KUCHING: RAM Ratings has reaffirmed the AA1/Stable rating of Sarawak Energy Bhd’s (SEB) sukuk musyarakah programme of up to RM15 billion (2011/2036).
According to a press statement, the reaffirmation of the rating reflects the strong support that SEB continues to enjoy from the Sarawak State and Federal Governments, given its pivotal role in the Sarawak Corridor of Renewable Energy (SCORE).
RAM viewed that the group to benefit from a “very high” likelihood of support from the Sarawak State Government in the event of financial distress, based on its rating methodology for government-linked entities. Notably, SEB’s financial profile remained in line with the rating agency’s expectations.
The rating is moderated by the group’s weak balance sheet and debt-servicing ability. In line with its hefty capitak expenditure (capex) programme, SEB’s debt load stood at RM6.1 billion as at end-of financial year 2013 (end-FY12 at RM6.28 billion).
“As a result of the lower debt level, SEB’s adjusted gearing ratio improved slightly to 3.44 times (FY12 at 3.71 times) while its adjusted funds from operations debt coverage (FFODC) remained relatively unchanged at 0.07 times (FY12 at 0.06 times).
“Its adjusted gearing ratio is projected to peak at 3.65 times in fiscal 2014 and its adjusted FFODC to improve slightly, averaging around 0.13 times between fiscal 2014 and 2018 as the hroup manages its costs and capex in accordance with its revised expectation of slower pace of customer demand,” it said.
RAM Ratings pointed out, “SEB remains exposed to demand risk, given the progressive take-up of power by SCORE customers relative to its immediate capacity expansion with the Bakun (2,400-MW) and Murum (944-MW) hydro plants.
“We note that a total of 2,100-MW of combined capacity has been met by committed demand from firm SCORE and export customers.”
Elsewhere, it noted SEB is inherently exposed to power-supply concentration risk as about 59 per cent of its current power supply emanates from the Bakun plant, which is owned by the Federal Government (via Sarawak Hidro Sdn Bhd).
“Reliance on Bakun is expected to be moderated when the Murum plant comes onstream in 2015. Any major interruption in power supply could undermine the state’s power system security and pose a challenge to SEB in negotiations with potential SCORE customers.
“However, we draw some comfort to learn that thegroup managed to secure new power purchase agreements and term sheets subsequent to the June 2013 blackout in Sarawak,” it commented.
DOHA: The Islamic banks in Qatar outpaced conventional banks in the country in terms of growth in net profit during the second quarter of 2014 (Q2,14).
Qatar Islamic Bank (QIB) reported a 15.0 percent YoY bottom-line growth in Q2, 14, mainly due to improvement in top-line as well as fee income. Top-line growth was backed by strong financing growth.
Masraf Al Rayan reported 12.1 percent YoY growth in its bottom-line due to strong growth in net financing income, Global Investment House (GIH) noted in its Q2, 14 “GCC Banking Sector” analysis.
The GIH analysts who covered five major Qatar-based banks said the loan books of banks in Qatar grew the most in the region, by registering 15.4 percent growth on year-on-year basis, followed by the banks in Saudi Arabia (9 percent), UAE (4.8 percent) and Kuwait (4.6 percent).
Due to stable growth in loan book, net interest income (NII) of GCC banks rose 4.3 percent YoY. Qatar’s NII grew by 2.9 percent. NII growth was led by UAE-based banks (8.2 percent YoY), followed by those in Saudi Arabia (7.3 percent. NII of Kuwait declined 6.8 percent.
The asset base of GCC banks expanded by 9.5 percent YoY to $1.11 trillionn in 2Q14, with all the countries witnessing stable YoY growth. Increase in loan book supported the overall asset growth. Qatar-based banks witnessed the strongest growth in total assets (13.9 percent YoY), followed by banks in Kuwait (8.9 percent ), Saudi Arabia (8.7 percent ) and UAE (7.7 percent )
Net earnings of GCC banks under GIH coverage increased 11.1 percent YoY to $5.3bn in 2Q14, mostly due to higher NII non-interest income and a 7.7 percent YoY drop in provisions;though4.6 percent YoY increase in operating expenses (opex) partially dampened the profit growth. Net profit of banks in the Kuwait and UAE increased by 20.7 percent and 20.1 percent YoY, respectively while net profit of Saudi Arabia and Qatar based banks increased decently by 7.4 percent and 3.5 percent , respectively. On QoQ basis, net profit of the GCC aggregate increased 5.4 percent, with Saudi Arabia and UAE (7.9 percent each) , followed by Qatar (6.0 percent) ; while Kuwait witnessed a 14.9 percent decline in net profit on QoQ basis.
Qatar-based banks maintained their loan growth momentum due to an increase in public sector spending backed by several developmental initiatives taken by the government.
Among Qatar -based banks, Commercial Bank of Qatar, Qatar Islamic Bank and Doha Bank registered higher growth in loan book of 33.4 percent, 31.8 percent and 25.3 percent YoY, respectively.
Provision expenses of GCC banks under GIH coverage declined 7.7 percent YoY during Q14; however, increased 14.0 percent QoQ. Banks in Qatar witnessed 21.2 percent YoY plunge in provisions. Provisions of Qatar National Bank reduced by 56.4 percent YoY during the quarter.
The HKMA said HSBC and Standard Chartered Bank have been mandated as joint global coordinators, lead managers and bookrunners of the proposed dollar-denominated sukuk offering. HKMA said other joint bookrunners include Asia-Pacific investment bank CIMB and the National Bank of Abu Dhabi.
The banks will arrange a series of “roadshows” in Asia, the Middle East, Europe and the US starting in September for the 144A/Reg S-registered Islamic bond.
‘Hong Kong Sukuk 2014’, a special purpose vehicle fully owned by the government and established for issuing shariah-compliant securities in international markets is set to raise the debut note.
The HKMA said in its annual report for 2013 (18-page / 1.56 MB PDF) that the development of the sukuk market in the territory “forged ahead” with the enactment of legislation in 2013. HKMA said amending Hong Kong’s tax laws was necessary to provide “a comparable tax framework for common types of sukuk, vis-a-vis conventional bonds”.
The HKMA said it also “took another important step in promoting the development of Islamic finance in Hong Kong by collaborating with Bank Negara Malaysia to set up a private sector-led Joint Forum on Islamic Finance to strengthen collaboration between market participants in Hong Kong and Malaysia.”
Hong Kong’s fund management industry grew 27.2% year-on-year to a record high of 16 trillion Hong Kong dollars (HKD) ($2.06tn) at the end of 2013, according to figures released earlier this year by the territory’s Securities and Futures Commission (SFC).
The survey said other private banking business increased by 2.7% to HKD 2.75tn ($387bn) in 2013 while fund advisory business grew by 11.6% to HKD 1.67tn ($250bn). The market capitalisation of SFC-authorised REITs (real estate investment trust) increased by about 1.7% to HKD 177bn ($23bn).
First-time sellers of bonds that adhere to Islam’s ban on interest are poised to revive an industry suffering its worst quarter in more than four years.
Luxembourg and Hong Kong aim to market debut offerings of sukuk next month, while Kenya, South Africa,Bangladesh and Tatarstan have announced plans for maiden issues. Islamic bond sales have fallen 82 percent to $2.6 billion this quarter compared with the previous three months, their lowest level since the first three months of 2010, according to data compiled by Bloomberg.
“All are seeking their share of fast-growing Islamic financial services activity,” Khalid Howladar, global head of Shariah-compliant finance at Moody’s Investors Service in Dubai, said in an Aug. 26 e-mail interview. “Initial sovereign issuances test and sometimes force the development of a legal environment conducive to Islamic finance.”
Offerings of Shariah-compliant bonds may top last year’s $43.1 billion and challenge the unprecedented $46.5 billion sold in the previous 12 months, according to CIMB Group Holdings Bhd., as an increasing number of non-Muslim countries tap the market. The U.K. sold its first sukuk in June, drawing bids for more than 10 times the 200 million pounds ($332 million) on offer.
Islamic bond offerings were subdued in August due to the summer holidays and the month-long Muslim fasting period of Ramadan. At $828 million, it was the worst month in a year. Sales so far in 2014 gained 27.6 percent to $27.7 billion.
Issuance will start to pick up, said Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Group.
Luxembourg is planning to raise 200 million euros ($264 million) by the end of September, according to an Aug. 11 e-mailed statement from the finance ministry. The Hong Kong government will meet investors from Asia, the U.S., Europe and the Middle East from Sept. 1 for as much as $1 billion of Shariah-compliant securities, the central bank said in a statement today.
“Sukuk has gained in popularity as an alternative funding tool,” Angus Salim Amran, the Kuala Lumpur-based head of financial markets at RHB Investment Bank Bhd., a unit of RHB Capital Bhd., said in an e-mail interview yesterday. “The growing pool of Shariah-compliant liquidity available to the global market is the impetus for these issuers.”
Pakistan is seeking to sell its first dollar-denominated Islamic bonds since 2005 in September. The federal republic of Tatarstan, located 800 kilometers (500 miles) east of Moscow, is aiming to debut $200 million in an unspecified timeframe. That sale was originally targeted for 2013.
While sales of Islamic bonds have increased about five-fold in the last decade, they are still a fraction of Shariah-compliant assets worldwide that Ernst & Young LLP forecasts will double to $3.4 trillion by 2018.
“People now see the timing as more conducive for sukuk issuance,” CIMB’s Badlisyah said in an Aug. 26 phone interview from Kuala Lumpur. “The main challenge remains the same, which is the lack of an enabling framework in many jurisdictions.”
South Korea’s plan to introduce tax laws for Islamic bonds met with opposition from Christian groups, while an initiative by Australia has stalled. Thailand, France and Ireland have introduced legislation though none has issued sukuk.
The Philippine government is reviving its ambitions to sell Islamic bonds after trying for more than 40 years. Egypt’s regulator proposed new rules this month.
Borrowing costs are falling. Average global sukuk yields declined 61 basis points, or 0.61 percentage point, this year to 2.81 percent, according to an index from Deutsche Bank AG. They reached a one-year low of 2.78 percent in May, below the five-year average of 3.42 percent.
“The fact that governments and corporates can issue at such low yield levels at the moment has made sukuk particularly attractive,” Thomas Christie, head of fixed income at Prometheus Capital Finance Ltd., said in an Aug. 25 phone interview from Dubai.