RAM assigns AAA(s) rating to SRI sukuk programme

Khazanah Nasional Bhd is launching a RM1 billion sukuk ihsan programme, the country's first sustainable responsible investment (SRI) sukuk.

"Sponsored by Khazanah, the sukuk ihsan is the first SRI sukuk to be approved under the Securities Commissions' revised sukuk guidelines (issued in August 2014). To our knowledge, it is also the first social-impact bond (SIB) to be rated globally," said RAM Ratings in a statement yesterday.

The SRI sukuk will be issued by Ihsan Sukuk Bhd, a trust-owned company established for the sole purpose of raising capital to support the corporate and social responsibility efforts of Khazanah - the promoter of this exercise.

RAM Ratings has assigned an AAA(s)/stable preliminary rating to the RM1 billion sukuk ihsan programme.

As the issuer, Ihsan will raise funds under the Islamic principle of Wakalah Bi Al-Istithmar and/or other Islamic principles to be determined.

The initial issue of sukuk ihsan will be based on the Islamic principle of Wakalah, where proceeds will be used to purchase eligible sukuk investments while, Khazanah will, in turn, use the proceeds to fund syariah-compliant eligible SRI projects.

"Although the global SRI market is still nascent, we see tremendous growth potential given Malaysia's leadership in the global Islamic finance market as well as the increasing global and domestic demand for greater governance and ethical investment. In Malaysia, for instance, we see this in the various government initiatives to develop green energy," RAM Ratings CEO Foo Su Yin said.

In assessing the credit risks associated with sukuk ihsan, RAM had considered Khazanah's role as the sukuk holders' counter-party in the transaction structure.

Khazanah will invest the proceeds in either syariah-compliant tangible assets or syariah-compliant commodities purchased and sold under the principle of Murabahah (Commodity Murabahah Investment), with at least 33% of the sukuk proceeds invested in tangible assets.

"The AAA(s) rating is supported by Khazanah's role as the obligor under the purchase undertaking to buy the sukuk holders' interests in sukuk investments, as well as its commitment to make deferred payments pursuant to the Commodity Murabahah Investment in order to fully meet the obligations under the sukuk programme," he added.

Foo said that Khazanah's SRI sukuk will encourage greater private participation in sustainable and social-impact investments, and may even encourage new participants in the domestic sukuk market.

"Expanding and developing this segment is not without its challenges. As a start, however, we believe that Malaysia is on the right track towards creating a vibrant and possibly sizeable SRI sukuk market," Foo added.

(The Sun Daily / 24 April 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

First Islamic bank in Germany to open in July

Germany is to get its first fully operational Islamic bank on July 1. Opened by the Turkish finance group Kuveyt Turk it will provide Sharia compliant banking services.

“This new achievement will open vast areas of business and investment in Europe’s largest economies, as this is the first bank to obtain a full function license to take deposits and offer credit finance facilities in Germany as per Islamic rules and regulations,” Kuwait Finance House said in a statement on Thursday.

The wholly-owned subsidiary of the Turkish lender will be called KT Bank AG with its headquarters based in Frankfurt and branches in Cologne and Berlin. It will serve Germany’s 4 million Muslims but also plans to expand its services throughout Europe.

"Our market research has shown, that 21 percent of Muslims in this country would see an Islamic bank as their natural household bank," Kuveyt Turk’s managing director Kemal Ozan was cited as saying by Deutsche Welle.

The bank will operate under the principles of Islamic Sharia law, under which it can’t participate in speculative ventures or investments, can’t charge interest on loans, based on the Islamic teaching that a Muslim may not benefit from lending money or receiving money from someone else. Islamic banks, however, may still purchase assets and resell them for a profit. Sharia law also forbids investment in industries like gambling, alcohol or pornography. Islamic banks tend to stay away from companies with debts amounting to more than 30 percent of their value.

Islamic banking is growing faster in Britain and France than in many Islamic countries in the Middle East and Asia. Britain remains Europe's main Islamic finance hub with its five Islamic banks. Luxembourg is also planning to launch an Islamic lender of its own. The Islamic Bank of Britain reported a 55 percent rise in applications for its savings accounts by non-Muslims in 2014 after the Barclays rate-fixing scandal.

Britain became the first non-Muslim country to begin trading in sukuks that are the Islamic equivalent of bonds. Hong Kong, Luxembourg and South Africa have also issued sukuks.

In 2010 Kuveyt Turk, the largest Islamic bank in Turkey, which is 62 percent owned by Kuwait Finance House, set up a branch in the southwestern German city Mannheim, but was not fully operational. In 2012 it applied for a full banking license, and plans invest $48.7 million in the planned German unit.

(RT / 24 April 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com