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Monday, 21 April 2014

Sukuk market dominated by local issuers

Dubai:Sukuk markets across the world operates as a collection of local markets as truly global issuance are relatively low according to data from Standard & Poor’s (S&P).
Over the past 10 years, local sukuk issuance in Malaysia and the countries in the Gulf Cooperation Council (GCC) region have helped fuel impressive growth in domestic sukuk issuance.
But out of the $117 billion in sukuk issued in 2013, only 16 per cent was truly international — that is, listed on major exchanges and generally issued in hard currencies.
“Most international issuances to date have originated in Malaysia or the GCC. Since 2001, S&P has seen only about 20 international sukuk from issuers domiciled outside these countries, for a total amount of around $10 billion,” said Mohammad Damak, an analyst with S&P.
Most international sukuk are listed on one or more of the international exchanges such as Irish Stock Exchange, Nasdaq Dubai, Singapore Stock Exchange, Bursa Malaysia, London Stock Exchange. If a sukuk is listed on a local/regional stock exchange, Standard & Poor’s Ratings Services classifies it as international if it is issued in foreign currency.
More than 40 per cent of worldwide issuance in 2013 was short-term sukuk issued in ringgit by just one issuer — the Central Bank of Malaysia. Most international issuances to date have originated from Malaysia or the GCC.
Despite the relatively low number of international sukuk issues interest from issuers outside these traditional markets has increased, chiefly because Sharia-compliance attracts deep-pocketed Middle Eastern and Asian investors.
“We understand that about half of sukuk investors invest in such instruments for religious reasons. We also estimate that about 60 per cent of investors in sukuk issued by entities domiciled outside the GCC and Malaysia were from the Middle East and Asia,” Damak said.
Data shows that in the case of sukuk issues from entities domiciled outside the GCC and Malaysia, a high proportion of investors for such international sukuk came from the Middle East and Asia. Of these investors 36 per cent were from the Middle East and 22 per cent from Asia. The remaining investors were mainly from Europe (16.8 per cent) or the US (12.3 per cent).
Sukuk are generally more expensive to issue than conventional bonds because they are priced at a premium. However, this premium does not seem to have acted as a serious brake on market development. In addition, the costs attached to structuring sukuk seem to us to be of secondary importance to large issuers.
We understand that a few issuers, particularly in the corporate or project finance space in the Gulf, have recently raised sukuk at a cost below that required to issue comparable conventional bonds. In our view, the reduced cost was underpinned by very strong demand for sukuk in a region where the amount issued remains small.
Yields on sukuk and conventional bonds with similar characteristics remain very strongly correlated, as shown by the synchronised moves of the yields on S&P Dow Jones Mena bonds and sukuk indices.
(Gulf News.Com / 20 April 2014)
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BSP in talks with Malaysia counterpart to craft Islamic banking framework for Philippines

Malaysia, home to the one of the world’s largest Muslim populations, has expressed interest in helping develop the Islamic banking industry in the Philippines, the Department of Finance said Sunday.

Finance Undersecretary Jose Emmanuel Reverente said the Bangko Sentral ng Pilipinas has been holding talks with Bank Negara, Malaysia’s central bank, regarding the creation of a framework for Islamic banking in the country.

"There has been strong interest from Malaysia in terms of assisting us develop a strong Islamic banking framework… We are working closely with them," he said.

In a forum held last March, BSP Governor Amando Tetangco Jr. lamented the scarcity of Islamic banks in the Philippines, particularly in the Autonomous Region in Muslim Mindanao (ARMM), despite the vast business opportunities available in the region.

At present, only 20 banks operate across five provinces in ARMM, with Al-Amanah bank being the only Islamic financial institution. The bank is a subsidiary of the Development Bank of the Philippines.

Malaysia, meanwhile, has 16 Islamic banks.

Reverente said the growth of Islamic banking industry in the Philippines has been stunted by the absence of a framework to guide the creation of laws that recognize the particular manner by which Muslims transact and do business.

Under traditional Islamic banking, loans to clients or customers must not carry interests. Because of this condition, Islamic banks in the Philippines serve more as an equity partner than a deposit-taking and lending institution, Reverente said.

This, in turn, puts the banks at a disadvantage when it comes to fulfilling tax obligations, he said.

The government earlier said it hopes to develop a market for the Islamic banking industry in preparation for the ASEAN economic integration in 2015.

(GMA News Online / 20 April 2014)
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