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Saturday, 29 November 2014

Pakistan raises $1b through Sukuk

In a second largest single transaction in less than a year, Pakistan has raised $1 billion from international debt markets through the issuance of five-year dollar-denominated Sukuk bonds. This will help Islamabad build foreign currency reserves to the satisfaction of the International Monetary Fund (IMF).
The transaction is expected to restore international investors’ confidence, which was shattered after an unsuccessful attempt to sell stakes in the Oil and Gas Development Company Limited (OGDCL).
The government decided to accept offers of $1 billion for a five-year tenor at a profit rate of 6.75%, which is half percentage points lower than the price at which the five-year Euro bond was sold in April 2014, the finance ministry said on Wednesday.
Unlike the Euro bond that was issued without collateral, the government has pledged the Islamabad-Lahore Motorway to raise funds that helped it keeping the interest rate below the Euro bond transaction when it raised $2 billion. Sukuk is Islamic bond that has to be backed by collateral.
The 6.75% interest rate for $1 billion is 5.17 % over and above the benchmark five-year US Treasury rate. Very low interest rates in Western and European markets amid fears of global slowdown of economies have also increased interest in highly lucrative sovereign papers issued by developing economies.
The government was seeking to raise only $500 million. However, investors showed a very high interest and made subscription of $2.3 billion, which was nearly five times of the target amount, said the ministry.
It decided to raise $1 billion to offset impacts of the failed OGDCL transaction on foreign currency reserves. The successful transaction may revive the investors’ interest in upcoming Habib Bank Limited capital market transaction. The government is hoping to raise $1.2 billion by selling its remaining 42.5% stakes in the HBL.
The IMF has asked Pakistan to increase its official foreign currency reserves to $13 billion by June next year from the present $8.5 billion.
The geographical interest of investors was well distributed with 35% subscriptions coming from Europe, 32% from the Middle East, 20% from North America and 13% from Asia. The order book comprised top quality investors from all parts of the globe, the finance ministry added.
Finance Minister Senator Ishaq Dar said the success of transaction was a reflection of confidence of the international investors’ community in Pakistan’s economic policies. He added that the profit rate of 6.75% compares favourably with the average weighted cost of comparable domestic debt of about 11% in Pakistan, and will save the country about Rs5 billion annually in debt servicing.
The proceeds of the Sukuk will go to the State Bank and the rupee proceeds of an equivalent amount will be used for retirement of domestic debt.
(The Express Tribune / 27 November 2014)
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Moroccan parliament approves Islamic finance legislation

Morocco's parliament gave final approval on Tuesday to an Islamic finance bill that will allow the creation of Islamic banks and enable private firms to issue Islamic debt, lawmakers said.
Morocco has been trying to develop Islamic finance - mainly to attract wealthy Gulf investors - since an Islamist-led government took power in the aftermath of the 2011 Arab Spring protests.
Islamic banks, which ban interest payments and pure monetary speculation, have been growing in the Gulf and Southeast Asia for a decade. Wary of Islamist views, Morocco has long rejected the idea. But the country's financial markets a lack liquidity and foreign investors, and Islamic finance could attract both.
"The bill has been voted by 161 votes and no one was against it," Said Khayroune, the head of parliament's economics and finance committee, told Reuters. The bill will be effective once it is published in Morocco's official bulletin in coming days.
The law will allow foreign banks and local lenders to set up Islamic banks in Morocco. It also contains measures on takaful, which allows the creation of Islamic insurers, and will enable private companies to issue sukuk (Islamic debt).
Major Moroccan banks have been preparing to open Islamic offshoots since the legislative process began. Foreign lenders have been also testing the waters.
Gulf banks from Kuwait, Bahrain and the United Arab Emirates have expressed interest in entering the market when the bill becomes law.
But sources have told Reuters Morocco may guide them towards partnering with local banks rather than establishing fully owned Islamic subsidiaries.
Morocco's BMCE Bank is preparing to open an Islamic subsidiary as a joint venture with a major Islamic financial institution from the Middle East, the bank's managing director has said.
Other Moroccan banks, including Attijariwafa Bank and Banque Centrale Poulaire, are believed to be in talks with foreign Islamic lenders.
But a Thomson Reuters study of Morocco, released earlier this year, estimated Islamic banks might account for 3 to 5 percent of total banking assets by 2018, or about $5.2 billion to $8.6 billion - far below the roughly a quarter in the developed markets of the Gulf.

The Moroccan market remains highly competitive, and bankers believe banking would expand by only a few percentage points, since Islamic finance is more expensive than conventional banking.
(Reuters / 25 November 2014)
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