Brunei must find niche in Islamic capital markets

MUARA, Brunei - Brunei's Islamic finance sector must find a niche in Islamic capital markets and reposition itself to find new opportunities in order to catch up with other industry players in the region, an expert said.

Sri Anne Masri, managing director of Pro Ethica Training and Research, said more building blocks are needed in the country to pave a way for the creation of more Islamic products and services such as equity funds, wealth management, and murabahah.

"Just looking at sukuk, we are far behind our Malaysian counterparts," said Sri Anne during a seminar co-hosted by Universiti Brunei Darussalam's Faculty of Business, Economics and Policy Studies (FBEPBS), Sultan Omar 'Ali Saifuddien Centre for Islamic Studies of UBD and the United Kingdom's Markfield Institute of Higher Education (MIHE).

Malaysia has issued US$26 billion (S$33.8 billion) worth of sukuk to date, compared to Brunei's $3.851 billion since the government's first issuance on April 6, 2006.

"Islamic finance has been running for 20 years and challenges and opportunities has cropped up in the market. The overview of Brunei's market shows that the Sultanate has political stability, strong Islamic framework and a strong regulatory framework.

"Brunei has the capacity and is financially capable to spearhead the finance industry from oil and gas towards economic diversification through strong government to grow Brunei into an Islamic financial hub," said Sri Anne.

However, Sri Anne said that Brunei is not pacing fast enough compared to regional players and is important for the country to find a niche in areas such as Islamic private wealth management, Islamic advisory services and private equity.

Once pending regulations from Autoriti Monetari Brunei Darussalam (AMBD) are finalised, it will help in creating the necessary infrastructure for Islamic capital markets, she said.

"With this we will move forward. What is more important is to see what products the market is interested in so they can build the supply base to attract foreign investors into Brunei and build it up from there," she said.

During a question and answer session that followed, Sri Anne said fear of failure is hindering many players in Islamic finance from progressing.

"But failures are what make us better. Looking at sukuk defaults in 2007, what happened in the Islamic finance industry in Saudi or the US, that has made us better now. The international players in terms of sukuk issuance are more careful in looking at the substance of the sukuk contracts," she said.

"We don't want to make ourselves too close to conventional (banking) and just change the name from bonds to sukuk without having the real essence tied into it.

(Asia One Business / 12 April 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com

Malaysia: JCorp to issue RM3b sukuk to redeem bonds

Johor Corp Group (JCorp) will issue RM3 billion worth of sukuk wakalah to redeem the final series of bonds issued in 2002, which matures on July 31.

The sukuk issuance is expected in May with the underlying assets being crude palm oil and syariah-compliant shares, and JCorp is looking at five, seven and 10-year terms.

Its president and CEO Kamaruzzaman Abu Kassim said several local investment banks have been shortlisted for the corporate exercise.

Speaking at a press briefing yesterday, he said the proposed issue would be used to finance debt of RM3.2 billion maturing in July, as well as to finance new growth drivers and continue its role as the development agent of the state.

Commenting on the proposed takeover of QSR Brands Bhd and KFC Holdings Bhd by JCorp and CVC Capital Partners Asia III Ltd, Kamaruzzaman said it is still very much in progress, and has taken longer than anticipated as there are issues to be resolved and terms and conditions to determine.

He said it is working on a definitive agreement and "ensuring all interests are covered".

He added that discussions with Yum! Brands Inc, franchisor of KFC and Pizza Hut worldwide, are ongoing and while their main concern is growth of the business, they "understand the proposal" and have no objections thus far.

On JCorp's outlook for 2012, Kamaruzzaman said it can sustain its 2011 performance.

"We're cautiously optimistic and we believe we can get double-digit growth, about 10-15% in all our businesses," he said, adding that its 2011 financial results were its best ever since its establishment over 40 years ago.

For the financial year ended Dec 31, 2011, JCorp recorded a 55% jump in net profit to RM1.1 billion on a 4% rise in revenue to RM7.8 billion.

Contribution of all businesses to group revenue rose 29% to RM9.7 billion from RM7.5 billion.

The plantation sector posted a profit of RM1 billion, up 42% from RM732 million previously, the food sector RM296 million, property RM273 million, intrapreneur division RM43 million and healthcare, RM14 million.

(The Sun Daily / 13 April 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com

UK fund launches groundbreaking equity sukuk

London-based Ethical Asset Management has launched what it calls the world's first "investment sukuk", aiming to resolve a major area of controversy in Islamic finance by treating the vehicle as an equity instrument rather than as a bond.

The firm aims to raise 200 million pounds ($318 million) through the sukuk in the next 12 to 18 months, with 50 million pounds required to start buying the assets which will back the instrument.

The initial tranche will buy between two and four assets, Ethical Asset's founder and chief executive Saadat Khan told Reuters. The sukuk is a closed-end private placement fund, structured as a Jersey property unit trust.

Traditional sukuk, often described as "Islamic bonds", have been criticized by a number of Islamic scholars and investors for resembling conventional debt products; payments on them can be seen as akin to interest payments, which are banned under sharia principles.

Instead, Ethical Asset will invest money raised by the sukuk in income-generating student housing in Britain, projecting annual net returns of 4 to 6 percent, and give investors ownership of those assets - which it says will make the instrument closer to an equity product than debt.

Ethical "will provide investors with full ownership, which includes exposure to the risk/reward that is integral in a sharia transaction," Khan said.

The sukuk's maturity is expected to be five to seven years, he said. "We want to provide a commercially viable option...which does not rely on debt and can still deliver secure and stable returns."

RISK

The nature of the equity sukuk means investors will directly face risk in the student housing market, and there is no guarantee that they will receive returns of 4 to 6 percent.

Khan said he expected the British student housing market would remain strong despite weakness in the larger British real estate market.

Annual investment returns on student accommodation in London jumped to 15.1 percent in September 2011 from 8.4 percent in 2010, according to data from real estate consultancy Knight Frank. Other cities in Britain posted a return of 10.5 percent, down from 14.6 percent in the previous period.

Knight Frank said higher tuition fees at British universities taking effect from this autumn were a concern for the market, since they could potentially affect student enrollments.

Since the start of 2011, a total of 12 sukuk have been listed on the London Stock Exchange, bringing the total to 37 with a combined value of $20 billion, according to the UK Islamic Finance Secretariat, part of the financial lobby group TheCityUK.

(Reuters / 02 April 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Consultant/Trainer/CEO:
www.ahmad-sanusi-husain.com
Islamic Investment Malaysia:
www.islamic-invest-malaysia.com