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Saturday, 24 July 2010

HSBC Takes Top Spot From CIMB in Sukuk Sales

June 30 (Bloomberg) -- HSBC Holdings Plc is overtaking CIMB Group Holdings Bhd. as the top underwriter of Islamic bonds as sales from the Gulf pick up and corporate issuance from Malaysia, the biggest market for the debt, declines.
HSBC, Europe’s biggest lender by market value, arranged $1.6 billion of global sukuk so far in 2010, about 25 percent of the total, led by Saudi Electricity Co.’s issuance in May, according to data compiled by Bloomberg. CIMB Group, Malaysia’s second-largest banking group, led $1.4 billion of sales of debt that complies with the religion’s ban on interest. Last year, CIMB was the top underwriter, managing $4.4 billion of offerings.
“The origin of the issuer may have an impact on the decision to hire which underwriter,” Azrul Azwar Ahmad Tajudin, chief economist at Bank Islam Malaysia Bhd., the country’s oldest Shariah-compliant bank, said in an interview in Kuala Lumpur yesterday. “If the issuance amount is huge, issuers may have some level of comfort with a foreign bank.”
Sales of Malaysian ringgit-denominated sukuk slumped 44 percent to 9.4 billion ringgit ($2.9 billion) so far this year as companies delayed infrastructure projects after the economy slipped into recession in 2009. The government began a 230 billion ringgit, five-year development plan on June 10, which may revive offerings of Islamic bonds, according to Malaysian rating company RAM Holdings Bhd.
Global Sales
Gulf issuers sold $2.5 billion of Islamic notes in the first half of the year, down 13 percent from a year earlier, Bloomberg data show. Issuers from the Middle East may sell more than $10 billion of bonds in the remainder of the year to refinance debt and fund projects, according to data compiled by Bloomberg. Malaysian companies may sell as much as $5.2 billion.
Global sales of sukuk fell 23 percent to $6.48 billion so far this year, according to data compiled by Bloomberg. Issuance totaled $20.2 billion last year, up from $14.1 billion in 2008.
“We’re a dominant player in the sukuk market” because of our major presence in markets like Dubai and Malaysia, Mukhtar Hussain, chief executive officer of HSBC Amanah, the Islamic banking unit of HSBC, said in an interview in Kuala Lumpur yesterday.
The difference between the average yields on sukuk and the London interbank offered rate widened 10 basis points yesterday, or 0.1 percentage point, to 443. The spread has narrowed 24 this year, and widened 42 basis points for the quarter, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
Sukuk Returns
The spread on emerging-market debt and Libor widened three basis points yesterday to 585 based on the EMBI+ index from JPMorgan Chase & Co. The difference shrank 49 basis points so far this year.
Islamic securities returned 0.9 percent this quarter, according to HSBC/NASDAQ Dubai US Dollar Sukuk Index. Debt in developing markets gained 1.2 percent, JPMorgan Chase’s EMBI Global Diversified Index shows.
The yield on Dubai’s 6.396 percent Islamic note maturing in November 2014 has dropped 256 basis points to 7.719 percent since reaching this year’s high of 10.29 percent on Feb. 15, according to Bloomberg bond trader composite prices. The yield gap with similar-maturity U.S. Treasuries shrank 195 basis points to 616.
Malaysia used London-based HSBC and Barclays Capital, along with Kuala Lumpur-based CIMB to underwrite its $1.25 billion sukuk last month. Barclays ranks fifth in Islamic bond sales this year, Bloomberg data show. Samba Financial Group, Saudi Arabia’s second-biggest lender by market value, ranked third after co-managing Saudi Electricity’s 7 billion riyal ($1.9 billion) Islamic bond in April with HSBC.
Pending Sales
Saudi Arabian Oil Co., the world’s largest state-owned oil company, and French producer Total SA plan to raise $8 billion, including the sale of Islamic bonds, for a refinery and petrochemical project in the “coming months,” Saleem Shaheen, chief executive officer of Saudi Aramco Total Refining and Petrochemical Co. said at a conference in Abu Dhabi on March 24.
Developer Qatari Diar Real Estate Investment Co. may sell $1.5 billion in 10-year conventional bonds and five-year Islamic securities, said a person familiar with the plan on May 12. HSBC and New York-based Barclays Capital are among banks expected to manage the sale, which could be completed in the next three months, the person said. Spokesmen for HSBC and Barclays declined to comment.
Saudi Arabia’s Islamic Development Bank, based in Jeddah, plans to raise $1 billion to finance projects in member countries, President Ahmed Mohammed Ali was quoted as saying by the Saudi Press Agency on June 9.
Global Names
Issuers prefer global underwriters to regional banks to manage international bond sales, making it difficult for Malaysian banks, said Nazir Razak, chief executive officer at CIMB Group in Kuala Lumpur.
“There’s still some partiality to global names,” Nazir said in an interview on June 28. “Relationships of global banks with Middle Eastern corporates go back many, many years.” CIMB’s unit in Bahrain offers regular and Islamic financial services, according to its website.
Saudi Arabia, the world’s biggest oil supplier, plans to spend $400 billion by 2013 on infrastructure projects such as roads, airports and water works. The Qatari government and state-owned companies plan to spend as much as $100 billion in the next four years on roads, sewage and water treatment, ports and airports, Finance Minister Yousef Hussain Kamal told reporters in Istanbul on June 10.
Investment Needs
“There’s huge investment needed in terms of infrastructure, utilities and transportation” in the Middle East, said Kuala Lumpur-based Zeid Ayer, who helps oversee $1.6 billion of Shariah-compliant assets for a joint venture between Principal Global Investors and CIMB. “They can issue debt to grow their economies and use oil revenue to back those debts. That is something that would be very positive” for the sukuk market, he said.
Indonesia, which has the world’s largest Muslim population, may name three finalists from 11 international banks to help sell its second overseas offering of sukuk in October, Dahlan Siamat, the finance ministry’s head of Islamic financing, said on June 15 in an interview in Kuala Lumpur. The government aims to raise as much as $650 million, he said.
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U.A.E. Plans Shariah Money Markets After Law

June 29 (Bloomberg) -- The United Arab Emirates, the second-largest Gulf economy, may follow Malaysia, Bahrain and Indonesia in selling Islamic securities with maturities of less than 12 months as legislators consider establishing a local debt market, according to Royal Capital PJSC.
Islamic bills would give Shariah-compliant banks more investment options, said Ahmed Talhaoui, Abu Dhabi-based head of investment at Royal Capital, which is 44 percent-owned by United Gulf Bank BSC, an investment bank in Bahrain. The U.A.E.’s eight Islamic banks held $49.8 billion of deposits at the end of 2009, or about 19 percent of the total, central bank Governor Sultan bin Nasser al-Suwaidi said at an Islamic banking conference in Singapore on June 14.
Banks that adhere to Shariah principles “are facing a maturity mismatch,” Talhaoui said in an interview yesterday. “They are keeping a lot of deposits but their options are limited. Some banks are playing a dangerous game, which is essentially to match short-term liabilities with investments in sukuk,” or Islamic bonds, which have longer maturities.
Malaysia, the world’s biggest market for Islamic bonds, Bahrain and Indonesia sell bills to help soak up cash in the financial system and set benchmarks for short-term bond sales. Lawmakers in the U.A.E. are considering a proposal to establish a government securities market by the end of the year, al- Suwaidi said in March.
“Short-term liquidity management at Islamic banks and other financial institutions,” is a challenge, al-Suwaidi said this month in Singapore. “This is not a straightforward issue and has been under discussion between Islamic banks and the central bank. There is now a reasonable proposal to advance a solution for this issue.”
Difference in Yields
Saeed Abdullah Al-Hamiz, executive director of the banking supervision department at the U.A.E. central bank, didn’t immediately return e-mails or phone calls to his office seeking comment on the legislation. Governor al-Suwaidi said on March 15 that the legislation was in the final stages.
“The law will create a liquidity instrument that will carry, not the guarantee of the central bank, but assurances that the central bank will buy it for a certain price,” al- Suwaidi said at that time.
Transactions in Islamic finance are based on the exchange of assets rather than interest to comply with Shariah principles. Global sales of sukuk fell 23 percent to $6.5 billion so far this year, according to data compiled by Bloomberg. Issuance totaled $20.2 billion last year, up from $14.1 billion in 2008.
Malaysia Bonds
The average gap between yields on Islamic bonds and the London interbank offered rate widened 2.4 basis points, or 0.024 percentage point, yesterday to 433. The spread has narrowed 37 basis points so far this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
The difference between the average emerging-market yield and Libor narrowed four basis points yesterday to 583, based on the EMBI+ index from JPMorgan Chase & Co. It shrank 52 basis points so far this year, or 15 basis points more than the average spread for sukuk.
The yield on Malaysia’s 3.928 percent Islamic notes due June 2015 rose one basis point today to 3.517 percent, according to prices from Royal Bank of Scotland Group Plc.
Bill Auctions
Malaysia’s central bank sold 500 million ringgit ($155 million) of 91-day Islamic bills at a weekly auction yesterday. The yield on the securities rose four basis points to 2.68 percent from last week. Malaysia began weekly auctions of Islamic central bank bills in 2006.
Bahrian’s central bank sold 12 million dinars ($32 million) of three-month Islamic bills yesterday. The profit rate on the notes rose to 0.88 percent from 0.85 percent at the previous sale on May 31.
The yield on Bahrain’s 6.247 percent note due June 2014 fell one basis point to 3.494 percent today, according to Bloomberg bond trader composite prices. The yield reached a year-low of 3.437 percent on June 22.
Pakistan plans to start issuing Islamic Treasury bills and will announce an auction schedule before June 30, Syed Wasimuddin, a central bank spokesman, said in an e-mail yesterday. The nation had 42.2 billion rupees ($494 million) of outstanding domestic sukuk as of April 30, less than 1 percent of its 4.6 trillion rupees of regular debt, according to data from the central bank.
“It’s fundamental to the industry,” said Harris Irfan, head of Islamic products at Barclays Capital in Dubai. “Right now we rely on using the London interbank offered rate as a benchmark and that has its inherent criticisms. But what alternative is there? There is no Islamic Libor.”
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Alfalah Consulting - KL: www.alfalahconsulting.com 
Islamic finance consultant: www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Saturday, 3 July 2010

Takaful penetration low in Pakistan


KARACHITakaful, an Islamic alternate to conventional insurance, has very little penetration in Pakistan, but like conventional insurance, it has immense potential as it not only shares risk but also offers fair returns, said CEO of Pak-Qatar General Takaful, Rohail Alikhan.
He was talking to the members of the banking and insurance sub-committee of the Karachi Chamber of Commerce and Industry (KCCI) on Tuesday.
There are various examples in Islamic history where it is said that humans should take all possible measures to mitigate life and property risk, he said. Risk mitigation is allowed in Islam and this is what takaful is all about, he added.
CEO, Pak-Qatar Family Takaful, P Ahmed said that takaful is a Halal and ethical alternate to conventional insurance, which is based on the concept of brotherhood and mutual solidarity.
He informed that takaful is a transparent community-pooling system in which participants contribute their savings into the common fund to help those who need it most in times of financial difficulty.
Takaful operator creates the Waqf fund or the “taburru fund” where participants contribute their premiums/contributions on the basis of “taburru” into Waqf fund and claims are paid by the Waqf fund, he explained.
Ahmed said that “there is a desperate need as well as potential for takaful in Pakistan as only about 0.6 per cent of our GDP goes towards insurance whereas in India that figure is more than 3 per cent”.
Pakistan has one of the lowest national saving rates in the world. National savings, as a percent of the GDP, declined from 20.8 per cent in 2003 to 14.3 per cent in 2009.
Ahmed said that following the introduction of takaful rules by the SECP in 2005, five takaful operators have entered the local insurance market: three in general and two on the family side.
He said that risk mitigation and financial protection is something that everybody needs to be concerned about. In order to do this efficiently, a tool that is not only effective in mitigating risks but also competitively priced as well as in compliance with Shariah.
Alikhan said that Takaful companies can invest their premiums in Shariah compliant investment avenues only and all the activities at takaful companies are supervised by an independent Shariah board.
Takaful companies can invest in Shariah compliant government securities, immoveable property, joint stock companies, redeemable capital, mutual funds, musharika certificates, term finance certificates and participation term certificates, he added.
“Sixty per cent of the population of Pakistan is under the age of 25, which means you have a customer potentially for 40 years,” he further added.
Published in The Express Tribune, June 30th, 2010.

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