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Monday, 20 August 2012

Malaysia: Celcom prices RM5bil sukuk; RM3bil issue draws strong demand

KUALA LUMPUR: Celcom Axiata Bhd has successfully priced its sukuk issuance of RM5bil in nominal value, of which RM3bil received a final book of RM10bil via bookbuilding process.
In a statement yesterday, Celcom said the RM3bil sukuk attracted strong demand from asset management companies, financial institutions, insurance companies and corporate organisations. The remaining RM2bil was privately allocated to strategic investors in eight, nine and 10-year tranches.
Celcom said the RM5bil sukuk was the largest rated sukuk murabahahissuance based on a tawarruq arrangement in the Malaysian debt capital market to date.
The sukuk was issued through its unitCelcom Transmission (M) Sdn Bhd (CTX)and has been assigned a preliminary rating of AAAIS with a stable outlook by Malaysian Rating Corp Bhd (MARC).
MARC said the rating reflected the credit strength of the overall consolidated entity, premised on the significant financial and operational links between Celcom, CTX and fellow subsidiary, Celcom Mobile Sdn Bhd (CMSB). It said the proceeds from the sukuk offering would be largely used to retire existing debt of RM4.2bil.
Celcom CEO Datuk Seri Shazalli Ramly said the demand for the sukuk was overwhelming, which coupled with the highest credit rating achievable, indicated the capital market's confidence in Celcom and its long-term business sustainability.
“Celcom's landmark sukuk issuance is testimony to Celcom and Axiata Group Bhd's support for the Government's efforts to position Malaysia as a global Islamic financing hub while reaffirming Malaysia's position as a leader in the global Islamic capital market,” he added.
Proceeds from the sukuk issuance, with tenures ranging from three to 10 years, will be utilised primarily for the refinancing of CTX's existing debt as well as to finance the company's capital expenditure and working capital requirements.
The successful refinancing is part of Axiata Group's active capital management efforts, and is estimated to save over RM350mil over the remaining tenure of the existing unrated sukuk.
Axiata Group president and group CEO Datuk Seri Jamaludin Ibrahimsaid this was the second Islamic debt programme undertaken by Axiata Group in 2012, following the US$1.5bil equivalent multi-currency sukuk programme, which was the first internationally-rated Asia Pacific multi-currency sukuk programme.
He added: “Both programmes are in line with Axiata Group's on-going group-wide initiative to optimise its balance sheet and improve its financial flexibility, while supporting the Government's vision.
(The Star Online / 16 August 2012)

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Rating sukuk criteria updated, no rating impact

Link to Fitch Ratings' Report: Rating SukukAug 16 - Fitch Ratings has updated its Rating Sukuk criteria. The updated do not contain any significant changes and will have no impact on existing ratings.

These criteria apply to originator-backed (also called asset-based)
sukuk structures, in which investors rely upon direct support features (i.e., repurchase agreements and liquidity arrangements) as well as upon the originator/issuer's ability to generate profits with the assets. The criteria do not apply to asset-backed sukuk, which rely on the underlying collateral.

The report outlines Fitch's approach to rating sukuk, which are often referred to as "Islamic bonds" and represent undivided shares in the ownership of tangible assets, including the assets of particular projects or investment activities, and usufruct  (the right to use the assets). Sukuk constitute a beneficial ownership interest, not a debt. Each holder is entitled to an agreed return and will bear any losses in proportion to the certificates owned.

Fitch analyses the structure of the underlying transaction(s) to understand and evaluate the contractual cash flows. Sukuk are typically structured around contractual arrangements formulated according to Islamic law ("sharia") and have been developed as an alternative to traditional debt instruments. Sukuk are based on traditional Islamic contract structures such as ijara  (similar to leasing).

Instead of interest, which is unacceptable under sharia law, an investor receives a share of the profits generated by the underlying assets being financed. Fitch believes that these instruments can be rated, and, although the contractual structures referred to above add to the apparent complexity, the agency's current rating methodologies and rating scales can accommodate this.

In the case of originator-backed/asset-based sukuk, Fitch looks through the structure of the sukuk to ensure that there is recourse to the originator of the transaction. The rating is benchmarked to the rating of the originator and, in the case of a senior unsecured obligation, the rating would typically be in line with the originator's Issuer Default Rating.

Ratings assigned to sukuk do not imply any confirmation that the sukuk are sharia-compliant. While there is broad agreement on sharia principles, there are differences of interpretation which the agency would not be in a position to anticipate or assess.

While the report focuses on Fitch's recent experience, Islamic finance is in continuous evolution. Fitch will continue to monitor developments and will review its criteria to reflect any future changes.
(Reuters / 16 August 2012)

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India may introduce Islamic banking

New Delhi: The government is considering introducing Islamic banking in the country. The Ministry of Finance recently asked the Reserve Bank of India (RBI) to reconsider such a possibility.
The RBI formed a committee to look into the matter after Prime Minister Manmohan Singh's visit to Malaysia in 2010, when Singh indicated that the government was open to the idea of a banking system that could address the long-standing concerns of the business section of a minority community.
Experts believe that in order to tap the immense investment potential of the oil-rich Middle East, it was in India's interest to introduce Islamic banking.
An official of the National Committee on Islamic Banking told Gulf News: "It will provide the opportunity to bring a large section of the Muslim population into the mainstream. It is a sophisticated banking and finance structure based on moral and social values and is compatible with modern-day financing needs."
‘Open to all'
However, Dr Mansour Alam, Chairman of the Indo-Arab Economic Co-operation Forum (IAECF) said: "The system does not have any religious connotation. And will be open to all irrespective of religion and caste. Hence, the term ‘participatory banking' is considered more appropriate and acceptable than Islamic banking."
More than 50 countries, including the USA, the UK, France, Japan, Singapore, Saudi Arabia, Germany, China and Malaysia have recognised Islamic banking and finance. And major corporate banks such as Citigroup, HSBC, Deutsche Bank and Standard Chartered have Islamic banking windows.
Incidentally, in many countries, 30 to 40 per cent of investors in this banking system are non-Muslim.
Islamic banking is based on the principles of Islamic law (sharia) and guided by Islamic economies. Two basic principles behind such a banking system are the sharing of profit and loss and significantly; it prohibits the collection of interest, which is not permitted under Islamic law.
The IAECF official said: "Due to its economic benefits, countries, irrespective of the size of the Muslim population, are trying out different ways to become leading centres of Islamic banking. And they are seeing a surge in the number of non-Muslim people opting for it."
Experts said that the recent past had shown that while the world faced a severe economic crisis, Islamic banks continued to grow unabated. And this industry is growing at about 20 per cent to 30 per cent annually.
"Since the core principle of the system is sharing in both profit and loss, it would reduce the impact of the financial slowdown in Western countries. And if India were to introduce the system, the concept was likely to boost the economy of the country as well as the entire South Asian region," Dr Alam said.
(Equities.Com / 20 August 2012)

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