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Wednesday, 9 July 2014

Moody’s Shows Sharjah Coming of Age With Sukuk: Islamic Finance

As Dubai works toward its ambition of becoming the global capital of the burgeoning Islamic economy within three years, neighboring emirate Sharjah is also getting bigger in Shariah finance.
The third-biggest sheikhdom in the United Arab Emirates has approached banks about a debut sukuk sale, according to two people with knowledge of the matter, who asked not to be identified because the information is private. Moody’s Investors Service last week gave state-backed Sharjah Islamic Bank PJSC an A3 rating, one step above Dubai’s flagship Shariah-compliant lender, citing its strong capital buffers.
Banking assets that adhere to Islamic regulations are set to double to $3.4 trillion by 2018 from last year as investors seeking vehicles that meet the religion’s ban on interest pour in cash, according to Ernst & Young LLP estimates. While Moody’s said that Sharjah’s economic growth this year is expected to be 0.5 percent, a 10th of Dubai’s, the ratings company also pointed to the government’s low levels of debt and strong finances.
“Sharjah is making progress growing in the Islamic industry, and SIB is leading the way,” Rizwan H Kanji, a Dubai-based partner at law firm King & Spalding LLP, said by phone yesterday. “They’re looking to diversify the economy, and are doing it in the right way by focusing on an active and growing pool of funding in the Islamic space.”

‘Development Ambitions’

The emirate, which hasn’t yet sold debt, received an A3 rating from Moody’s in January, four levels from junk. SIB, about 30 percent of which is owned by the government, has two outstanding notes. The yield on its $500 million issue due April 2018 has dropped 98 basis points this year to 2.52 percent, according to data compiled by Bloomberg.
Sharjah is the Organization of Islamic Cooperation’s capital of Islamic Culture for 2014, which recognizes the emirate for preserving and promoting the religion in arts, sciences and education. The city has also hosted a summit on the future of trade in the Muslim world, a symposium on Islamic banking and finance, and a private sector meeting for OIC members on advancing trade this year.
The Sharjah Media Centre didn’t respond to a call and e-mail seeking comment on its potential sukuk plan. A spokesman for SIB didn’t respond to two calls.

International Stage

“As Sharjah and SIB grow and become more active on the international stage, the rating becomes more important among institutions that don’t know them,” Khalid Howladar, Dubai-based global head of Islamic Finance at Moody’s, said by phone yesterday. “They have their own development ambitions. Raising external finance will be part of those efforts and that’s where the rating will come in.”
Sharjah’s economy is well-diversified, with strong manufacturing and a more affordable cost of conducting business than in Dubai or Abu Dhabi, according to Moody’s. Total assets at SIB grew about 19 percent in 2013 compared with 13 percent average growth for U.A.E. lenders, the ratings company said.
Growth in Islamic finance has also helped drive sukuk yields to near historic lows. The average yield of Islamic bonds in the Middle East fell 45 basis points to 4.19 percent this year through July 7, according to JPMorgan Chase & Co. indexes. That compares with a 33 basis-point drop to 4.08 percent for the yield on conventional bonds in the region.

‘Islamic Drive’

Sharjah has been overshadowed by economic activities in Dubai and Abu Dhabi, according to Howladar. The economy of Dubai may expand 4.7 percent this year, according to government forecasts.
The emirate’s ruler, Sheikh Mohammed Bin Rashid Al Maktoum, set a three-year timetable in October to become the capital of the Islamic economy, seeking to overtake hubs such as Malaysia. Dubai Islamic Bank PJSC, the world’s oldest Shariah-compliant lender, is rated Baa1 at Moody’s.
“Dubai is not the competition,” Kanji said. “Sharjah will benefit from that Islamic drive. It’s riding the wave of Dubai in an upturn.”
(Bloomberg / 09 July 2014)
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Emirates NBD No.1 in dollar sukuk issues worldwide

Emirates NBD said on Monday that its investment bank was ranked as the leading arranger of US dollar sukuk globally in the first six months of 2014.

Emirates NBD Investment Bank arranged 10 US dollar sukuk issuances aggregating to $5.4 billion, which is the highest number of dollar sukuk issuances led by any arranger during first half of this year.

Shaikh Ahmed bin Saeed Al Maktoum, Chairman of Emirates NBD, attributed this landmark achievement to the vision of His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, to establish Dubai as the capital of Islamic Economy, and said Emirates NBD Investment Bank’s milestone achievement would take Dubai one step closer to its vision of becoming the world capital of the Islamic economy.

“Emirates NBD is proud to have made this small contribution towards the accomplishment of this vision,” he said.

Shaikh Ahmed — who is also President of the Dubai Civil Aviation Authority, Chairman of Emirates airline and Chief Executive of the Emirates Group — congratulated the board and management of the Emirates NBD Group for continuing to set benchmarks for excellence, and wished them the best in surpassing such achievements in the future. He also thanked Emirates NBD customers for being a constant source of inspiration behind the bank’s achievements.

Shayne Nelson, group chief executive officer of Emirates NBD, said the achievement confirmed Dubai’s potential to further establish its standing as a global hub for Islamic finance, and underpins its capabilities in offering superior Islamic finance solutions.

“This achievement also reflects the bank’s focus in not only promoting Dubai’s status as a leading financial hub, but also aligning with Dubai’s Islamic hub strategy.”

“I would like to take this opportunity to recognise the efforts of the Emirates NBD Investment Banking team led by Mohammad Kamran Wajid, CEO of Emirates NBD Capital, and thank them for their valuable contributions towards achieving this success.”

The “Dubai – Capital of Islamic Economy” initiative, launched in 2013, seeks to place the emirate on the international economic map in three years as the global destination of choice that provides Islamic products, finance and services as well as raising the standards for the management and quality of this sector to new levels.

Since the launch of the drive, the UAE’s sukuk market has become increasingly vibrant with new issues hitting the market.

Spurring this upswing is a change of rule by the UAE stock market regulator will now allow smaller firms to tap Islamic capital markets through smaller-sized sukuk issues.

The new rules for Islamic and corporate bonds also seek to encourage trading in them and make it easier for foreign institutions to operate. The rules ease requirements in some areas. The minimum size of a sukuk listing is now Dh10 million, down from Dh50 million previously.

The aggregate primary issuance of bonds and Sukuk in the GCC totalled $97.7 billion in 2013, a 14.5 per cent increase from the total amount raised in 2012. A total of $51.5billion was raised by the GCC central banks of Kuwait, Bahrain, Qatar, and Oman during 2013, according to the Kuwait Financial Centre.

(Khaleej Times / 08 July 2014)
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