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Friday, 7 September 2012

Indonesia picks banks for sovereign sukuk

* Indonesia picks 3 banks for sovereign sukuk

* Deutsche Bank, HSBC, Standard Chartered to run deal

* Sukuk due before year-end - sources 

By Bernardo Vizcaino and Mirna Sleiman

DUBAI/JAKARTA, Sept 6 (Reuters) - The Republic of Indonesia has mandated Deutsche Bank, HSBC and Standard Chartered for a new global Islamic bond, or sukuk, issue, the acting head of the country's debt office confirmed on Thursday.

The official, Robert Pakpahan, was responding after two banking sources told Reuters the three banks had been chosen and that the sale would go ahead before the end of the year.

In August, Pakpahan said the state planned to issue a $1 billion sukuk in late October, as well as $750 million worth of yen-denominated bonds.

Indonesia, the world's most populous Muslim country, last tapped global debt markets in April with a $2.5 billion two-tranche bond..

The $2 billion ten-year bond, which priced at 3.75 percent, was yielding about 3.2 percent on Thursday, according to Thomson Reuters data. Meanwhile, the $500 million 30-year bond, which priced at 5.25 percent, was yielding around 6.7 percent.

Low interest rates are enabling governments across Southeast Asia to raise spending on infrastructure - one of the region's big weak spots.

Indonesian President Susilo Bambang Yudhoyono announced during a speech last month that he would boost capital spending by 15 percent to 193.8 trillion rupiah ($20.25 billion) in 2013 to improve the road network in the archipelago nation and to finance 15 new airports.

Indonesia's 5-year credit default swaps, or the cost to insure its debt against default, stood at just over 170 basis points (bps) on Wednesday, down from over 255 bps in early June. Credit default swap prices can be an indicator of investor confidence.

Indonesia's central bank governor, Darmin Nasution, said on Wednesday that the country will grow 6.4 percent in 2012 and 6.6 percent next year, with the bank adopting policies that promote growth while containing inflation.

In June, the central bank said economic growth could fall at the low end of the 6.3 to 6.7 percent GDP forecast for 2012. ($1 = 9570.0000 Indonesian rupiahs)
(Reuters / 06 Sept 2012)

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Britain and France lead on Islamic finance in Europe

Germany has been a desert as far as Islamic banking is concerned and analysts remain sceptical about the market potential for such products in Europe's largest economy.

Part of the reason is the majority of Muslims in Germany are of Turkish origin and relatively secular in outlook. Their relatively low income is a further factor.
"In Turkey, Islamic banks have a market share of just five percent, and that hasn't increased in 40 years," said Rebecca Schönenbach, an Islamic finance specialist at the Raven Centre, a think tank on the subject.
"The biggest hurdle in Germany is the low income of Muslims, which amounts to €500 (Dh2,305) per head per month on average. They don't have much left over to invest. And those who do save tend to invest their money in Turkey, in conventional ways."
In addition, Germany's tax system makes certain forms of Islamic finance unattractive. As Sharia forbids a bank from charging interest, property finance takes the form of the bank purchasing the property outright and selling it in portions to its customer at a slightly higher price.
Under German law, such a deal would be treated as two transactions and hence would be liable to property purchase tax twice, making it far more expensive than conventional mortgage banking.
Britain has modified its banking rules to give leeway to Islamic finance. Whether Germany will follow suit remains to be seen.
"The financial administration [in Germany] has done nothing to address the tax treatment of Islamic products," said Zaid El Mogaddedi, the managing director of the Institute for Islamic Banking and Finance in Frankfurt.
He pointed out Britain and France had done far more than Germany to promote growth in Islamic finance.
"German politicians have been very reticent in this respect and this is a special hindrance to the development of Islamic finance in Germany," said Mr El Mogaddedi.
"The UK and France are far more business-oriented and pragmatic and Germany is missing the trend to open up to the growing interest in Islamic Finance.
(The National / 06 Sept 2012)

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PE firm buys 6.6 pct of Jordan Dubai Islamic Bank

(Reuters) - Jordan-based private equity firm Foursan Group has acquired a 6.6 percent stake in Jordan Dubai Islamic Bank, making it the bank's second largest stakeholder, Foursan said on Thursday.
The firm declined to disclose the monetary value of the deal. It is not yet considering seeking a seat on the bank's board because the term of the current board has yet to expire, Foursan's vice-president Jameel Anz told Reuters.
Foursan's investment was made through the firm's $100 million fund Foursan Capital Partners I, which closed in 2009. The fund's investors included Jordan's Social Security Corp and the International Finance Corp, an arm of the World Bank.
JDIB, one of four Islamic banks in Jordan, is the successor to Industrial Development Bank, which converted its operations to become an Islamic lender in 2009.
JDIB's assets grew 31 percent to 350 million dinars ($495 million) in 2011, according to company data. Net income reached 5.35 million dinars during the same period, after a loss of 3.5 million dinars in 2010.
The Jordanian market has also attracted Saudi Arabia's Al Rajhi Bank, which started operations in March 2011, marking Jordan the third international foray for the world's largest Islamic lender.
(Reuters / 06 Sept 2012)

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Canada: Learning Islamic finance

There’s an in-demand MBA course at the University of Toronto’s Rotman School of Management that essentially teaches back-to-basics banking for Canadian businesses. 

Students who enroll learn the merits of being conservative with investments, ways in which their businesses can participate in this sector and will discover the theory that pushes people to save and spend wisely – a concept that has been around for centuries.

Islamic Finance is one of the quickest growing segments of the financial-services industry. Walid Hejazi, professor of International Competitiveness at Rotman, and academic director and developer of the course, says the class introduces new business perspectives to students. “It’s a tremendously misunderstood approach in Canada that has nothing to do with religion,” he says.

“Islamic finance, like conventional finance, is simply an approach to solving the economic problems we currently have. The course appeals to a wide spectrum of students, and my classroom is diverse,” says Hejazi. “The focus of the course is to provide insight into foreign investment and business opportunity in Canada. I’ve taught Christian, Jewish, Muslim students and more.”

The course – aimed at professionals who work in finance, such as controllers, accountants, investors, financial analysts, entrepreneurs and lawyers – doesn’t delve into the beliefs that Muslims hold. Instead, it focuses on attracting foreign investment, conducting business overseas and meeting the growing demand for sharia-compliant investment products in Canada (Islamic law prohibits usury). This is the only MBA course of its kind currently offered in the country, and Hejazi says he believes it offers students a leg up when sharia-compliant finance departments start getting the recognition in Canada that they have in other countries.

That’s one of the reasons Abbas Irtzia signed up for the course last winter. “I felt that getting an understanding of Islamic finance principles would give me an edge if ever I got into business dealings with parties from that region,” says the recent graduate, who is an associate at a boutique private-equity firm in Toronto. “I was very curious. Even though I lived all my life in a country that has a fair number of Islamic financial institutions, I never dug too deep to understand how exactly Islamic finance differed from conventional finance. The course was my chance to learn more about an area that has a certain sense of mystique surrounding it,” he says.

Jesse Rosensweet also took IF last winter and, after earning an A in the class, says he’d like to be involved in the development of sharia-compliant offerings to Canadian consumers and investors, whether working on regulatory issues or from the finance side. The recent MBA grad, who’s articling in corporate law at Toronto’s Aird & Berlis LLP, says Islamic finance has been on his radar for a few years. “This sector is in its infancy in Canada, so the course seemed like a great opportunity to learn about something that will continue developing in the years to come. The GTA represents the biggest potential market in Canada. Hopefully, developments in banking and securities regulation will enable financial institutions to begin offering sharia-compliant products in parallel to the conventional ones,” he says.

Irtzia, who also earned top marks in IF, agrees that it’s only a matter of time before Islamic finance is part of mainstream banking, whether it’s billed as “Islamic” finance or ethical or conservative banking. “With the growing popularity of sharia-complaint products all over the world, I think everyone attending an MBA program in Canada should give this area careful thought, as there could be many opportunities in the Canadian context going forward. I know at least one Canadian bank is already looking toward tapping into this area.”
As for professor Hejazi, he likens the misconceptions about non-Muslims being attracted to the benefits of Islamic finance products, like sharia-compliant mortgages, to enjoying a halal burger. “You don’t have to be Muslim to have one,” he says.
(The Star.Com / 06 Sept 2012)

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