Islamic finance

By Giancarlo Bruno and Michael Drexler of the World Economic Forum

Are emerging countries facing a corporate bond market bubble? That was the central question in a recent article in the FT, which cautioned that foreign investors are pouring too much money too quickly into emerging corporate bond markets.

Indeed, emerging market activity appears higher than ever before: hard currency emerging market bond issuance reached a record $480m last year, driven by global investors’ search for yield. Yet despite this influx of capital, companies in emerging countries often still have difficulty raising bond proceeds. Read more

By Dr Abdul Halim

The last decade has been transformative for Islamic banking. While the practices involved in Sharia-compliant finance have been around for over a thousand years, it is only recently that the wider world has opened up and Islamic finance has ‘gone global’.

Last year, non-Muslim majority countries as diverse as South Africa, the UK, Hong Kong and Luxembourg issued debut Islamic bonds, or ‘sukuks’, while Goldman Sachs issued $500m worth of shariah-compliant bonds. Already a $2.1tn industry, it is estimated that the Islamic economy has further potential to reach a value of $6.7tn, with Islamic banking and the sukuk market accounting for 95 per cent of the industry’s assets worldwide.

With the industry going from strength to strength, it is incumbent upon us, as Islamic financiers, to consider how the industry can evolve to provide a wider range of products and services, while remaining true to a central pillar of Islamic finance, and Islam itself: charitable giving. Read more

Investors have piled into Indonesia’s $1.5bn worth of Islamic bonds, making bids for over six times that amount. So is the strong demand for the sukuk another sign that Indonesia’s economy is becoming less fragile?

The 10-year sukuk, rated Baa3 by Moody’s, was marketed at the country’s lowest yield since 2012 on optimism over the incoming administration of president-elect Joko Widodo. Strong demand – order books were worth $10bn – pushed down the yield, which started at around 4.65 on Monday before being reduced to 4.35 per cent. Read more

Senegal is days away from launching sub-Saharan Africa’s biggest sukuk, with the CHF100bn ($208m) bond expected to receive strong investor demand and create further momentum for sovereigns and banks in the region to offer Islamic financial products.

After concluding an investor roadshow on Friday, Senegal is due to end the bookbuilding process for its debut Islamic bond on July 18. The four-year instrument, which has an annual 6.25 per cent profit margin, is targeted at banks and institutional investors in the eight member West African Economic and Monetary Union (WAEMU), though it is also open to international investors. Unlike conventional bonds, sukuk do not pay interest, which is forbidden under Islamic law, but grant investors a share in an underlying asset. Read more

Two African countries – Senegal and South Africa – are just months away from issuing sukuk, or Islamic bonds, seeking to attract cash-rich Middle Eastern and Asian investors to finance their large infrastructure programmes, Islamic finance bankers told a meeting of the African Development Bank.

The move represents a potentially significant boost for the profile of Islamic finance in Africa. Until now, Gambia and Sudan have been the only countries on the continent to issue a sukuk – and they were only for tiny sums. Read more

This was supposed to be the year of the rise of sukuk markets. As the Malaysian economy recovered and the Arab spring passed, another record year of sharia-compliant debt issuance was predicted.

But that changed after a day in May. Ben Bernanke dropped hints that the Fed would taper its bond-buying programme, and sukuk sales shrivelled in the third quarter. The number of issues this year is expected to be just above that of 2011. Read more

The UK’s decision to launch an Islamic bond has been a long time coming. For a decade the prospect has been raised at the many Islamic finance conferences that have been held in London; Ed Balls, when he was City of London minister, announced the first Shariah-compliant government bonds from the UK Treasury back in April 2007.

The rationale then, as now, was to bolster London’s standing as an international financial centre. The logic then, as now, was that London ought to offer everything it can to financial markets, and that if launching a sovereign sukuk bond helps to create a benchmark for others to issue against, then that’s what it should do so as not to miss out. Read more

By Chiara Francavilla of This is Africa

Morocco is finalising a new securitisation law that will allow the state and companies to issue sukuk, the Islamic equivalent of bonds. Preparations for a corporate and a sovereign sukuk are already underway, according to Islamic finance experts. Read more

Tunisia is hoping that the country’s first government sukuk, or Islamic bond, scheduled for later this year could spur companies in the North African country to raise Islamic debt and boost its sharia-compliant finance industry, writes Camilla Hall.

The government is working alongside the Islamic Development Bank – the multilateral lender – to pave the way for a 1bn dinar ($700m) sukuk sale that would set a benchmark for companies seeking to tap the Islamic debt markets, Elyes Fakhfakh, finance minister, told the Financial Times. Read more

April looks set to be a busy time for the IMF. Two crucial meetings have been put in the diary – one with Tunisia, and one with Egypt (again).

The two potential deals have a lot at stake, and not just in monetary terms. Tunisia’s possible $1.7bn loan will help shield the country from the European downturn. Egypt’s on-off $4.8bn loan is even more important, as it should unlock other sources of funding, and avert what could become a complete collapse of the economy. Read more

Egypt’s continued political turmoil has made its life hard in international debt markets, but its government is hoping to secure new funds by less conventional means through the issue of the country’s first sovereign Islamic bonds.

According to a Bloomberg report, the government plans to raise up to $1bn by June through sukuk sales, with one for domestic investors and one for foreign investors. Read more

Last year was supposed to represent the pivotal moment in which sukuk debt – Islamic versions of bonds – came into their own as a deep, mature and liquid source of funding.

Issuance data from January suggest the jury is still out. Read more

With Dubai’s economy recovering, the emirate is rediscovering its mojo. That brimming confidence has already seen the return of large-scale development projects. Now the government is moving on to big concepts.

The ruler, Sheikh Mohammed bin Rashid Al Maktoum, on Wednesday oversaw the launch of an attempt to place Dubai at the centre of the ‘global Islamic economy.’ Read more

Dana Gas, the Abu Dhabi-listed energy company, has seen its share price climb since unveiling details of its $1bn Islamic bond restructuring deal on Monday.

Dana Gas, which has had to overcome cash flow issues because of late payments in troubled Egypt and Iraqi Kurdistan, offered a $70m cash payment to the creditor group led by Ashmore and BlackRock.

 Read more

By Simeon Kerr and Camilla Hall

People close to Dana Gas, the Sharjah-based natural gas company, say creditors including funds Blackrock and Ashmore have agreed to a standstill that would allow talks over extending the maturity of its $920m sukuk to continue through the deadline of midnight on Wednesday.

But people aware of the creditors’ position “categorically deny” that a standstill agreement has been reached with Dana Gas, whose revenues have been interrupted in troubled operating environments including Egypt and Iraqi Kurdistan. Read more

It’s no fun being a bond investor these days. You either invest in safe havens like US and German bonds and get a negative return, or go on adventure in countries like Spain and can’t be sure you’ll get your money back.

So the emergence of Shariah compliant sukuk offers an appealing middle way. With the London 2012 Sukuk Summit being held on June 6 and 7, beyondbrics reviews the latest developments in the market. Read more

By Ghassan Chehayeb of Exotix Limited

A showdown is brewing in Sharjah, the UAE’s third largest emirate. Sharjah-based Dana Gas, a natural gas-focused E&P company, has a $920m sukuk due in five months, yet the issuer is far short of the required funds to repay the obligation. The sukuk’s price has fallen from above 95 in July 2011 to just 68, as restructuring headlines continue to spook investors. Read more

Egypt has had a tough time finding foreign finance since the overthrow of its former president, Hosni Mubarak. Its net foreign reserves have fallen by more than half since the start of 2011 and are getting dangerously low. Last month it asked the IMF for $3.2bn in emergency loans.

Now, a month after Islamist parties won more than two-thirds of seats in parliamentary elections, the country is turning to Islamic finance. An Islamic scholar familiar with Egypt’s plans told Reuters on Tuesday it was preparing to issue such bonds for the first time in a bid to raise around $2bn. Read more

By Shelina Janmohamed of Ogilvy Noor

It’s the beginning of 2012 and you’ve come into work determined to flex your marketing muscles and really make a splash for your brand by growing a new segment. Where should you look? The Muslim consumer.

Here’s why: a global population of 1.8bn people who say their faith shapes their consumption choices. It’s a market estimated at $2.1tr. And its movers and shakers are the ‘Futurists’: predominantly young, tech-savvy Muslims who take pride in their faith but embrace modernity, marketing and – most of all – brands. Read more

South Africa is joining the select band of non-Muslim countries preparing to issue sovereign sukuk bonds. If all goes well it could even beat the others to the market,  as those countries which have made similar moves have yet to actually launch their Islamic bonds.

The treasury on Monday invited banks to bid for advising on “the structuring and issuance of a government Islamic bond in the local and international markets”. And a spokesperson said that specific plans would be included in the funding proposals for the budget for the year starting next April. That sounds like it’s on for 2012. Read more