Saudi’s Al Rajhi Capital to launch first sukuk fund

Riyadh: The investment banking arm of Saudi Arabia’s Al Rajhi Bank has received regulatory approval for its first mutual fund that will invest in sukuk (Islamic bonds), as demand for sharia-compliant debt rises in the Gulf’s largest economy.

Al Rajhi is the country’s biggest listed lender and the world’s largest Islamic bank, but it has been slower than some of its peers to embrace the sukuk market. It has never raised money through a sukuk issue itself.

A spokesman at Al Rajhi Capital could not be reached for comment but a source at the firm said the fund, in the pipeline since 2012, had been prompted by a growing number of client inquiries about investing in sukuk.

In January, the firm said it planned to expand its business primarily by underwriting, arranging and investing in sukuk.

Saudi Arabia is the second largest market for Islamic mutual funds with 167, behind only Malaysia, but only five of those funds are dedicated purely to sukuk, stock exchange data shows.

This is because in the past, there has been a lack of domestically available sukuk to feed such funds, and because of the conservative nature of some of the kingdom’s sharia scholars. A number of scholars view trading in sukuk as outright trading of debt, which is banned by Islamic principles.

But over the past two years, issuance of sukuk in Saudi Arabia has ballooned because of increased liquidity, comparatively low borrowing costs and firms’ desire to diversify their funding sources beyond bank loans.

Sukuk issuance in Saudi Arabia rose to the equivalent of $15.2 billion through 20 deals last year, compared to $11.2 billion through 18 deals in 2012, according to data from Zawya, a Thomson Reuters company. Year-to-date, there have been nine sukuk issued worth $8.5 billion.

Some Islamic banks have themselves issued sukuk. This month, Saudi Investment Bank completed a 2 billion riyal ($533 million) capital-boosting sukuk issue, while Banque Saudi Fransi

did a similar deal. National Commercial Bank sold a 5 billion riyal sukuk in February.

(Gulfnews.Com / 19 June 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

Kazakhstan eyes ‘unified’ Islamic banking law next year

Kazakhstan will start drafting a new Islamic banking law that could help the industry develop in the former Soviet state, after a five-year-old set of rules failed to stimulate activity.

Fresh legislation would allow Islamic finance to develop better under the secular regulatory regime of the predominantly Muslim country, said Yerlan Baidaulet, the Kazakhstan member of the board of executive directors at the Saudi Arabia-based Islamic Development Bank.

"A new unified law being developed would aim to avoid any complicated Arabic terms. Instead it will focus on a certain set of financial instruments, on a clear tax regime, the actual structures and mechanisms the industry has to offer."

Drafting could take between four and six months and the proposed legislation may be presented to the government by the middle of next year, said Baidaulet, who also advises the Kazakh Ministry of Industry and New Technologies. The drafting is being funded by a grant from the IDB.

Kazakhstan was the first former Soviet country to introduce Islamic finance rules in 2009, but the industry remains embryonic with total assets of less than $200 million at the end of 2013, a report by rating agency Standard & Poor's said.

The new law is to include provisions to facilitate conversion of conventional banks to sharia-compliant ones, a key element in a country with only one full-fledged Islamic bank, Abu Dhabi-based Al Hilal Bank, which opened its doors in 2010.

In May last year, the private investment arm of the IDB said it planned to invest up to 35 percent of the subscribed and paid-up capital of Zaman Bank to convert it into the country's second Islamic bank, but there is no time frame for those plans.

The rigidity of the existing law means conventional banks would have to shut down and then reapply for licenses to convert their operations, a process that could take up to three years, said Baidaulet.

"The existing law is just a declarative act. Why should we compromise on a dead law that of course is not effective?"

Currently, Islamic banks are categorized on a par with other commercial banks, known as Tier 2 banks, but the current law does not extend to them all the tax privileges that conventional banks have, he added.

"We are not asking for offshore tax or any tax exemptions, we just want to equalize legally all rights and privileges among all other Tier 2 banks to compete on the same and fair basis.

(Al-Arabiya News Asia / 19 June 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