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Friday, 12 September 2014

Turkey’s Aktif Bank gets approval for $91m in sukuk

Turkey's largest privately owned investment bank, has received regulatory approval to issue 200 million lira ($91 million) in Islamic bonds, the Capital Markets Board said.
The lender will sell the sukuk to qualified investors through its asset leasing company, Aktif Bank Sukuk Varlk Kiralama. It gave no time frame for the deal.
The emergence of corporate sukuk in Turkey is seen as a litmus test for efforts to develop Islamic finance by the government, which issued a maiden $1.5 billion sovereign sukuk in 2012 to encourage the industry's development.
The global sukuk market is growing fast, with year-to-date issuance up 16.3 percent from last year at $88.9 billion, according to Zawya, a Thomson Reuters company.
But the market remains reliant on sovereign and quasi-sovereign issuers, which represent a combined 77 percent of the total. Most corporate sukuk come from Malaysia, so issuers from Turkey could help deepen the market.
Last month, Turkish conglomerate Dogus Group received regulatory approval to raise $370 million via sukuk in what would be the first dollar-denominated corporate transaction of the kind in the country.
Until now, Turkey has only seen significant issuance of sukuk from the government and the country's four Islamic banks, known as participation banks.
Last year, Aktif Bank helped raise a small one-year 100 million lira sukuk for construction-to-energy firm Agaoglu Group using a sukuk structure known as mudaraba. 
The Capital Markets Board has outlined new regulations to allow a wider range of sukuk structures, as the initial rules focused on ijara, an Islamic sale-and-lease-back contract.
Ijara requires the issuer to have income from a leased asset such as real estate, a limiting factor for many companies.
(Al-Arabiya News / 12 September 2014)
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GCC gross takaful contribution seen reaching $8.9bn in 2014

GCC gross takaful contribution is estimated to reach around $8.9bn in 2014 from an estimated $7.9bn in 2013, according to EY’s latest report, ‘Global takaful insights 2014’.

The report forecasts a continued double-digit growth momentum in the global takaful market of approximately 14% from 2013 to 2016 and expects the industry to reach $20bn by 2017. This is against a backdrop of continued buoyancy in the estimated $2tn global Islamic finance markets.

The Gulf Co-operation Council (GCC) countries and Association of Southeast Asian Nations (Asean) markets are likely to maintain their current growth path in the next five years, subject to their economic growth.

The global takaful industry continues to gain market share across several high-value, rapid-growth markets, which still show significant untapped potential. Within the Gulf region, Saudi Arabia accounts for the majority of the total gross takaful contribution at 77%, followed by UAE, which accounts for 15%. The rest of the Gulf countries account for just 8% of gross takaful contributions, the report said.

Saudi Arabia will likely remain the core market of Islamic insurance business, commanding approximately half (48%) of the global contributions, while UAE, Qatar and more recently, Oman, continue to set the pace for the development of takaful products in the Middle East and West Asian markets.

Turkey and Oman are new entrants to the takaful industry, offering strong first mover advantage to takaful operators, whereas established takaful markets in Africa like Sudan, offer great prospects for efficient replication across new African markets endorsing Islamic finance.

Abid Shakeel, senior director, EY’s Global Islamic Banking Centre said, “The continued strong growth of the much larger Islamic banking sector will help sustain the progress of the takaful industry. The rapid-growth markets, particularly UAE, Malaysia and Indonesia, are key markets to watch as they improve on market practices, widen distribution channels and strengthen the regulatory front. The low insurance penetration rates, on average just 2%, across key Muslim rapid-growth markets signify a huge opportunity and growth potential for takaful products, particularly in the areas of family takaful and medical insurance.”

Given the strong underlying market opportunities, a competitive market environment and strategic regulatory reforms, it is vital that the takaful industry addresses key challenges to achieve a sustainable takaful ecosystem.

Among the GCC countries, competition, operational issues and the lack of qualified talent continue to be impediments. Profitability of takaful companies has been threatened not just by undifferentiated strategies but also by the lack of uniform regulations that will allow them to operate across different models. Undifferentiated business strategies mean most takaful operators are competing intensely and this is likely to squeeze out the under-performers.

With strong competition from conventional incumbents, takaful operators are likely to continue their struggle in the medium term, although some will look at alternative customer segments and explore merger options. In striving for scale and profitability, operators are looking at structural transformation around risk, pricing and cost efficiencies.
The industry needs to re-examine its strategies, operations and regulations in order to gear itself up for further growth and a sustainable ecosystem. Success needs to be measured in profit, not market share and those who continue to do what they’ve been doing in the past will struggle with profitability, the report said.

Sukuk issuance likely to rise over next few years: S&P
Corporate and infrastructure sukuk issuance is likely to rise over the next few years, despite the dip in issues over the past eight months compared to the same period of 2013, Standard & Poor’s Ratings Services has said in a report.

In its report “Why corporate and infrastructure sukuk issuance is declining, despite healthy prospects” S&P said issuance has trended downward this year in the Gulf Co-operation Council (GCC) region and Malaysia, dropping 33% and 7%, respectively.

By contrast, total sukuk issuance (including financial institutions and sovereigns) grew by 19% in the GCC and by 6% in Malaysia over the same period.

“We attribute the decline in corporate and infrastructure sukuk in large part to cheap and ample bank liquidity, which has made issuers less reliant on the capital markets,” said S&P’s credit analyst Karim Nassif. “The overall small pool of sukuk issuers, and seasonal factors such as the early Ramadan this year, have also played a role.

“We nevertheless believe corporate and infrastructure sukuk issuance will increase again over the next few years as companies’ refinancing needs grow and as entities establish themselves as sukuk issuers.”

The report says corporate and infrastructure issuance is likely to remain more volatile and difficult to predict than total sukuk issuance. It will likely remain largely a function of the specific needs of the corporate and infrastructure entities that comprise the pool of sukuk issuers in the GCC and Malaysia.

Continued high levels of bank liquidity and uncertainty among investors about compliance standards continue to hold back growth of the corporate and infrastructure sukuk market, the report said.

“The creation of local or regional institutional investment frameworks-for example, to enable pension or insurance funds to invest in sukuk-would go some way, we believe, toward creating a deeper and more liquid sukuk market,” Nassif added.

(Gulf Times / 09 September / 2014)
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