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Monday, 22 June 2015

Government to boost Saudi sukuk issuance

Dubai: A return to debt issuance by the Saudi Arabian government could encourage growth in the country’s corporate sukuk market, according to analysts.
Last year, Saudi Arabia was the second-largest Sukuk issuer with 15 issuances worth $12.1 billion (Dh44.4 billion), yet in terms of value the issuances declined by 20.5 per cent year on year. According to Saudi bank NCB There are few issuances in the pipeline such as the National Shipping Company of Saudi Arabia with an announced value of 3.9 billion Saudi riyals over a 10-year tenor denominated in riyal.
“The economic moderation has largely affected debt markets, however, the possibility of the government resorting to debt to plug the significant fiscal shortfalls can provide a boost to sukuk issuances going forward. On a medium-term note, opening Saudi sukuk to foreign investment similar to the domestic stock market will likely jump-start sukuk trading in the secondary market that is currently negligible,” NCB said in a recent note.
In 2014, sukuk trading amounted to a mere 108.1 million riyals and by the end of the first quarter of 2015 a single deal was done amounting to 213.5 million riyals, a weak showing for a market that has listed issuances worth 25.5 billion riyals.
Analysts see an imminent government borrowing programme could absorb a significant portion of iquidity in the banking system which could eventually apply pressure on their ability to lend to the private sector.
Much of the government debt is likely to be bought by the country’s banks, which would consume some of the plentiful liquidity that has helped make bank lending the primary source of funding for Saudi corporates, rating agency Fitch said in recent note.
Capex programmes
According to the rating agency, even without sovereign issuance lower oil prices may affect banks’ lending appetite, which could reduce the cost difference between loans and sukuk or bonds for issuers.
“We believe corporates will largely maintain their capex programmes and some funding for these plans may therefore move to the sukuk market. Sovereign debt issuance would create another benefit for potential corporate issuers by helping create a pricing benchmark. We believe Saudi corporates are more likely to issue sukuk than bonds because of the wider local investor base for sukuk and because some are restricted to Sharia-compliant borrowing by their own rules,” said Bashar Al Natoor, Global Head of Islamic Finance at Fitch.
Regional and international investors are also increasingly happy to invest in sukuk. This view is supported by the absence of conventional corporate bond issues in Saudi Arabia since 2013, while sukuk issuance was $7.8 billion in 2014.
Another factor that is likely to spur Saudi sukuk issuance in the medium term is the Capital Market Authority’s plan to reform the corporate debt market, including measures to make regulatory approval of debt products easier. Little detail is available, but the authority has reportedly said it will announce an initiative by the end of the year.
(Gulf News Banking / 22 June 2015)
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Digital services offer huge potential for Islamic economy initiatives

Dubai: A growing global Muslim population with a dominant youth demographic, besides high consumption and expenditure patterns coupled with a rising level of technology readiness, are creating a largely untapped need for Digital Islamic services, according to a recent study by Deloitte and Noor Telecom, a Kuwait-based, Sharia-compliant closed-shareholding company, in association with Dubai Islamic Economy Development Centre (DIEDC).
“The Digital Islamic Economy is a key pillar and area of focus for DIEDC and the Islamic world. The report underscores the criticality of building a sound digital infrastructure and ecosystem to foster the development of online services for the Islamic economy,” said Abdullah Mohammad Al Awar, CEO, DIEDC.
The study, a serious effort in studying and assessing the global Digital Islamic Economy points to a wealth of opportunities that could be tapped into by investors, as well as governments and non-profit organisations.
“Technology is arming us with tools that are far more powerful and effective than anything in the past — the impact of which is fully evident in the Muslim community. By observing and following this trend, we have identified a strong need for Digital Islamic Services” said Ayman Al Bannaw, Chairman and CEO, Noor Telecom.
The study builds and expands on Deloitte’s previous report ‘Defining the Digital Services landscape for the Middle East’, which identified digital services under social needs, specifically hobbies, education, health and religion as emerging categories with unique niches for the Arab world. Of these, religion was identified as the category with the greatest prospects that could surge with continued activity and development.
“Although the prospects are noteworthy, our findings reveal that very few Islamic internet platforms have achieved a significant scale. Some verticals are being catered to, but monetisation remains a challenge,” said Santino Saguto, Partner and Technology, Media and Telecommunications Leader, Deloitte Middle East.
Experts say funding remains a key challenge in developing the digital Islamic opportunities. “Currently there are no venture capital funds in the Middle East that specifically target Islamic needs, signifying a huge gap that could and should be filled,” said Saguto.
The study defines the Digital Islamic Services landscape under nine key industry verticals and areas, such as Halal Food, travel, Islamic finance, modest fashion, Islamic art and design, Islamic economy education, Smart Mosques, Islamic media and Islamic standards and certification.
Among these verticals, notably, the Islamic finance industry has made significant progress over the past decades but the sector has still to mature. This is evident when comparing the total asset size per capita of all Islamic banks globally, $750 per capita, against conventional banks in key economies, each larger by a factor of 100 or more. The study estimates that least two decades will be needed to bridge this gap.
Given ample room for growth and development, populous OIC countries — most notably Turkey, Pakistan and Indonesia — are also now emerging as high growth Islamic finance markets. But low asset penetration and GDP per capita in these countries is driving the need for access to digital Islamic funding services, especially those that can open up access to financing for the wider rural population through via micro-financing, crowd funding and mobile payments.
“The report findings indicate that the Islamic online services will continue to proliferate across the Middle East and the world at large over the next few years,” said Dr Hatim Al Tahir, Director, Deloitte Islamic Finance Knowledge Centre in the Middle East. “In some areas we can expect to see the region following global trends whereas in others we will see a unique, homegrown approach. We expect these developments to create interest for global, regional and local players and stakeholders alike.
(Gulf News Banking / 22 June 2015)
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