Why are sukuk sales set to soar in 2014?

Debut of Islamic bonds from governments and companies seeking to cut financing costs will drive sukuk sales next year, with issuance probably rebounding to a record, HSBC Holdings Plc (HSBA) said.

Growth will be boosted as borrowers follow governments from Dubai to Malaysia, which are seeking to promote Shariah-compliant bonds and become centers for Islamic finance, said Mohammed Dawood, global head of sukuk financing at HSBC, the bank that managed the most sukuk sales in 2013. The London-based lender is also working to introduce new instruments to help the securities compete with conventional bonds, he said.

Within the six-nation GCC, which includes the two biggest Arab economies of Saudi Arabia and the United Arab Emirates, $21.1 billion of sukuk have been sold this year, about the same as in 2012, data compiled by Bloomberg show.

The average yield on the Islamic bonds sold by GCC issuers was at 3.77 percent on Tuesday, according to HSBC/NASDAQ Dubai indexes. That compares with an average yield of 4.17 percent on non-Shariah-compliant bonds for council issuers, according to the data.

Possible volatility in global interest rates caused by a cut in monetary stimulus by the US may influence the timing of new issues, although the pool of Islamic liquidity remains “very strong,” Dawood said. It may also push issuers to use local currencies such as the Malaysian ringgit or the Saudi riyal, he said.

Islamic bond sales fell 9.5 percent in 2013 to $42 billion after reaching a record $46.4 billion last year, according to data compiled by Bloomberg, in a market dominated by repeat borrowers. About $60 billion of sukuk will be sold in 2014, primarily by Malaysia and the Gulf countries, Moody’s Investors Service said in a report last month.

“In 2014, we will see a shift to new issuers,” Dawood said from Dubai. “We will see a lot more coming out of Asia and a lot more issuance from outside of the traditional markets.”

Financial centers around the world have announced plans to sell Islamic bonds as part of efforts to grab a greater share of an industry whose assets will more than double to $2.7 trillion by 2017, according to PricewaterhouseCoopers LLP. Hong Kong, the world’s fifth-largest currency-trading center, said in November it will offer a debut sukuk to spur capital markets. In October, UK Prime Minister David Cameron said the country planned to sell Islamic notes.

 “You have more debt maturities in 2014, especially in Dubai, so this will drive issuance,” Montasser Khelifi, a Dubai-based senior manager for global markets at Quantum Investment Bank Ltd., said.

Issuers in the Gulf Cooperation Council have about $32 billion of bonds and syndicated loans maturing next year, according to data compiled by Bloomberg. Among the debt is a $500-million note from Dubai due in November while Abu Dhabi’s Tourism Development & Investment Co., which is building museums in the UAE capital, has to pay a $1 billion bond in July.

Dubai, one of seven sheikhdoms that make up the United Arab Emirates, said this year it’s seeking to become the capital of the global Islamic economy.

“The announcements that we have seen from the likes of Dubai and the region have really given the product a lot more awareness, particularly among international markets,” Dawood said. “That has led to a whole series of enquiries and interest from countries, from issuers who otherwise would be not so obvious targets for sukuk issuance.”

HSBC has helped manage 110 sales this year, giving it a 17 percent share of the global sukuk market, according to data compiled by Bloomberg. Kuala Lumpur’s CIMB Group Holdings Bhd (CIMB) and Malayan Banking Bhd (MAY), which mainly deal with sales in Malaysia, the largest sukuk market, were the second- and third-biggest, respectively. HSBC was a manager of the 15.2 billion riyals ($4.06 billion) issue of Saudi Arabia’s General Authority of Civil Aviation in September in the biggest sale of such securities this year, according to data compiled by Bloomberg.

“In 2014 you will see continued development toward new instruments,” Dawood said. We are “looking at what is available on the conventional product offering, looking to see how that can be structured for the Islamic market” such as the perpetual sukuk, he said.

Perpetual sukuk, which don’t mature, have grown in popularity since the first such issue in dollars by Abu Dhabi Islamic Bank PJSC in November 2012. Four perpetual sukuk have since been sold in the GCC as companies have used them to shore up capital without hurting their creditworthiness since the instruments are treated as equity on the balance sheet.

(Albawaba Business / 26 Dec 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Virtual, Islamic banking will drive growth: Oracle arm

HYDERABAD, DEC. 28:  

Oracle Financial Services Software Ltd (formerly i-flex Solutions Ltd) feels the emergence of new age banks that rely on technological solutions, the growing base of Islamic banking and demand from the North American banking industry for technology will drive growth for the company.

Chet Kamat, MD and CEO of the Oracle subsidiary, said banks in North America have started to look up. They have begun to focus on investments beyond regulatory and compliance-type schemes and started looking at what they need to do for growth.

“A large US bank signed up with us to implement Flexcube as their international platform. They look at their own markets but they are also looking overseas. So we are seeing traction in North America. We are in talks with chairmen and CEOs of banks in Latin American countries such as Chile, Columbia, Bolivia and Mexico,” he told Business Line.

The growth of Islamic banking around the world too is becoming a big phenomenon, he sad. “It is not just a niche thing. It has got huge scope for technology solutions.”

According to him, Latin America didn't really get impacted in the same way as the rest of the world when it came to the financial services sector. Banks in this region are upgrading technology. “We've had a couple of banks going live with the technology that they signed up for a year or two ago,” he said.

“A large part of Western Europe is facing issues with respect to what I would call an ageing and shrinking population. At the same time they are over-banked, so they are asset-heavy. They have to focus on reducing their cost significantly and do more things through direct and virtual channels,” he said.

The emergence of virtual banks with no physical presence too is on the anvil, and this will drive business for technology solutions companies, according to Kamat.

Citing the example of Jibun Bank Corporation, he said the bank offers the entire lifecycle of services on a mobile phone, including account opening, deposits, payments and card loans.

New banks

He further said the new banks that would start business in India must differentiate in order to be competitive and attract customers from existing banks.

“The emergence of mobility and all of the technologies around that would also drive the business. You start a process on one channel but you want to finish it on another channel. You need technology for this,” he said.

The company’s Flexcube has more than 500 banks as customers in 137 countries around the world. It has 11,000 employees, with the bulk of them based in India and teams in Singapore, in the US, Greece, the UK and Chile.

(Business Line / 28 Dewc 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

11 reasons why Islamic finance is booming

1.Fast and Steady Growth

The Islamic financing industry is growing 50 per cent faster than conventional banking. As of 2011, the global asset value of the Islamic finance industry is estimated to be at US$1 trillion. The figure is expected to reach US$5 trillion over the next five years. Indeed, there is no stopping the fast growth of Islamic banking with Islamic banks setting up shop in countries under the Gulf Cooperation Council (GCC), Malaysia, the UK, and even in Africa along with many other regions.

2.Green Financing Platform

Islamic finance offers the ideal platform to boost ‘green financing’ and promote SRI (social responsibility investment). As syariah rules prohibit participation in businesses involving alcohol, pork, and gambling, Islamic banks only support businesses that adhere to ethical and moral nature values when it comes to investments.

3.Syariah-Compliant Products

Demand for syariah-compliant products continues to rise alongside a growing Muslim population. Muslims predicted to account for more than 25 per cent of the world population in 2013, growing twice as fast as the world’s non-Muslim population. Islamic banks address this group’s need and natural inclination to prefer syariah-compliant financial products.

4.Attracts Even Non-Muslim investors

Even non-Muslim investors see the potential for profit in Islamic banking. Islamic financial products, as a rule, carry lower risk investments while enabling them to earn a profit and—at the same time—diversify their portfolio to further reduce risk.

5.Global Indexing

Western investors can track the Islamic financing industry through international rating systems. When purchasing sukuk or Islamic bonds, they can easily assess the strengths, weaknesses, and risk of the bonds by simply referring to benchmarks that track the financial industry.

6.Oil-Wealthy GCC Adopting Islamic Finance

Countries belonging to the GCC want Syariah-compliant products for investment.

Those belonging to this group are some of the wealthiest countries in the world. As the economies of Europe and the US struggle to stabilise, GCC nations are well-funded and their needs well met by Islamic banks.

7.Streamlined and Simpler

Islamic financial products, though they might also come with their own set of complex rules, are far simpler to understand than their conventional counterparts. For one, they are stricter with contracts and as focused. Islamic financial institutions also have scholars that offer consumers guidance with every venture and proceeding. They follow strict principles that ensure every single transaction is carried out according to Syariah law.

8.‘No Crisis’ Zone

Islamic financing saw a 25 per cent increase in value of assets from 2007 to 2008, while most of the world’s economies battled the worst financial crisis. It is, thus, safe to say that investing in Islamic financing is a possible way to avert potential crises in the world economy.

9.Shared Responsibility

It is not against Islamic laws to accumulate wealth but all investors need to exercise awareness and shared responsibility for poverty in the world. Through the concept of zakat, or giving a portion of wealth to charity, Islamic finance aims to reduce economic disparity across the globe.

10.Thoughtful Decision-Making

Islamic investors avoid choices that cause harm to people and the environment. Through a thoughtful decision-making process, investors are able to make socially responsible choices that encourage investments that are good for the long-term.

11.Malaysia Catching Up

Malaysia’s Islamic assets reached US$65 billion in the financial year 2012/ 2013, reports the Ministry of Finance. National Islamic banking assets registered an average growth rate of 18 per cent to 20 per cent annually to reach US$ 65.6 billion. The government just invested in the development of human resources for the Islamic financing industry so as to ensure it catches up to the industry’s phenomenal growth.

(Borneo Post Online / 29 Dec 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com