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Monday, 30 July 2007

Japan's JBIC to Sell Islamic Bonds Backed by LME Investments

July 30 (Bloomberg) -- Japan Bank for International Cooperation, the government's main overseas lender, plans to sell Islamic bonds backed by products traded on the London Metal Exchange, an official said. The Tokyo-based bank, known as JBIC, plans to sell Islamic debt for the first time as early as in October, said Tadashi Maeda, director general of the bank's energy and natural resources finance department. JBIC will sell $200 million to $300 million of such securities, to be denominated in Malaysian ringgit or dollars, in Malaysia, he said. JBIC is seeking to tap increasing demand for Islam-compliant investments and banking products as oil money floods the Persian Gulf. Sales of bonds that comply with Islamic law totaled $16.3 billion worldwide this year, accounting for 89 percent of the record $18.3 billion for the whole of 2006, according to data compiled by Bloomberg. ``We want to see more oil money flowing into the Asian market and Malaysia is the best place to sell the Islamic bonds,'' Maeda said in an interview on July 27. Malaysia, where 60 percent of its 27 million people are Muslim, is the world's biggest issuer of debt complying with Islamic principles. The securities are gaining popularity in the Southeast Asian nation as the government seeks to develop Malaysia into the global center for Islamic finance. Islamic law bans the payment of interest or receipt of interest and investment in the alcohol, tobacco and gaming industries. Islamic bonds are typically asset-backed securities that pay an agreed profit rate instead of a coupon. Assets invested from oil revenues increased to about $1.5 trillion, Maeda said. About $500 billion of this amount is invested outside the Middle East, and only one-tenth of it goes to Asia, he said. LME Investments: The bonds will be backed by JBIC's investments in products traded on the LME, the world's largest metals marketplace, Maeda said, without specifying the contracts. The bank will create a company that will manage the funds and hire a financial institution to oversee it, he said. The price of the bonds will be determined by the performance of the contracts, said Maeda.
The LME, which handles more than $4.5 trillion of trading in metals and plastics each year, including copper, aluminum, lead and nickel. The price of copper delivered in three months rose 23 percent since the beginning of this year. JBIC plans to swap proceeds from a ringgit-denominated bond sale into dollars because it lends more in the U.S. currency, he said. The bank's next sale of Islamic bonds, which will be in dollars, will be in the Middle East, Maeda said.

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