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Tuesday, 31 March 2015

Egypt Signals Sukuk Intent While Preparing Foreign Bond Comeback

The pieces are falling into place for Egypt’s first Islamic bond sale, as Abdel-Fattah El-Sisi’s government grapples with foreign currency reserves near the lowest in 20 months and debt to overseas oil companies.

The Arab nation’s sukuk law is likely to be ready by the start of the new fiscal year in July, according to Finance Minister Hany Kadry Dimian, who told reporters in Cairo on Thursday the government will sell dollar-denominated Shariah-compliant notes once the rules are in place. Egypt also said last week it’s preparing to issue its first conventional international bond since 2010.
Dimian’s comments are the strongest signal yet the government of El-Sisi, the former army chief elected in May after the ouster of Islamist President Mohamed Mursi, endorses Islamic finance. Egypt’s currency savings have dwindled by more than half since the 2011 uprising against Hosni Mubarak, leaving the Arab World’s most populous nation largely dependent on handouts from oil-producing Gulf Arab neighbors to keep its economy afloat.
“Given improvements in the economy, they feel there might be appetite for their paper,” Ahmed Shehada, the head of advisory and institutions in Abu Dhabi at NBAD Securities LLC, the brokerage of the biggest bank in the United Arab Emirates, said by phone on Sunday. “I’m sure they will find enough interest regionally to make it worthwhile.”

Reserves Slump

Saudi Arabia, the U.A.E., Kuwait and Oman pledged more than $12 billion at a conference this month to help Egypt’s reconstruction projects, half of them as deposits in the central bank. The $300 billion economy has been growing at near the slowest rate in two decades, according to data compiled by Bloomberg. Egypt’s foreign reserves dropped to $15.5 billion at the end of February, compared to about $33 billion four years earlier.
“The country has stabilized, they want to start implementing the projects, that’s why they’re trying to accelerate the sukuk law,” Montasser Khelifi, a Dubai-based senior manager at Quantum Investment Bank Ltd., said by phone yesterday. “Receiving aid is a good thing, but increasing the self-financing of the country would be a great step for them.”
Egypt had been moving toward a sale of sukuk two years ago under Mursi, whose Muslim Brotherhood administration planned to boost the Shariah-compliant industry with an initial issue of $1 billion of notes. A sukuk law approved by the government in 2013 was never implemented. “Nobody wants to touch it,” Sherif Samy, the chairman of the Egyptian Financial Supervisory Authority, said as recently as August last year.

Oil Companies

Egypt has hired banks including Morgan Stanley, BNP Paribas SA and Natixis SA for a $1.5 billion non-Shariah compliant bond sale, Dimian said last week.
The cash raised will be partly used to pay dues to foreign oil companies, according to Investment Minister Ashraf Salman.
The sukuk sale will probably also be used to finance “mega-projects that have been approved by the government during the investment conference” in Sharm El-Sheikh this month, Walid Hegazy, secretary general of the Egyptian Islamic Finance Association and managing partner at Hegazy Law & Associates, said by phone from Cairo on March 29. Egypt signed agreements for a total of $60 billion in investments during the summit, including $18.6 billion worth of engineering, procurement and construction system projects.
The yield on Egypt’s $1 billion of conventional notes due April 2020 dropped 21 basis points this year through Friday to 4.58 percent, according to data compiled by Bloomberg. That compares with a 19 basis-point decline in the yield of Middle East bonds on average, according to JPMorgan Chase & Co. indexes.
“You want to start building a yield curve that’s independent of the aid and support,” Shehada said. “It’s a step in the right direction.
(Bloomberg Business / 30 March 2015)
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UAE Islamic banking sector to achieve $263 billion assets by 2019

DUBAI: Islamic banking is growing at more than twice the rate of conventional banking in the UAE and the sector is on track to achieve $263 billion of Sharia- compliant assets by 2019, according to a report.

The UAE Islamic financial sector, estimated to be worth $127 billion in 2014, is the third largest Islamic banking market by value after the Saudi Arabian and Malaysian markets, said the World Islamic Banking Competitiveness (WIBC) report compiled by the Ernst & Young Global Limited (EY), a UK-based multinational firm.

The report released on Sunday said Sharia-compliant assets, which meet all the requirements of Shariah law and the principles articulated for Islamic finance, in the UAE crossed the $100 billion milestone for the first time.

The current penetration of Islamic banking in the region stands at 21.4 per cent and represents a 14.6 per cent share of the global market.

The industry in the UAE is growing at more than twice the rate of conventional banking. Due to high demand, there is increased pressure on efficiency as more Islamic banks attempt to go mainstream, it said.

"Islamic banks in the UAE, are eyeing revenue growth through experience-led transformation of their domestic business. Looking at the positive performance of Islamic banks in the UAE, the country is expected to be one of the main markets that drive the future internationalisation of the Islamic banking industry," said Ashar Nazim, Global Islamic Finance Leader at EY.

The company monitored 55,884 Islamic banking customer sentiments in the UAE on social media as part of a wider study, which looked at 2.2 million customer sentiments dispersed across various online sources in nine key markets (Saudi Arabia, Bahrain, Kuwait, the UAE, Malaysia, Indonesia, Turkey, Qatar and Oman).

The study of social media comments has revealed an improvement opportunity for Sharia-compliant banks with respect to products and services, which were ranked the lowest in terms of customer satisfaction.

"The call to action for Islamic banks in the UAE is to build rich insights into customers' delight and pain points, and break operational silos," Ashar said.

"Regulatory intervention on product design can help to both attract and protect consumers. The reputations of Islamic banks today will depend on the way banks engage with their customers," he said.

(Times Of India / 30 March 2015)
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