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Monday, 8 April 2013

Petronas Gas planning Malaysia’s biggest sukuk offering this year

KUALA LUMPUR: Petronas Gas Bhd is planning Malaysia's biggest sukuk offering this year, at a time when top-rated corporate bond yields are at a nine-month high.
The unit Petroliam Nasional Bhd (Petronas) invited pitches from banks to arrange as much as RM5bil of Islamic debt, three people with knowledge of the matter said on March 28, asking not to be named as the details are private.
The yield on Malaysia's three-year AAA-rated notes climbed three basis points in 2013 to 3.56%, the highest since June 29, a central bank index shows.
Petronas Gas plans to use the funds from the sukuk for two regasification plants, part of a US$444bil (RM1.37 trillion) spending programme started by Prime Minister Datur Seri Najib Razak that aims to propel Malaysia to developed-nation status by 2020.
The company sold its first syariah-compliant notes in August via unit Kimanis Power Sdn Bhd. The 5.05% securities due 2023 last yielded 4.23%, data compiled by Bloomberg show.
“The company is planning the sukuk because it's confident that the present government will win the elections,” said Mohamed Azahari Kamil, chief executive officer at Asian Finance Bank Bhd. the Malaysian unit of Qatar Islamic Bank SAQ.
“With the Petronas name, the company won't have any problem selling the debt,” he said in an interview.
The two regasification plants will be built in Johor and Sabah, according to Petronas Gas' latest annual report.
The company said in an e-mailed statement yesterday that it was unable to comment on whether it would sell sukuk. A separate facility that the company started building in 2010 will begin commercial operations this quarter, a Nov 23 stock exchange filing shows.
Petronas Gas is 60.7% owned by Petronas and has RM860mil of sukuk outstanding, according to data compiled by Bloomberg.
It will report net income of RM1.54bil for the year ending Dec 31, 2013, compared with RM1.4bil last year, according to the mean estimate of 13 analysts surveyed by Bloomberg News.
“Petronas Gas is a strong corporate issuer and could be rated AAA if it has the support of its parent,” Elsie Tham, senior manager at Manulife Asset Management Sdn, who oversees more than US$1bil (RM3.1bil), said in an interview yesterday.
“It's a name I will be interested in, regardless of elections. My decision to buy, however, will depend on the yields being offered.”
The yield on Malaysia's 3.928% government sukuk due 2015 fell one basis point to 1.34% yesterday and has risen six basis points this year, according to data compiled by Bloomberg.
The premium investors demand to hold Dubai's 6.396% securities due November 2014 over Malaysia's debt was steady at 106 and has widened 26 basis points in 2013.
Islamic bonds sold to international investors returned 0.5% in 2013, according to the HSBC/Nasdaq Dubai US Dollar Sukuk index, while developing-market debt declined 2.3%, JPMorgan Chase & Co's EMBI Global Composite Index shows.
The average yield on global sukuk climbed six basis points, or 0.06 percentage point, to 2.92% in March, the biggest monthly advance since May 2012, according to the HSBC/Nasdaq index.
The difference between the average yield and the London interbank offered rate, or Libor, widened four basis points over the period to 177 basis points, the gauge shows.
The Bloomberg-AIBIM Bursa Malaysia Corporate Index, a benchmark that tracks 57 local currency issues, gained 0.7% this year to 103.019 on March 29, while a similar gauge for sovereign notes rose 0.6% to 110.318.
Syarikat Prasarana Negara Bhd. plans to sell RM6bil of sukuk in two portions this year to build a light rail system in Kuala Lumpur, Azhar Ghazali, its media affairs manager said in a Jan 4 e-mail.
Tenaga Nasional Bhd will raise funds via sukuk and equity to build a RM2.47bil power plant, the company said in a stock exchange filing in November. - Bloomberg
Petronas Gas should be able to attract interest in its sukuk because it's a rare issuer and the result of the national elections won't affect the company's risk profile, according to MCIS Zurich Insurance Bhd.
“I'm comfortable with the Petronas' name,” said Michael Chang, who oversees US$1bil as head of bonds at MCIS Zurich Insurance in Kuala Lumpur, in an interview yesterday.

(The Star Online / 03 April 2013)

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Islamic banks need comprehensive marketing approach

Marketing of banking services is highly sponsored by banks and financial institutions CEOs, to maximise their processes, types, figures and subsequently their profits. That in addition to their exerted efforts to attract new clients, thus during last decades, all banks established independent marketing departments and divisions. These new functions serve different type of customers, and mainly set the plans, programmes, procedures and strategies that enable banks to achieve their objectives and targets.

Accordingly, Omani Islamic banks are expected to follow a comprehensive marketing approach to promote themselves as an alternative for traditional banks (if possible). In other words, Islamic banks need to apply Sharia-compliant recent banking applications. The changes that occurred in the Arab world in general and the Islamic banks in particular during the last three decades, required increasing the investors’ awareness with Islamic banks principals and concepts. Those are derived from the Sharia, Islamic economic principles, Islamic provisions and jurisprudence.

Islamic banks are required to collect and direct investors’ savings properly to serve different depositors and investors. Thus, improve Islamic services locally and regionally, economic and commercial aspects that rely on economic concepts, Islamic basics and banks nature (Islamic or other).
In our efforts to support Islamic banks, we have to consider their late entry to commercial works (in Oman), compared to traditional banks which started more than 40 years earlier, moreover their late entry to the Omani market. We all know that Islamic banks will operate in a highly competitive environment, thus they should have the ability to market their works and services. Furthermore, all new products have to be marketed properly in a way that satisfies the society requirements, expectations and desires.

Undoubtedly, Islamic banks have to follow a comprehensive marketing approach and policy, in order to penetrate the business environment controlled by the experienced traditional banks.

Worth mentioning, Islamic banks require several decades to introduce their Sharia-compliant and advanced services as an alternative to those of traditional banks. However, it is better for them to operate according to contribution, harmonisation and integration methods through offering Sharia-compliant solutions for commercial relations and transactions. Moreover, these services should be offered by means that were never (historically and practically) offered by traditional banks. At the meantime, they should consider the risks of financing goods and assets (for ex. real estate and machines) according to Murabaha and Musharakah basics, knowing that the risks would be greater than those of the commercial banks.

Islamic banks in Oman will only succeed in introducing and marketing their services/products by conducting studies, researches and interviews with retail and corporate clients, including merchants, consumers, businessmen, employees, etc. These banks should satisfy clients’ requirements through saving and financing means. Thus, they should start to conduct studies, R&D for Islamic products, under the supervision of Fatwa and Sharia committees formed within each bank. Further, any service-related issues should be settled according to the jurisprudence of transactions. Not to mention, they should find modern solutions for financing and saving services, given the increased complexity of such services.

At the same time, Islamic banks should increase awareness with related features, controls and conditions. That could be done through holding seminars, lectures and conferences at institutions and universities. In addition, improve the investors’ (individuals, communities, students, teachers, workers or employers) awareness with saving concepts and change individual consumption behaviors. Entirely, that serve in directing the saving advantages towards developmental and investment plans, thus creating job opportunities and other benefits.

Most importantly, Islamic banks should select and employ national calibers, and ensure proper development and training opportunities. The selection process (of those who will work at banks and deal with clients) should be done meticulously to avoid any client-related issues and ensure moral, social and religious commitment. In addition, Islamic banks should tend to select candidates with scientific, professional and personal competencies.

All in all, Islamic banks have to be aware of the fact that the best successful way to market their products/services and convince the crowd is by introducing them in a high-level, swift and untraditional manner. Baring in mind that flexibility is considered of the main aspects in the jurisprudence of transactions and an effective factor to successful banking processes, especially those of Islamic banks. The competition today does not depend solely on the cost, but it extends to the manner and flexibility of offering the services, and timely response to the clients’ remarks and complaints.

(Oman Daily Observer / 08 April 2013)

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Islamic finance and its Asean dynamics

Islamic Finance has developed into a $1tn global business with the dynamics to reach far more in the near future. The epicentres of this industry are in the Middle East and Asean, with sizeable cash flow between the two regions. Though contributing only a fraction of the world’s total banking assets, Islamic financial products’ resilience to global crises has given the industry credibility in its use as an alternative to conventional banking. Thus, the potential for a further collaboration between the two centres for Islamic banking is huge, especially between financial hubs such as Qatar and Malaysia.

However, a recently published report by Inside Investor sponsored by Barwa Bank  has shown that there are still a number of actions necessary to increase the role and improve the standing of Islamic finance on the global stage. The fact that consensus remains divided among Islamic finance experts is telling of the industry’s infancy and lack of any global standardisation organisation. 

Efforts have been made to unify practices, however, in the form of the establishment of the Islamic Liquidity Management Corporation (IILM) in Kuala Lumpur, a body of central banks, monetary authorities and multilateral organisations tasked with facilitating cross-border Islamic liquidity management. The creation of the Islamic Interbank Benchmark Rate (IIBR) in 2011, the industry’s equivalent to Libor, also marked an innovative step forward. It was an initiative sponsored by Thomson Reuters, which shows that Western institutions are also highly involved and interested in the industry.

In Qatar, Islamic banking was a largely underrepresented sector until 2011, when the Qatar Central Bank issued a circular instructing local conventional commercial banks to discontinue their Islamic operations by the end of the year. The main provisions of this circular were that conventional commercial banks should not accept new Islamic deposits, and new Islamic finance products should not be extended by conventional banks.

This prompted a boom for Shariah-only banks, which since have grown remarkably and are now on the outlook for potential partners, especially in the thriving Islamic banking markets abroad, first of all in Southeast Asia.
And there is plenty of room for collaboration. Today, Malaysia is home to the world’s largest Islamic private-debts securities market registered at $35bn, making Kuala Lumpur the world’s largest Islamic financial hub. To further strengthen this position, the country has set up ambitious development plans for the sector, which include becoming an intellectual and capital centre for the entire industry. It makes great sense to establish ventures in Islamic banking in Malaysia to further penetrate the region, catering to, for example, a massive market of Indonesia’s 204mn Muslims or even Thailand’s 3.2mn, both countries where Islamic banking is in demand, but the supply is improvable.

(Gulf Times / 06 April 2013)

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