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Tuesday, 30 October 2012

Hong Kong Government responds favourably to Sukuk consultation - 30 October 2012 - Today the Financial Services Branch of the Financial Services and the Treasury Bureau of Hong Kong issued their response to the Sukuk consultation paper which was issued in March 2012.

The formal title of the consultation paper was "Proposed Amendments to the Inland Revenue Ordinance (Cap. 112) and the Stamp Duty Ordinance (Cap. 117) to Facilitate Development of an Islamic Bond (i.e. Sukuk) Market in Hong Kong”. It provided a detailed analysis of the Sukuk market and relevant tax related changes which would be needed to facilitate the use of Hong Kong based assets in a Sukuk issuance.

Davide Barzilai, Banking Partner and Asia Pacific Head of Islamic Finance at Norton Rose said,

"Interestingly, the Bureau received 15 responses from a broad range of stakeholders. Perhaps this is an indication of the level of interest within Hong Kong for Sukuk instruments. We have seen increased use of Hong Kong as a launch pad for Dim Sum issuances from Malaysian companies and this response will tie in well with what is happening in the market."

Barzilai also confirmed that, "We were very happy to see that the Bureau has taken into account comments made by market practitioners in Hong Kong, in particular, the inclusion of Wakalah based structures. I am glad to see that Hong Kong has been able to avoid any of the political issues which has burdened some other non-Muslim countries when trying to introduce legislative changes to enable a level playing field for Islamic finance".

If you are interested in talking with Davide Barzilai, Partner and and Asia Pacific Head of Islamic Finance at Norton Rose, please contact me to arrange.

(Law Feul.Com / 30 Oct 2012)

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Dubai Oasis Drying Up as Property Rally Nears Edge: Arab credit

The rally that sent real estate company bond yields in Dubai to record lows risks petering out because the emirate’s property recovery may not be broad enough to justify further price gains.
Dubai Holding Commercial Operations’ January 2014 and February 2017 bonds were cut to hold from buy at Exotix Ltd. after yields fell to the lowest since 2007 this month. Emaar Properties PJSC (EMAAR)’s August 2016 note yields rose nine basis points to 4.44 percent yesterday since Oct. 23, when the company reported third-quarter profit that missed estimates. Property company Nakheel PJSC’s 10 percent sukuk, or Islamic bonds, due June 2016 have “little upside potential,” Exotix said.
A nascent real estate recovery in Dubai has been limited to a few areas in the emirate, which suffered a property slump in the past four years causing values to fall by as much as 65 percent. While the pick up is set to continue, opportunities in the bond market are limited at current prices, Exotix, National Bank of Abu Dhabi PJSC (NBAD) and Emirates Investment Bank PJSC (EIBANK) say.
“The recovery has been in selective areas, not broad- based,” Gus Chehayeb, Dubai-based director for Middle East research at Exotix, said by phone Oct. 29. “I don’t think there’s substantial value remaining in the real estate credit space, especially compared to the bargains we saw over the past three years.”

Empty Units

Investor optimism in Dubai’s recovery gained ground this year as sale prices for villas and apartments jumped and retail and tourism industries extended their best year since the crash. The average price of a mid-range villa and high-end apartment in the city advanced 27 percent and 14 percent, respectively, in September, according to data from property broker Cluttons LLC.
The emirate’s property industry isn’t out of the woods. A quarter of residential units are empty and an additional 25,000 are due to be completed in 2013, Jones Lang LaSalle Inc. (JLL)estimates show.
The number of property transactions jumped by 50 percent in the first half of 2012 from the year earlier, according to Dubai Land Department data. Even so, the value of the purchases is 74 percent less than the first half of 2008, prior to the crash that started later that year.

‘Highly Levered’

Government-owned Nakheel, developer of artificial islands shaped like the world map and fronds of a palm tree, has seen its bonds rally this year as profit at the company surged 83 percent in the first nine months. The yield on the debt maturing in August 2016 has tumbled 794 basis points, or 7.94 percentage points, this year to 10.37 percent yesterday. That compares with the 294 basis-point drop to 2.64 percent in the yield on Dubai’s 6.396 percent sukuk due November 2014.
“I wouldn’t be accumulating large positions at these prices,” said Yaser Abushaban, director of asset management at Emirates Investment Bank. “Accumulation would have been advised when they were priced much lower, specifically when you look at higher-yielding names,” including Nakheel.
Exotix reiterated a hold recommendation on Nakheel’s August 2016 notes, saying the developer hasn’t released audited earnings since 2008 and “is still highly levered post restructuring.” The builder, which wrote down the value of its real estate by $21 billion from late 2008 through mid-2010, got an $8.6 billion bailout from the Dubai government in 2009 to help avoid default.

Trading at Premium

Emaar, developer of the world’s tallest skyscraper, posted a 5 percent decline in third-quarter profit as revenue fell 12 percent. The company’s 8.5 percent sukuk maturing in August 2016 yielded 4.43 percent yesterday compared with 8.2 percent at the end of 2011 and the bonds trade at a Z-spread, a measure of credit risk, of 365 basis points, compared with about 440 for similarly rated companies tracked by Bank of America Merrill Lynch’s BB Global Emerging Markets Credit Index.
“I don’t think such a premium is warranted,” Chehayeb at Exotix said. “The market is now trading Emaar almost as if it’s a risk-free asset” and the sukuk “is trading very rich compared to equivalently rated emerging market peers.”
The economy of Dubai, one of seven emirates that comprise the United Arab Emirates, is making a comeback and its default risk tumbled as several state-linked companies restructured or paid debt this year. Economic growth will accelerate to 5 percent this year from 3 percent in 2011, according to government forecasts.

‘Selected Stability’

Dubai’s five-year credit default swaps fell 200 basis points this year to 246 on Oct. 26, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That outpaced the 68 basis-point decline to 261 in the average for contracts in the Middle East and North Africa.
“There have been some signs of selected stability in the real estate market, and that has created a lot of investor optimism,” said Nick Stadtmiller, head of fixed income research atEmirates NBD PJSC. (EMIRATES)
Still, Dubai has more than $17 billion of bonds and loans maturing in 2013 and 2014, according to data compiled by Bloomberg. Emaar, which still generates most of its revenue domestically, is also vulnerable to political developments in countries including Syria, where it’s expanding, and Egypt, where it plans to invest more than 5 billion pounds ($819 million). The yield on Emaar’s 7.5 percent notes maturing in December 2015 rose 13 basis points to 3.57 percent yesterday since hitting a record low a week earlier.
“In terms of risk-reward, much of the juice has already been extracted on some of these names,” Chavan Bhogaita, head of the markets strategy group at National Bank of Abu Dhabi, the U.A.E.’s second-biggest bank, said by e-mail yesterday.

(Bloomberg / 30 Oct 2012)

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UK: Jersey poised to profit from forecast Islamic finance boom

JERSEY is well placed to benefit from a forecast massive rise in Islamic finance by having made such a strong move into the Gulf region, according to global advisory firm Ernst & Young.

The global demand for sukuk, securities structured to comply with Islamic law, is expected to grow three-fold from US$300 billion to US$900 billion by 2017, according to estimates by the big four accountancy firm.
And a senior manager at the firm’s global Islamic banking centre, Bilal Ahmed, said that as most of the demand for sukuk comes from South East Asia and the Middle East, Jersey can capitalise on its strong links with Arab states in order to increase its involvement in the area.
Jersey Finance has opened an office in Abu Dhabi and is looking at how it can penetrate further into the Gulf region with plans to target Saudi Arabia.

Mr Ahmed said: ‘The growth in anticipated demand provides Jersey with further opportunities to acquire a larger share of the sukuk market and increase its footprint in the Islamic finance industry.’

He said that Jersey had already been playing an important role by providing a reputable jurisdiction for special purpose vehicles used for sukuk issuances.

‘There is no doubt that sukuk offers the Island an opportunity to engage in a rapidly growing sector. It is also attractive precisely because it offers greater stability than traditionally western forms of debt have been able to offer in recent years,’ he said
Mr Ahmed said that the exponential rise in demand was primarily a result of the double-digit growth of the Islamic banking industry and the increasing appetite for credible, Shari’a compliant, liquid securities.

He said the demand principally comes from Islamic financial institutions, fund managers and high net worth individuals.

‘The Eurozone debt crisis has also prompted renewed interest from conventional institutions because these products are backed by real assets,’ he said.

He said that currently the main constraint on the sukuk market was a lack of supply of sukuk securities. Ernst & Young say that has not been helped by the lack of a global standardised platform to facilitate trading.

(jersey Evening Post / 29 Oct 2012)

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Islamic Finance to Play a Key Role in Boosting Economic Development in Africa

Over the last decade, trade between African countries and the rest of the world has grown significantly and, in particular, charting a 170% increase in trade with the GCC. The ongoing shift by African countries from being aid-dependant to increasing trade and investment ties with the Middle East has positioned Islamic finance to play a key role in facilitating further increases in trade and investment flows between Africa and the Middle East. 

This is even more significant given the inherently strong linkages between Islamic finance and real economic activity and the potential to provide funding for key areas such as SMEs and project finance. Increased interest from Gulf investors in terms of agricultural land acquisitions combined with a growing Asian investor base, particularly in manufacturing, is expected to provide further impetus to the growth of the continent’s economies.

Speaking ahead of a high-profile conference addressing the opportunities for Islamic finance in Africa, David McLean, Chief Executive of the Islamic Banking Summit Africa (IBSA 2012) noted that “as a result of the recent policy revisions, regulatory changes and economic reforms in key markets on the continent, Africa has now been re-positioned as the third fastest growing region in the world, after the Middle East and Asia. 

The resurrection of Africa's trade ties with the rest of the world has resulted in an increased international investor interest in the region. The rapid expansion of the major economies in the region has also resulted in the need to invest heavily in developing vital infrastructure. 

These factors highlight the tremendous opportunity that Africa presents for the growth of Islamic finance and also indicate how Islamic finance can play a key role in catalysing economic development in the region.”

“It is against this dynamic backdrop that we are launching the Islamic Banking Summit: Africa (IBSA 2012) as a key regionally focused initiative of the World Islamic Banking Conference (WIBC).”

Held under the official support of the Central Bank of Djibouti, the two-day gathering of international industry leaders provides a high-profile platform to specifically focus on the opportunities and challenges that are forging the rapidly emerging Islamic banking, finance and investment landscape in Africa. 

To be held on the 6th and 7th of November 2012 at the Djibouti Palace Kempinski, Djibouti, IBSA 2012 will feature critical discussions that will seek to ‘Capture the Africa Opportunity in Islamic Finance’.

The Islamic Banking Summit Africa (IBSA 2012) will be officially inaugurated on the 6th of November by H. E. Ismail Omar Guelleh, the President of the Republic of Djibouti and Head of Government.

The inaugural address will be immediately followed by an opening keynote address by H.E. Djama M. Haid, Governor of the Central Bank of Djibouti. 

Commenting on the Central Bank of Djibouti’s patronage for the event, H.E. Djama M. Haid noted that “Islamic finance is undoubtedly one of the most exciting and high growth areas of the global financial sector. 

With the total assets of Islamic banks globally hitting the $1 trillion mark at the end of 2011 and with the industry expected to grow to US $ 2 trillion by 2015, financial centres outside the traditional Islamic markets of the Middle East and South East Asia are increasingly positioning themselves to play a vital role in the further development of the Islamic finance industry and to attract investments that are Shari’ah compliant.”

He also observed that “Africa presents a tremendous opportunity for Islamic finance and is probably the next logical or strategic decision for leading financial institutions looking to extend their products and services to a new high-potential market. 

“Provided that the continent continues to grow at its current pace, which is the fastest in decades, incremental wealth creation will make it easier for the Islamic financial services sector to tap into this vast potential.”

“We are delighted to be hosting and supporting this first Islamic Banking Summit: Africa (IBSA 2012) to be held in Djibouti and we see this event as a unique opportunity to engage the industry leaders in discussions that will seek to capture the Africa opportunity for Islamic finance", he added.

A key highlight of IBSA 2012 will be the special keynote address that will discuss how Islamic finance can act as a catalyst for a new wave of economic development in Africa. The session will analyse how Islamic finance can mobilise trade and investment flows into Africa and how Africa can be connected with the world through Islamic finance.

The Islamic Banking Summit Africa will also feature a high-powered industry leaders’ keynote debate. The session chaired by Abdul Rahman Awl, Vice Chairman - Board of Directors, Dahabshil Bank International will discuss how Islamic finance players can tap into and capture the opportunities in Africa. 

The power debate featuring Dr. Suleiman Walhad, Chief Executive Officer of Dahabshil Bank International; Asad Aziz Ahmed, Managing Director of Gulf African Bank; Basel A. Haj-Issa, Chief Executive Officer of Saba Islamic Bank; and Cassim Docrat, Director of DDCAP (DIFC) Limited will seek to identify the key African markets that are making headway in Islamic finance and will also analyse the key challenges to be overcome to achieve significant growth in the Islamic banking and finance industry in Africa.

Commenting on their participation at the event, Dr. Suleiman Walhad, Chief Executive Officer of Dahabshil Bank International said that “the rapid pace of the development of Islamic finance in the continent leaves no doubt among policy makers all over Africa, and in particular Djibouti, that Islamic finance presents many prospects for exciting growth. 

“Though Islamic finance is still in its embryonic stage in Africa, the potential for growth is tremendous considering Africa’s population of nearly one billion people, nearly half of which are Muslims. 

“With Africa now being recognised as one of the fastest growing regions in the world, joining the top league of emerging economies, Islamic banking and finance has a tremendous opportunity to capitalise on the current under-developed state of the banking and financial system in the region and become a key driver in the promotion of financial inclusion by appealing to the large Muslim population in Africa.”

He also said that “as a leading Islamic Bank in the region, Dahabshil Bank International is extremely delighted to be supporting the inaugural Islamic Banking Summit Africa (IBSA 2012) and we are very keen on exploring the tremendous opportunity that the Islamic finance industry has to offer. 

“We hope that this important event will play a key role in identifying and capturing the unique growth opportunities that will advance Islamic finance in Africa to its next stage of development.

(The Tripoli Post / 29 Oct 2012)

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