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Saturday, 26 July 2014

Luxembourg Sukuk Bill Adopted

On 9 July 2014, the Luxembourg Parliament has adopted the bill of law 6631 on the sale and buy back of real estate assets compulsory for the issuance of a sovereign Sukuk in an amount of Euro 200 million.

To this end, a Luxembourg SPV will be created and will be fully owned by the Luxembourg State. Such SPV will purchase three main buildings located in Luxembourg and will benefit from a guarantee from the Luxembourg State.

The SPV will issue Sukuk and lease back to the Luxembourg government the underlying real estate assets for a duration of 5 years corresponding to the duration of the Sukuk. The rental income to be received by the SPV, equivalent to the periodic amount to be paid to the Sukuk holders, will be used for such purpose in compliance with Sharia.

The enactment of such law by the Luxembourg legislator demonstrates a strong and clear political will to diversify and develop alternative markets such as Islamic Finance within the financial services industry in the Grand-Duchy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

(Mondaq / 24 July 2014)
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Islamic financing to overtake conventional banking in Kuwait Finance House (KFH)

An increasing number of Kuwaiti lenders are moving away from traditional banking in a bid to tap into a booming market for Sharia-compliant financial products in the region -- a move that could soon see Islamic financing overtake conventional banking in the Gulf state.
Commercial Bank of Kuwait (CBK) is the latest to unveil plans to turn into a fully-fledged Islamic institution. CBK announced in July that it had received regulatory approval to issue up to KD120m ($425.16m) in bonds in preparation for the transition, which received the approval of 85% of its shareholders in April. The move by CBK, to be completed by the end of 2014, will help Kuwait cement its position as a provider of Sharia-compliant products and services. There are already five other Kuwaiti Islamic banks; Kuwait Finance House ( KFH ), Boubyan Bank, Al Ahli United Bank, Kuwait International Bank, and Warba Bank, which was established in 2010. This compares with four conventional banks.Kuwait's Islamic banking assets grew by 8.7% during the first nine months of 2013, reaching KD22.5bn ($79.7bn), while Islamic financing grew by 11.2% to hit KD13.5bn ($47.8bn) during the same period, reported in The Banker in April. This exceeded the growth rates in the overall banking sector, which saw a 7.1% growth in assets and a 7.5% growth in loans between January and September. 

This move toward Islamic banking follows a broader regional and indeed global trend. Islamic finance industry's assets worldwide are estimated to have grown 18.6% annually to reach $1.8trn at the end of 2013, according to KFH Research, which projects that total Islamic financial assets will reach $2.1trn globally by 2015. The Sharia compliant sector has expanded rapidly within Southeast Asia and the Gulf Cooperation Council (GCC), whose assets accounts for more than a third of the worldwide total according to KFH . Other banks in this region are also looking to make the switch to Islamic banking. Malaysia's Agro Bank plans to convert to Islamic banking by 2015 while the country's SME Bank is planning a full conversion by 2018 according to Reuters. In Pakistan, Faysal Bank and Summit Bank are mulling similar plans. 

LargestIn Kuwait, the sector's history goes back to 1977 with the establishment of KFH Group, Kuwait's largest Islamic bank. For the last three years to end-2013, KFH total assets grew at a compounded annual growth (CAGR) rate of 8.8% to reach KD16.1bn ($57.2bn).CBK, the state's fifth-largest lender by assets, is following in the footsteps of both Boubyan Bank and Ahli United Bank (AUB) Kuwait in converting from a conventional lender, drawn by the sector's rapidly rising popularity and promising outlook for growth, which continues to outpace that of conventional lenders. According to Reuters, CBK's conversion will increase Islamic banks' market share in Kuwait above an estimated 40%. AUB Kuwait, (formerly known as the Bank of Kuwait and the Middle East) posted a record $579.4m in net profit in 2013, a 72.6% increase over 2012's $335.7m, which Deputy CEO Ahmed Zulficar attributed to the switch to Islamic Banking: "Since the bank's conversion to Islamic banking, our performance has improved". 

(Zawya / 24 July 2014)
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