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Wednesday, 3 April 2013

Tunisia plans 1bn dinar sukuk

Tunisia is hoping that the country’s first government sukuk, or Islamic bond, scheduled for later this year could spur companies in the North African country to raise Islamic debt and boost its sharia-compliant finance industry.

The government is working alongside the Islamic Development Bank – the multilateral lender – to pave the way for a 1bn dinar ($700m) sukuk sale that would set a benchmark for companies seeking to tap the Islamic debt markets, Elyes Fakhfakh, finance minister, told the Financial Times.

North African countries including Egypt, Morocco and Tunisia are progressing with plans to stimulate Islamic finance and sell sharia-compliant debt as they seek new forms of funding in the wake of the Arab spring.

“It is for the global diversification of our financial debt and this is very interesting from a cost point of view,” Mr Fakhfakh said on the sidelines of an Arab finance ministers’ meeting in Dubai. He said the government would target 80 per cent external investors and 20 per cent domestic.

Governments have been keen to tap into Islamic finance partly because the cost of borrowing can be cheaper due to the high demand – a benefit Tunisia would like to see passed on to its companies.

Islamic debt of emerging market governments yielded 2.9 per cent on April 1, markedly lower than Middle East government conventional bonds which yielded 4.4 per cent, according to HSBC/Nasdaq Dubai indices.

The Islamic bonds of Gulf governments, which have led the way in Middle East sukuk sales, are also yielding slightly less than the conventional bonds, meaning the cost of borrowing is lower.
“If I was them I’d be thinking now’s the time to issue sukuk,” says Gabriele Sterne, senior economist at Exotix, the investment bank in London. “Because of all the money flooding around the Middle East, sukuk tend to price slightly tighter than eurobonds.”

Given the political volatility, if Tunisia does not get the timing right then it could face a situation like Egypt where spreads widen rapidly, increasing the cost of borrowing on international markets and making a sale more difficult, says Mr Sterne.

Since the start of the year, Tunisia’s credit default swaps – contracts to insure against the default on debt – have risen 37 basis points to 389, indicating an increased perception of risk. They trade at a similar level to Hungary, but are cheaper than the swaps of Egypt and Lebanon, indicating that investors view a Tunisian default as less likely.

Standard & Poor’s cut Tunisia’s credit rating in February, the third downgrade since the overthrow of Zine El Abidine Ben Ali in 2011. The country is now rated BB-, three levels below investment grade.

The lost of the investment-grade rating, slow economic growth and bank liquidity concerns may put investors off the government’s sukuk, meaning they will have to pay high borrowing costs, says Sebastien Henin, portfolio manager at The National Investor in Abu Dhabi.

“In this environment, to raise money, I think it could be tricky,” says Mr Henin, adding that strong broader demand for Middle East debt should secure the sale, albeit at a price.

The North African country, which ignited the Arab Spring, is also seeking a $1.7bn loan from the International Monetary Fund – a precautionary measure that might be taken if needed – which could help stabilise the economy and plans to issue US government-backed bonds.
The government expects economic growth to slow to 4 per cent this year compared with 3.6 per cent last year.

(Finance / 03 April 2013)

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Key GCC Islamic banking assets rise to $445bn

MANAMA: Islamic banking assets with commercial banks in the GCC reached $445 billion at the end of last year, up from $390bn in 2011, according to recent estimates by Ernst & Young's Global Islamic Banking Centre.
Reports indicate that in 2012, the Islamic banking industry in the GCC registered a 14 per cent year-on-year growth, which represents a slight deceleration in the average growth rate over the past five years of 19pc.
Reports also indicate that profitability now looks to be stabilising in major Islamic banking markets though Islamic banks have experienced a mixed recovery across markets.
With the global Islamic banking assets with commercial banks now surpassing the $1.5 trillion mark and estimates projecting the industry to hit $2trn by 2015, the global Islamic finance industry is undoubtedly one of the fastest growing components of the global financial system.
The Islamic banking industry is growing 50pc faster than overall banking sector in several core markets, according to Ernst & Young World Islamic Banking Competitiveness Report.
The report was launched last December at the 19th Annual World Islamic Banking Conference in Bahrain.
Given the current market conditions and the increasing demand for Islamic finance not only in the traditional markets of Middle East and Southeast Asia, but globally, the time is now perfect for the Islamic finance industry to further leverage its inherent strengths of being linked to real economic activities and play a key role in putting in place a holistic Islamic economic ecosystem.
It is against this background that the third Annual Middle East Islamic Finance and Investment Conference (MEIFIC 2013) will be held at the Dusit Thani Hotel in Dubai on April 17.
Co-located with the eighth Annual World Takaful Conference and held under the theme "Building the Islamic Economy: Strengthening Islamic Finance's Links to the Real Economy", MEIFIC 2013 is set to gather more than 250 regional and international Islamic finance leaders in a powerful dynamic platform.
A key highlight will be the high profile keynote debate that will focus discussions on boosting growth and the value of Islamic finance by strengthening linkages to the real economy and mainstreaming products.
The session, chaired by Thomson Reuters global head for Islamic capital markets Dr Sayd Farook, and featuring Dubai government's economic adviser Harun Kapetanovic, Mashreq Al Islami chief executive Moinuddin Malim, ADCB Islamic Banking head of Islamic Banking Amr Al Menhali, and QIB-UK head of asset management Anouar Adham, will assess new growth opportunities for Islamic finance and will analyse how institutions can scale-up to better meet the needs of the real economy.

(Gulf Daily News / 02 April 2013)

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MAS says it is committed to developing Islamic financial services in Singapore

SINGAPORE: Singapore's central bank said it remains committed to developing Islamic financial services in Singapore.
Commenting about the lapse of two tax incentives for Islamic finance recently, Assistant Managing Director of the Monetary Authority of Singapore (MAS), Ng Nam Sin, said this was "no reflection of MAS' continuing commitment to develop Islamic financial services in Singapore."
"Like all our tax incentives, they have a fixed tenure and in this case, of five years. It is useful to note that Islamic finance activities will continue to be incentivized alongside conventional finance activities under our other existing schemes," said Mr Ng.
But he pointed out that Singapore's proposition for Islamic finance must be broader than just tax advantage.
He said, "Singapore's success as an international financial sector stems from its high standards of regulation, deep and liquid capital market, the presence of international buy side players, and a critical mass of financial intermediaries with expertise to address a wide range of financing needs. It is these strengths that allow Singapore to support the growth of Islamic finance. "
Speaking at an event at Singapore Management University on Wednesday, Mr Ng said Singapore has seen many sukuk (Islamic bonds) issuances since 2001, with more expected in the pipeline. Other capital market instruments such as REITS and innovative investment funds have also seen good growth.
Meanwhile, banks from the region are contributing to the Islamic financial sector in Singapore. A growing cluster of banks from the Middle East region operating in Singapore has also started to offer Islamic financial services.
Given the strong growth potential for Islamic finance in Singapore, Mr Ng said MAS will provide an environment that is conducive for growth, support talent development and continue to refine its regulatory framework.  

(Channel News Asia / 03 April 2013)

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