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Monday, 14 April 2014

Post-election Turkey bond rally revives sukuk market

The post-election rally in Turkish bonds is drawing companies back to sukuk issuance after an 11-month absence. Following almost a year of market turmoil, it is going to cost them more.

Turkiye Finans Katilim Bankasi, the nation’s most profitable Islamic lender, hired banks to arrange investor meetings before the planned sale of dollar-denominated Islamic debt, two people familiar with the matter said on Wednesday. The yield on the company’s sukuk due May 2018 dropped 45 basis points since Prime Minister Recep Tayyip Erdogan’s victory at March 30 local elections. It remains more than 60 basis points higher since it was sold on April 24 last year.

“The timing of the new sukuk is linked to the outcome of the municipal election,” Apostolos Bantis, a credit analyst at Commerzbank AG in London, said in e-mailed comments on Wednesday. “Borrowing costs are not going to be below the pre-May 2013 levels. Issuers, although initially reluctant to accept higher yields, will have to compromise.”

Turkish assets, battered since May when anti-government protests erupted in Istanbul, are bouncing back after a corruption scandal targeting Erdogan became public in December, prompting foreign investors to dump $2.8bn of the nation’s debt in the first quarter. Demand at a sale of 2023 government Eurobonds on April 8 was six times that offered. The lira has strengthened 13% since touching a record-low of 2.39 per dollar on January 27.
The bank plans to sell $500mn of five-year dollar debt, executive vice president Ali Guney said in a phone interview from Istanbul on Wednesday.

“We had thought that if there was a positive mood post-local elections and a recovery in risk perception, we’d go to the market and that scenario came true,” Guney said. “We are expecting high demand.”

Turkiye Finans, which is 66% owned by Jeddah-based National Commercial Bank, raised $500mn last April, paying a rate of 3.95% on the five-year Islamic debt. It received $1.9bn in bids for the sale.

Turkish two-year government notes yielded 10.06%, down from 10.79% on March 28, the biggest drop among 21 emerging markets tracked by Bloomberg. The lira sank 1% on Wednesday to 2.1174 per dollar.

Turkiye Finans posted 237mn liras ($112mn) profit in the third quarter last year, the highest among four Islamic lenders in the nation, according to data published on the Participation Banks Association of Turkey’s website.
Turkish markets plunged on December 17, when the graft probe targeting the government became public. Erdogan responded by purging the police force and judiciary, accusing the opposition of treason and blocking access to Twitter and YouTube. The death of a 15 year-old protester on March 11 set off the largest anti- government rallies since Turks took to the streets in May to protest the redevelopment of Istanbul’s Gezi Park.
“I am struggling to think of any positive developments over the past year,” Doug Bitcon, a Dubai-based fund manager at Rasmala Investment Bank Ltd, said by e-mail on Wednesday. “Political risk is higher. Interest rates are higher, which will lead to a slowdown in growth, and one would expect higher non-performing loans in the financial sector.”

Islamic bond sales fell to $10.4bn in the first three months of the year, the poorest first-quarter performance since 2011, as slower growth in China cast doubt on the global economic recovery and crises from Turkey to Ukraine roiled developing-nation assets.

Damac Real Estate Development sold $650mn of five-year notes on April 2 at a profit rate of 4.97%. Saudi Electricity Co issued $2.5bn of sukuk on April 1 paying 4% on 10-year securities and 5.5% on 30- year bonds.
“The market is facing a dearth of sukuk issuance after a lull in the first quarter, especially a sovereign investment- grade issue,” Asad Khan, head of commodity and fixed-income asset management at Al Rajhi Capital in Riyadh, said by e-mail on Wednesday. Turkiye Finans “is an affiliate of a strong Saudi bank. We will see good demand for this issue,” he said.

(Gulf Times / 12 April 2014)
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Dubai Seeks to Become Islamic Economic Hub

DUBAI — Mareyah Mohammad Ahmad, a United Arab Emirates student in Dubai, says she plans to start a master’s degree in Islamic finance and banking this fall, following a Dubai government decree published in December that set up a new body for the industry, the Dubai Islamic Economy Development Center.
As part of the emirate’s goal of becoming the global hub of the Islamic economy, the center will provide legal and other services for the Islamic financial industry, including auditing services and an arbitration platform for conflict resolution.
Islamic, Shariah-compliant, finance is growing in both scale and sophistication but there is a catch: Experts say there is a shortage of qualified people to work in the field.
“There aren’t a lot of Emiratis specialized academically in this field, and I had always had an interest in how it works differently from conventional finance,” said Ms. Ahmed, who is studying finance at the British University in Dubai. “I made sure to get work experience in Islamic finance, too, and now if it becomes the capital of the Islamic economy, I should be able to get a good position.”
While general finance degrees and courses are easy to find in the United Arab Emirates, Islamic finance studies have remained limited, even for dedicated students like Ms. Ahmad, hindering efforts by the Gulf state to challenge the established market leaders, Kuala Lumpur and London.
At stake is a substantial and growing volume of potential business. According to a recent report by the ratings agency Standard & Poor’s, issuance of sukuk, or Islamic bonds, is projected to exceed $100 billion worldwide in 2014. That is about the same level as last year, but within that total, double-digit percentage growth is expected in issues by Gulf borrowers, to finance heavy infrastructure spending in the region.
Following the December decree, higher education institutions in Dubai are strengthening their programs in Islamic finance. New offerings include the master’s course that Ms. Ahmad hopes to join, at the British University.
Total Islamic financial assets are growing 17 percent per year and are set to reach a value of $2.67 trillion in 2017, according to Pricewaterhouse Coopers. A recent analysis by Tahseen Consulting, which advises on strategic and organizational issues in the Arab world, forecasts that employment in Islamic financial services in the Emirates will double, to 20,000, in 2015, from 10,000 now.
As the industry has evolved, academia has tried to keep up by offering relevant training. According to a report issued late last year by Thomson Reuters and ICD, the Islamic Corporation for the Development of the Private Sector, more than 530 institutions worldwide now offer courses or degrees in Islamic finance. The U.A.E., in third place behind Britain and Malaysia, has 31 course providers and 9 fully accredited degree providers.
But the jointly produced Islamic Finance Development Report, based on a survey of 60 banks in 15 countries, said that half had reported difficulties in hiring suitably skilled graduates for entry-level positions.
The Emirates has “a long way to go when it comes to quality teachers, diversity and number of programs offered and curricula,” said Abdullah Alshamsi, a business professor at the British University in Dubai. “It’s not all up to academia,” he added. “We have to work together with banks and lawyers and other stakeholders to address the shortage of skills.”
Dubai International Academic City is a free zone for international university campuses. Established in 2007, it has 21 campuses with 20,000 students in over 400 programs. But Ayoub Kazim, its managing director, said, “Historically, the focus on training and education in such a specialized industry has been pretty limited.”
“We are working on that,” the director said, “as we bring together industry experts, government officials and leading academics to identify the existing and emerging skills gaps within the Islamic finance sector.”
Within the banking industry, some institutions are developing their intern programs to provide more hands-on training for students to get practical experience. Emirates Islamic, for example, which has run a summer program for the past five years, expanded it this year to 20 interns from 12.
Still, more is needed. “Employers must dedicate themselves to providing genuine on-the-job training,” said Rashid Mahboob, senior vice president at Dubai Islamic Bank. “We need to work together with academia to nurture the human capital needed to meet the sector’s expected growth.”
Muneer Khan, a partner at the law firm Simmons and Simmons Middle East, who specializes in Islamic finance in London and Dubai, said, “What Dubai recognizes is that the local population is relatively small and the corporate community is not huge, so they want to be able to cater to a wider community as Islamic finance grows in popularity regionally and internationally.”
“Dubai wants to position itself in a way so that the expertise in terms of bankers and lawyers are available here to structure products anywhere in the world,” he added.
Over the past five years, Mr. Khan says, he has received resumés from hundreds of students worldwide who want to join the firm’s Islamic finance team: but while many had academic qualifications, most lacked work experience, he said.
In Britain, there are agreements under which leading law firms pay school fees for a student’s final year after an internship, which allows for synergy between industry and academia. Not so in Dubai, he said: When his firm takes on interns in Dubai, they lack essential skills because academic programs have failed to keep up with the industry.
“If banks, which are the largest potential Islamic finance employers, are saying to universities that students aren’t ready for business, they need to work directly with them to provide the right skills,” Mr. Khan said.
“If this isn’t resolved in the next few years, there will be a really serious problem in the marketplace.”
(New York Times / 13 April 2014)
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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

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