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Friday, 5 December 2014

Malaysia Airports prices RM1bil sukuk at 5.75%

KUALA LUMPUR: Malaysia Airports Holdings Bhd's 1 billion ringgit ($290 million) issuance of Islamic bonds has been priced at an annual rate of 5.75 percent, the airport operator said on Thursday.

Funds from the subordinated perpetual sukuk programme, established in September, will be used to fund working capital, the refinancing of debt and other general investments, MAHB said in a stock exchange filing.

MAHB earlier told Reuters that the company will raise 1 billion ringgit in sukuk, as costs for the Kuala Lumpur International Airport 2 terminal had risen to 4 billion ringgit from 3.1 billion ringgit after numerous delays.

CIMB Group Holdings Bhd, HSBC Amanah Malaysia, Citigroup and Maybank are the joint bookrunners and lead managers for the sukuk musharaka, which has been rated AA2 by Kuala Lumpur-based RAM Ratings.

(The Star Online / 05 December 2014)
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Low profit, weak standards hamper Islamic banks

The Islamic banking industry is being hampered by low profits and "mediocre" customer satisfaction despite impressive growth, officials and executives said at a financial conference in Bahrain.

The sector, which provides banking services compliant with Islamic sharia law, has doubled in size over the past four years and is now worth more than $2 trillion (1.6 trillion euros).

But a study by EY (formerly Ernst & Young) released at the World Islamic Banking Conference in Bahrain this week found that Islamic banks run at significantly lower profit margins than their conventional peers.

The study, conducted on Islamic banks in nine countries including Saudi Arabia, Malaysia and Kuwait, found that their return on equity was 19 percent lower than traditional banks in the same markets.

This could cost shareholders billions of dollars in forgone profit, it said.

It also analysed the views expressed on social media by 2.25 million Islamic bank customers and found many unsatisfied with the service they had received.

"Results show that for many banks... customer satisfaction is, at best, mediocre," EY said, attributing discontent to poor performance and a lack of use of technology.

Islamic finance is based on shared profit and loss, which minimises risk for banks. The system forbids charging interest -- banned as usury in Islam -- and avoids dealing in debt and derivatives.

To meet an ever-increasing demand, the sector has developed numerous products compliant with sharia law, from loans for cars and houses to funding major infrastructure projects.
Jaseem Ahmed, secretary general of the Malaysia-based Islamic Financial Services Board (IFSB), the leading regulatory body for Islamic banking, believes low profits in the sector are down to a lack of sharia-compliant investment opportunities.

"In Islamic banks, liquidity is primarily held in cash and reserves, which affects their profitability. Cash does not earn you returns. For Islamic banks, the options for investments are limited," Ahmed told AFP.

Bahrain's central bank governor Rasheed al-Maraj called on Islamic banks to take a "giant stride" as they become more exposed to global markets.

"It is time for us to reflect on where we are and where we intend to go," Maraj told the two-day conference.

Maraj said Islamic banks needed among other reforms to improve their regulation, risk management and standardisation.

Although Islamic regulatory bodies have established a number of standards, different interpretations of religious texts and weak implementation mean they remain far from industry-wide.

Hamed Merah, secretary general of the Accounting and Auditing Organisation for Islamic Financial Institutions -- a major sector regulator -- said standards should be mandatory.

"If regulators make these standards compulsory, it will help the industry immensely," Merah said.

But Sheikh Essam Ishaq, a religious scholar on Islamic finance, said sector-wide regulation was difficult "because the understanding of Islam and its interpretation is different".

Around 40 million of the world's 1.6 billion Muslims are now clients of the Islamic finance industry, which has surged in popularity since its days as a small niche market in the early 1970s. But it continues to represent less than two percent of the global banking assets of $140 trillion, according to EY.

(The Daily Star / 05 December 2014)
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Sukuk for vaccine fund ushers Islamic finance into ethical sphere

The latest entrant into Islamic finance is leading the industry in the new direction of socially responsible investment - which could even include the fight against Ebola.
Last week an immunisation programme secured a $500 million issuance of Islamic bonds, or sukuk, in the largest debut issue ever by a global non-profit organisation, under a broader trend to use bond markets to fund development and humanitarian projects.
The sukuk from the International Finance Facility for Immunisation Co (IFFIm), for which the World Bank acts as treasury manager, is a break from the predominantly commercial nature of most Islamic finance transactions.
The deal is part of World Bank efforts to adapt sukuk for use in a variety of ethical pursuits, including advising the Dubai government on a funding strategy for the emirate's green investment programme.
IFFIm, backed by nine sovereign donors including Britain and France, will use the proceeds of its sukuk to finance projects for the Global Alliance for Vaccines and Immunisation (GAVI) and is open to using the format again.
"It's a natural market for us. These kind of socially responsible investments are very much aligned with the core principles of Islamic finance," IFFIm Board Chair Rene Karsenti told Reuters.
The sukuk helped IFFIm diversify its investor base and secure competitive pricing, but also helped raise the profile of GAVI activities among Muslim-majority countries.
The sukuk could encourage other non-profits to consider this funding tool, while Gulf countries could be inclined to become GAVI donors themselves, said Paris-based Karsenti, who is also president of the International Capital Market Association.
Founded in 2000, GAVI has financed immunisation efforts in 73 countries, with half of its investment directed to 33 Muslim-majority countries, including Yemen, Mali and Indonesia.
"Sukuk is not new but what is new here is that it is associated with a socially responsible vehicle. We hope we can lead the way for other similar institutions to use the market."
Islamic finance follows religious principles which forbid involvement in businesses connected with gambling, tobacco or alcohol, but has only recently begun to explore wider social responsibility.
Future sukuk from IFFIm could help reinforce that change by financing other high-profile immunisation efforts, and GAVI is actively in discussions over taking a role in fighting Ebola when a vaccine becomes available, Karsenti said.
"IFFIm could also provide long-term funding in that effort."
GlaxoSmithKline and NewLink Genetics are currently testing experimental Ebola vaccines, and a trial of an Ebola vaccine from Johnson & Johnson is scheduled to start in January.
IFFIm issues bonds designed to bring forward future donor pledges into cash-in-hand today to finance its immunisation projects. It has raised $5 billion since 2006 from bonds issued in markets such as Japan and Australia.
Islamic finance wants to be part of such efforts as it seeks to boost its ethical credentials: In August, Malaysia's capital markets regulator introduced guidelines for the issuance of socially responsible sukuk.
IFFIm, rated AA by Standard & Poor's, attracted $700 million in orders for its sukuk, with 85 percent of bids coming from new investors, mainly out of the Middle East and Asia.

Despite a limited secondary market, its high credit rating made the issue appealing to Islamic finance institutions, with banks taking 74 percent of the deal.
( Reuters / 05 December 2014 )
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