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Friday, 6 July 2012

Turkey to mandate banks for sukuk sale

* Treasury looking to raise $1 billion

* Turkey looking to tap new pool of investors

ISTANBUL, July 5 (Reuters) - Turkey is set to mandate HSBC, Citi and Deutsche Bank to manage the sale of its first sukuk, or Islamic bond, banking sources told Reuters on Thursday.

The move by the Treasury, overcoming sensitivities about Islamic finance in the secular republic, should give Turkey access to a wider pool of investors via a global sukuk market estimated at more than $100 billion.

One banker said a size of $1 billion was being targeted, but that the sale amount was still unclear.

"The Treasury is about to finalise meetings about its first sukuk issue, and their choice (for the mandate) will be HSBC, Citi and Deutsche," said one senior banking source in London.

A sovereign sukuk from an economy regarded as one of the Muslim world's most progressive and successful would signal intent on Turkey's part to play a bigger role in Islamic finance.

Deputy Prime Minister Ali Babacan said earlier this year the Treasury might launch a sukuk issue within a few months, using legislation already in place. A sovereign deal would set a benchmark for future sukuk issues by banks and companies.

The general manager of Turkish Islamic bank Turkiye Finans, majority owned by Saudi Arabia's National Commercial Bank , told Reuters late on Wednesday it planned a $300 million sukuk issue in the next six to nine months.

Despite espousing Islamic values, Turkish Prime Minister Tayyip Erdogan's government shied away from launching a sukuk issue during its first decade in power. It feared giving ammunition to critics who accuse his ruling AK Party of seeking to roll back state secularism by stealth.

Because Islamic law bans the payment of interest, investors in a sharia-compliant sukuk acquire partial ownership of an underlying asset and share in its returns rather than receiving a stream of coupon payments.

Because of secular sensitivities, Islamic banks are called "participation banks" in Turkey and sukuk are referred to as "participation certificates".

The country has used Islamic finance methods since the late 1980s through private financial institutions that were recognised as participation banks in 2006.

There are four participation banks now operating in Turkey: Albaraka Turk, Bank Asya, Kuveyt Turk and Turkiye Finans. Kuveyt Turk, a unit of Kuwait Finance House , issued the country's first sukuk in 2010. 

(By Nevzat Devranoglu / Reuters / 05 July 2012)

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Nigeria: Shareholder Bishop Supports Islamic Banking

A Bishop in the Dioceses of Chris Temple Ministry International, Bishop Goodluck Akpore, yesterday said opponents of Islamic Banking in Nigeria are ignorant of the products the bank offers as it is not against Christians in the country.
Speaking at the Annual General Meeting of Jaiz Bank Plc in Abuja, the Bishop who is also the Chairman of Onitsha zone shareholder association said he was going to preach to his congregation to buy into the bank.
He said: "I will preach tomorrow in the church and let everybody in this country come and hear me," he said.
The Christian Association of Nigeria has kicked against the operation of Islamic Banking in Nigeria saying it would Islamised the country.
But the Bishop said CAN statement does not represent the views of every Christian.
He said: "Let me tell you, people can go personal and we have gone to meetings several times and we have told them that look don't talk for me, what you have in your mind cannot be for me, I have my own opinion, business is a personal issue, let Christian go and open their own Christian Bank if it is possible.
Asked if he was not going to be looked at as a sell out among his Christian brothers, Akpore said, "Those who know me know that I cannot be bought over.

(All Africa / 05 July 2012)

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South Africa poised to launch debut sukuk-Islamic bond

* Would be first of its kind in sub-Saharan Africa
* Sukuk likely to be five-year ijara issue
* Looking at both international and domestic markets
* Kenya, Nigeria, Tanzania could follow
JOHANNESBURG, July 4 (Reuters) - South Africa is preparing to launch sub-Saharan Africa's first Islamic bond, paving the way for issues by other countries in the region, officials said on Wednesday.
Thuto Shomang and Monale Ratsoma of the South African Treasury's government borrowing department told Reuters that South Africa was leaning towards a dollar-denominated, five-year sukuk, using an ijara structure.
"It's the one that seems to attract investors' interest. That's the one that the recommendations have been on so far," said Ratsoma, adding that first-time issuers usually chose five-year tenors so that was what South Africa was considering.
The bond would be marketed to Middle Eastern countries. There are large pools of Islamic investment money in the Gulf, which have been buying sukuk eagerly this year as the global financial crisis hurts many other investments.
"On this deal we really have to go out and talk to them because we don't know what their response will be and we don't want to have a failed transaction the first time around," said Shomang.
The Treasury put out a request for proposals in December and has appointed two consortiums led by Standard Bank and BNP Paribas to make the issue. Bahrain's Al Baraka Banking Group, Kuwait's Liquidity Management House, Nova Capital Partners and Regiments Capital are also involved, banking sources said.
Islamic finance prohibits interest payments so sukuk are structured to provide returns to investors in other ways. In a common form of ijara deal, the originator sells assets to a special-purpose vehicle and then rents them back at a price which gives investors in the sukuk a profit.
The South African Treasury is still deciding the precise timing of the issue, and is also considering a sukuk sale to domestic investors.
Kenya, Nigeria and Tanzania have also been planning sukuk issues, and a successful sale by South Africa could encourage them to put those plans into operation.
Muslims make up only 2 percent of the population of South Africa, which has a BBB+ foreign currency credit rating from Standard & Poor's, so the country seemed an outside contender to be the region's leader in Islamic finance. But it has been seeking to diversify its investor base, and its Treasury has the financial sophistication to explore new funding methods.
"I know there's jostling between Kenya, Nigeria and South Africa on who wants to take the lead, but I think the country that actually issues sukuk and attracts investment into the sukuk market is going to determine the key infrastructure for the development of Islamic finance," said Amman Muhammad, an Islamic banker in South Africa.
In its 2012/2013 budget, announced in February, South Africa's Treasury said it intended to borrow $3 billion in global markets over the medium term to maintain benchmarks in major currencies and meet part of its foreign currency commitments.
Finance Minister Pravin Gordhan has said developing Islamic finance and issuing sukuk would encourage new forms of foreign investment beyond traditional Western funding.
"The dollar sukuk is directly linked to and intended to attract FDI (foreign direct investment) into South Africa. When you create a sukuk you promise a sharia-compliant return, and immediately the Muslim countries sit up and notice - the petrodollar countries," Muhammad added.
"When you marry the sharia-compliant return with an emerging market economy like South actually becomes quite an attractive proposition in your investment portfolio, to be able to invest in a country like this."
Meanwhile, issuing a domestic sukuk could help to develop a local sukuk market and resolve a problem faced by South Africa's Islamic financial institutions.
They have to hold certain amounts of government securities to satisfy central bank reserve rules; since they have been restricted to buying conventional securities, they have obtained interest which they have then had to give away to charity, bankers and Treasury officials said.
If they were able to satisfy reserve requirements by holding sukuk, they could avoid the financial loss.

(By Xola Potelwa / Reuters / 04 July 2012)

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