6 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank

25 Garuda Indonesia Global Sukuk

Indonesia Sukuk Euro market public issue

496 1.6 Standard Chartered Bank, Deutsche Bank, ANZ, National Bank of Abu Dhabi, First Gulf Bank, Maybank, Dubai Islamic Bank, Sharjah Islamic Bank, Emirates NBD, Al Hilal Bank, Warba Bank, Noor Bank

26 Malaysia Building Society


452 1.4 RHB Capital

27 Almarai Saudi Arabia


427 1.3 HSBC, Samba Capital

28 SABB Saudi Arabia

Sukuk Domestic market private placement

400 1.3 HSBC

29 Sarawak Energy Malaysia Sukuk Domestic market public issue

386 1.2 RHB Capital, Kenanga Investment Bank, AmInvestment Bank

30 AmIslamic Bank Malaysia Sukuk Domestic market public issue

332 1.0 AmInvestment Bank

Total 32,114 100


LEAGUE TABLES

Top Managers of Sukuk 12 Months

Manager US$ (mln) Iss %

1 CIMB Group 5,261 44 16.4

2 HSBC 4,360 23 13.6

3 RHB Capital 4,126 35 12.9

4 Maybank 3,082 28 9.6

5 Standard Chartered Bank 1,931 19 6.0

6 AmInvestment Bank 1,681 18 5.2

7 JPMorgan 1,483 6 4.6

8 Dubai Islamic Bank 1,302 11 4.1

9 National Bank of Abu Dhabi 1,181 10 3.7

10 Citigroup 691 5 2.2

11 Emirates NBD 565 8 1.8

12 Deutsche Bank 564 4 1.8

13 Samba Capital 560 2 1.7

14 Al Hilal Bank 541 5 1.7

15 Kenanga Investment Bank 512 14 1.6

16 Noor Bank 473 6 1.5

17 Natixis 447 2 1.4

18 Affi n Investment Bank 409 5 1.3

19 Abu Dhabi Islamic Bank 276 3 0.9

20 Hong Leong Financial Group 264 6 0.8

21 First Gulf Bank 250 3 0.8

22 QInvest 223 3 0.7

22 Barwa Bank 223 3 0.7

24 Saudi National Commercial Bank 194 2 0.6

25 Sharjah Islamic Bank 166 2 0.5

26 Bank Islam Malaysia 157 3 0.5

27 Morgan Stanley 139 1 0.4

27 Mitsubishi UFJ Financial Group 139 1 0.4

27 Bank of America Merrill Lynch 139 1 0.4

30 Arab National Bank 133 1 0.4

Total 32,114 116 100

Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months

Legal Advisor US$ (million) No %1 Salans FMC SNR Denton Group 3,334 2 34.9

2 Milbank Tweed Hadley & McCloy 2,704 1 28.3

2 White & Case 2,704 1 28.3

4 Allen & Overy 411 2 4.3

5 Linklaters 311 1 3.3

6 Baker & McKenzie 100 1 1.0

Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months

Mandated Lead Arranger US$ (million) No %1 Sumitomo Mitsui Financial Group 1,354 1 25.22 HSBC 750 3 13.93 Riyad Bank 417 1 7.84 Mitsubishi UFJ Financial Group 354 1 6.64 Mizuho Financial Group 354 1 6.66 Banque Saudi Fransi 346 2 6.47 Mashreqbank 224 2 4.27 Union National Bank 224 2 4.29 First Gulf Bank 210 1 3.910 BNP Paribas 104 1 1.910 Citigroup 104 1 1.910 Credit Agricole Corporate &

Investment Bank104 1 1.9

10 Norinchukin Bank 104 1 1.910 Sumitomo Mitsui Trust Holdings 104 1 1.9

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

15.0

14.3

2.4

0.3

Malaysian ringgit

US dollar

Saudi riyal

Euro

Qatar

17.3

0.8

1.0

2.5

4.2

5.2

0.5

Malaysia

Saudi Arabia

UAE

Hong Kong

Turkey

Indonesia

Finance

Construction/BuildingOil & Gas

GovernmentTransportation

Other

11%

12%

5% 39%

15%

18%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 4Q3Q2Q1Q 4Q3Q2Q1Q4Q3Q2Q2010 2011 2012 2013 2014 2015

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 1,516 16 7.32 Banque Saudi Fransi 1,279 6 6.23 HSBC 1,215 11 5.94 Saudi National Commercial Bank 1,131 7 5.55 Samba Capital 1,100 7 5.36 Abu Dhabi Islamic Bank 830 11 4.07 Abu Dhabi Commercial Bank 662 5 3.28 Standard Chartered Bank 655 8 3.29 Riyad Bank 644 3 3.110 Mashreqbank 614 7 3.011 Emirates NBD 591 8 2.912 National Bank of Abu Dhabi 499 6 2.413 Noor Bank 496 6 2.414 Alinma Bank 490 2 2.415 Sumitomo Mitsui Financial Group 489 4 2.416 Dubai Islamic Bank 458 6 2.217 Arab Banking Corporation 371 6 1.818 Gulf International Bank 347 4 1.719 SABB 342 3 1.720 Barwa Bank 340 5 1.621 RHB Capital 322 3 1.622 Union National Bank 285 5 1.423 SG Corporate & Investment Banking 274 3 1.324 ING 269 2 1.325 Ahli United Bank 258 3 1.326 Maybank 247 2 1.226 AmInvestment Bank 247 2 1.228 Kuwait Finance House 241 2 1.229 Qatar Islamic Bank 222 4 1.130 Mizuho 221 2 1.1

Top Islamic Finance Related Financing Mandated Lead Arrangers12 Months

Bookrunner US$ (mln) No %1 Maybank 2,239 1 23.0

2 Noor Bank 748 4 7.7

3 Mashreqbank 731 3 7.5

4 Saudi National Commercial Bank 666 1 6.8

4 Riyad Bank 666 1 6.8

4 Alinma Bank 666 1 6.8

7 Abu Dhabi Islamic Bank 521 4 5.3

8 Emirates NBD 519 4 5.3

9 Dubai Islamic Bank 376 2 3.9

10 Standard Chartered Bank 304 2 3.1

Top Islamic Finance Related Financing by Country 12 Months

Nationality US$ (mln) No %1 UAE 7,167 18 34.62 Saudi Arabia 6,718 6 32.43 Malaysia 2,411 3 11.64 Turkey 1,890 4 9.15 Qatar 1,200 3 5.86 Kuwait 622 3 3.07 Cayman Islands 325 1 1.68 Egypt 212 1 1.09 Pakistan 71 1 0.310 Oman 55 1 0.311 Italy 51 1 0.3

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

Top Islamic Finance Related Financing by Sector 12 Months

0US$ bln 1 32 87654

Finance

Transportation

Real Estate/Property

Oil & Gas

Utility & Energy

Global Islamic Financing - Years to Maturity (YTD Comparison)

0% 20% 40% 60% 80% 100%200820092010201120122013

20152014

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 Mar 2015 Saudi Aramco Saudi Arabia 9,999

16th Mar 2015 Rabigh Refi ning & Petrochemical

Saudi Arabia 2,870

15th Jan 2015 SapuraKencana TMC Malaysia 2,239

24th Jun 2015 Jazan Gas Projects Co Saudi Arabia 1,790

18th Jun 2015 Emirates National Oil UAE 1,500

10th Mar 2015 Port & Free Zone World UAE 1,100

17th Apr 2015 Turkiye Vakifl ar Bankasi Turkey 1,021

15th Dec 2014 Arab Petroleum Investments

Saudi Arabia 949

28th Jul 2015 GEMS Education UAE 817

16th Aug 2015 ACWA Power International Saudi Arabia 769


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COMPANY INDEX

90 North Real Estate Partners 11AAOIFI 24, 30, 34Abu Dhabi Islamic Bank 14Abu Dhabi Islamic Bank (Egypt) 11, 32AIG 29Al Baraka Bank – Egypt 32Al Meezan Investment Management 35Al Tamimi & Company 24Al Wasatah Al Maliah Company 35Algiers Stock Exchange 33Alpha Circle 36Amana Bank 11Amundi Asset Management 16AOSSG 33Asian Development Bank 33Asian Infrastructure Bank 33Askari Bank 17Aspion 37Bahrain Mumtalakat Holding Company 36Balcioglu Selçuk Akman Keki Avukatlik Ortakligi 8Bank Alfalah 17Bank Islam Brunei Darussalam 17Bank Negara Malaysia 7, 12, 27, 31Bank of England 11Bank of Industry and Mine 34Bank of Khartoum 36Bank of Korea 14Bank of Maldives 32Basel Committ ee on Banking Supervision 11BDB Infra 32BISTECH 8Capital Market Authority of Kuwait 35Capital Market Authority of Saudi Arabia 35Capital Markets Board of Turkey 8Central Bank of Bahrain 22, 35, 36Central Bank of Egypt 32Central Bank of Iran 33Central Bank of Iraq 24Central Bank of Oman 22Central Bank of the UAE 34CIMB 6, 7CIMB Investment Bank 5CIMB Islamic 5, 37Citibank 17COMSATS IIT 23Construction Guarantee 14Credit Agricole 16Deloitt e & Touche-Bahrain 22DRB-HICOM 5Egyptian Electricity Transmission Company 32Emirates Global Centre for Accreditation 34Emirates NBD 14Ethika Investments 11

European Bank for Reconstruction and Development 33EXIM Bank of Malaysia 31Export Guarantee Fund of Iran 33Financial Stability Board 11Fitch 12, 36, 37Franco-American Alliance for Islamic Finance 30Franklin Templeton 9Gatehouse Bank 32Grant Thornton 37Gulf African Bank 35, 37Gulf International Bank 34Halal Industry Development Corporation 32Historic Automobile Group International 15Hogan Lovells (Middle East) 17ICD 10, 25, 26, 33IDB 10IFFIm 37IFSB 11IIFM 22, 33IIRA 36IMF 9Indonesian Stock Exchange 31Indosat 31Investcorp 33IOSCO 11Iran Mercantile Exchange 20JCR-VIS Credit Rating Company 36KazExportGarant 33KDU University College 31KEXIM 14KFH Capital Investment Company 35Khazanah Nasional 6King & Spalding 4Knight Frank 15, 16Konooz Capital 13Korea Investment and Securities 14KPMG 37Lloyd’s 29London Stock Exchange Group 37Malaysian Airports Holdings 5MARC 14, 36Marsh Takaful Brokers 28Mashreqbank 17McKinsey 10Moody’s 33, 34MRCB Southern Link 36Nakheel 31NASDAQ 8NASDAQ Dubai 13, 31, 33Nasirs Solicitors 21National Bank of Bahrain 36National Bank of Kazakhstan 11

National Bank of Pakistan 17National Bank of the Kyrgyz Republic 11Noor Bank 17Novin Investment Bank 20OCBC Al-Amin Bank 32Pakistan International Airlines 17Palestine Islamic Bank 34, 35Pension and Insurance Authority 35Phoenix Assurance of Zambia 35PIMCO 9Qatar Faculty of Islamic Studies 18Qatar Islamic Bank 14Qatar Petroleum 34RAM 36, 37RHB 16RHB Investment Bank 4, 32S&P 12, 33, 36Sabb Takaful 37Saudi Automotive Services Company 34Saudi Stock Exchange 33, 35Sberbank of Russia 36SECP 11Securities and Exchange Organization of Iran 20Securities Commission Malaysia 6SEDCO Capital 11Sigma Capital Group 32Special Power Vehicle 31State Bank of Pakistan 12, 31Tadhamon Capital 35Tadhamon International Islamic Bank 35Tehran Chamber of Commerce, Industries, Mines and Agriculture 20Tehran Stock Exchange 20Tose’e Melli Investment Company 20Tose’e Melli Mining and Industries Company 20Treet Corporation 36Trust Bank 10UMW Holdings 36United Bank 17United Overseas Bank 36US Federal Reserve 9Wafra Investment Advisory Group 11Warba Bank 11, 17Wealth Insights 15Wego 36Woori Bank 14World Bank 9, 10World Bank Group 4Ziraat Bank 8Ziraat Katilim 11

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