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Thursday, 26 February 2015

Garuda considers issuing global sukuk

National flag carrier Garuda Indonesia (GIAA) is mulling over a global sukuk issuance this year, with the aim of raising US$500 million to refinance its maturing debt.

According to I Gusti Ngurah “Ari” Askhara Danadiputra, Garuda’s chief financial officer and risk management head, the bond issuance will probably take place in mid-April.

“We are still in the preparation stage and we have not officially appointed any financial institution to arrange the bond issuance, but we are hoping to secure funds from investors in Asia, Europe and the Middle East,” he told reporters on Tuesday.

Part of the funds generated from the sukuk sale will be used to refinance the airline’s debt, worth $350 million, which will mature this year. The remaining $150 million of the funds will be used for various general purposes, including capital expenditure.

“The selection of sukuk is based on our desire to attract Middle Eastern investors. It may be easier for us as well because sukuk issuance does not require the issuer to obtain credit ratings from rating agencies,” Ari said.

He added that the debt papers would most likely be listed overseas, in a Middle Eastern country. If all goes ahead as planned, Garuda will become the first Indonesian company to offer global Islamic bonds.

In preparation for the bond issuance, Garuda has obtained a bridge loan worth $400 million from the National Bank of Abu Dhabi (NBAD) and Dubai Islamic Bank PJSC (DIB).

The loan agreement — which will mature after 12 months — was signed on Feb. 18, as stated in a document submitted by the company to the Indonesia Stock Exchange (IDX).

According to Ari, the bridge loan will function as a “back stop facility” if the sukuk issuance does not go according to plan.

Back stops are commonly used as a guarantee that a bond issuer will still obtain the needed funds, even if the debt paper sale fails.

“The back stop facility will mature after seven years and by then, the facility will be worth $500 million, equal to our sukuk target,” he said, adding that the NBAD and DIB had expressed interest in being coordinators in the sukuk sale.

Meanwhile, Ari said that the airline aimed to post net profits from its operations this year, overturning net losses that it recorded during the January to September 2014 period. The company has not yet published its 2014 full-year financial report.

“To overturn the situation, we decided to cut several routes that were not profitable, reduce flight frequencies for other routes and increase flight frequencies for routes that are making money, such as the one to Jeddah [in Saudi Arabia],” he said.

The company plans to open up new routes across Java as well as use smaller aircraft to boost its business.

Ari also claimed that the airline had identified up to $148 million of funds that it could potentially save through various cost efficiencies.

A $17 million portion of those savings came from a cross-currency swap agreement that it recently signed with lenders Bank Negara Indonesia (BNI), Standard Chartered Bank Indonesia and CIMB Niaga.

Following the announcement of its sukuk plan, Garuda saw its shares slump 1.8 percent to Rp 535 (4 US cents) per share on the IDX from a day before

(The Jakarta Post / 25 February 2014)
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Britain to lead the world in Islamic finance

London has set its sights on becoming the world centre for the Islamic finance industry according to the UK's foreign office minister for Middle East.
Speaking at The Telegraph's Middle East Congress on Wednesday, Tobias Ellwood, under secretary of state at the Foreign Office, said the capital had ambitions to stand alongside Dubai and Kuala Lumpur as a global hub for Islamic finance.
Britain became the first country outside the Muslim world to issue an Islamic bond, known as Sukuk, last year.
The £200m bond attracted healthy investor interest and was the first step in encouraging wider investment from the region to the City of London.
Britain was also committed to promoting a "peaceful and prosperous" Middle East and expanding trade ties with the region, which topped £35bn last year, said Mr Ellwood
"A long-term security strategy must have prosperity at its heart."
Islamic finance products comply with religious rulings, known as sharia, to pool risk and prohibit traditional interest payments.
There are currently six Islamic banks in Britain, while another 20 lenders currently offer Islamic financial products and services, more than any other Western country.
Chancellor George Osborne has said promoting the Islamic finance industry, which is worth nearly $2 trillion, would help make Britain “the undisputed centre of the global financial system".
Mr Ellwood also celebrated notable sharia-compliant investments that have been used to fund some of the capital’s largest developments, including The Shard and the Olympic Village.
The sovereign Sukuk market, which makes up only 0.1pc of global financial assets, is predicted to expand by 20pc a year, according Robert Gray, chairman of debt finance at HSBC.
Sukuk provide fixed returns from underlying assets, thus bypassing the Islamic prohibition on receiving interest.
Mr Gray added the recent fall in oil prices would not hinder the industry and could stimulate the issuance of Sharia compliant debt from the likes of Saudi Arabia.
With a depth of reserves, Gulf nations have a “strong capacity to accept more debt and a strong inclination to use Islamic capital markets”, said Mr Gray.
(The Telegraph / 25 February 2015)
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