Fitch rates Turkey’s USD Sukuk ‘BBB-‘

Fitch Ratings has assigned Hazine Mustesarligi Varlik Kiralama Anonim Sirketi’s (Hazine) USD1.5bn of global certificates (Sukuk), due 26 March 2018, a ‘BBB-‘ rating. The certificates have a profit rate of 2.803%.
Hazine, an asset leasing company incorporated solely for the purpose of participating in this transaction, is wholly owned by the Republic of Turkey, acting through the Undersecretariat of the Treasury.
The rating reflects Fitch’s judgement that the Sukuk can be considered an unconditional, unsubordinated and general obligation of the Republic of Turkey, ranking equally with Turkey’s other senior unsecured obligations. The rating is therefore in line with Turkey’s Long-term foreign currency Issuer Default Rating (IDR) of ‘BBB-‘ on which the Outlook is Stable.
The Sukuk follows an ijara’ (leasing) structure. The issuer has purchased publicly-owned real estate from the Republic of Turkey using the proceeds from the Sukuk. These assets have been leased back to the Republic for a period equal to the tenor of the Sukuk; in return the Republic makes semi-annual rental payments to the issuer at least equal to periodic distribution amounts made by the issuer to the Sukuk investors.
The transaction documents incorporate a purchase undertaking requiring the Republic to repurchase the assets on maturity (or earlier, in the event of dissolution/default), together with any outstanding distribution. Certificates are unsecured and certificate holders have no direct recourse to the lease assets.
While certain transaction documents relating to this issue, being governed by English law, may not be enforceable under applicable law, including Turkish law, Fitch’s rating for the certificates reflects the agency’s belief that the Republic of Turkey would stand behind its obligations under the transaction documents.
By assigning a rating to the certificates, Fitch does not express an opinion on the Sukuk structure’s compliance with Sharia principles.
Source: bne

Demand for Local Sukuk ‘Excessive’ With More Likely Ahead, Official Says

The government has issued Rp 120 trillion ($12.8 billion) in Islamic bonds during the past four years, which the Finance Ministry attributes to an “excessive” demand for them among Muslim investors.

The ministry’s director for Shariah financing, Dahlan Siamat, said the government issued its first Islamic bond, known as sukuk, in 2008, and as of Thursday it had issued a total of Rp 120 trillion.

“The achievement has been supported by excessive demand for sukuk in the domestic market,” Dahlan said in Surabaya on Thursday.

“The potential for state sukuk in the country is developing rapidly, given that 80 percent of Indonesians are Muslims and there remains large potential for them to become investors.”

Indonesia has been selling conventional and Islamic bonds during the past year to help plug its growing budget deficit. The country’s budget shortfall is forecast to reach 2.23 percent of the gross domestic product this year, according to a revised 2012 state budget.


Ireland may be first EU state to sell Islamic bond

By Elffie Chew

IRELAND plans to become the first European nation to sell sovereign sukuk — Islam-approved financial certificates — as its equal tax treatment for Islamic-finance products attracts investors.

The Government has agreements with more than 60 countries to avoid double taxation on Islamic transactions, Micheál Smith, the south-east Asia director of IDA Ireland, said.

Islamic finance assets around the world may rise about 16% to €1,240 billion this year, Raj Mohamad, managing director at Five Pillars, a consulting firm based in Singapore, told Bloomberg Television yesterday.

While plans to sell sukuk by Britain, France and Luxembourg have stalled, Mr Smith said Ireland will push ahead with a sale.

“Ireland will be going back to the bond market and a sukuk is an option when conditions are right. We also hope to form more working groups with Muslim countries such as Malaysia to build up a critical mass of expertise as the objective is for Dublin to become a centre of excellence for Islamic finance.”

Ireland introduced tax legislation for products that comply with Islam’s ban on interest in 2010, Mr Smith, who is based in Singapore, said.

The Central Bank has a Shariah team overseeing its Islamic funds, which total about €390m under management.

The Irish Stock Exchange listed its first sukuk in 2005 and Ireland is a popular choice for sales because the nation offers a “relatively inexpensive” and timely listing process, he said.

The Government last sold bonds in September 2010, the year it had a deficit that was the highest as a percentage of gross domestic product in the developed world. The Department of Finance estimates the ratio dropped to 10.1% of GDP in 2011 from 31% the previous year.

CIMB Group Holdings, the world’s biggest sukuk arranger, said this week that it got approval to set up the first Shariah-compliant equity funds from Malaysia in Ireland.

Ireland’s bid to become an Islamic finance hub received a boost in October when Goldman Sachs Group got approval from the nation’s central bank to list its $2bn (€1.55bn) sukuk programme. The planned sale has attracted criticism among Islamic scholars, with some saying the proceeds may not be used according to Shariah law.

CIMB-Principal Islamic Asset Management, based in Kuala Lumpur, chose Ireland for its Islamic equity funds because there’s no double taxation and no withholding tax on interest payments, Jim McCaughan, chief executive of US-based venture partner Principal Global Investors, said on Monday.

An initial investment of $20m (€15.5m) will be put into three funds that will open for subscription next month, he said.

“We expect interest from Europe, Malaysia and more importantly the Persian Gulf and other Muslim countries,” Mr McCaughan said. “People are getting wealthier and want to diversify their funds.”

Global sales of sukuk, which pay asset returns instead of interest, total €4.7bn this year, compared with €500m in the same period in 2011, according to data compiled by Bloomberg. Offerings reached a record $36.3bn last year, surpassing the $31bn raised in 2007.

The difference between the average yield for sukuk and the London interbank offered rate, or Libor, narrowed two basis points to 299 basis points yesterday, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.

The average yield has climbed nine basis points, or 0.09% point, this year to 4.08%.

Shariah-compliant bonds have dropped 0.1% in 2012, according to the HSBC/Nasdaq index, while debt in developing markets declined 0.2%, JPMorgan Chase & Co’s EMBI Global Composite Index shows.

The Bloomberg Malaysian Sukuk Ex-MYR Index of foreign currency Islamic debt sold by companies in Malaysia rose 0.5% this year to 104.919 yesterday. The gauge increased 5.9% in 2011.

Britain cancelled what would have been the first sukuk sale by a Western government last February, saying the debt didn’t offer value for money. Luxembourg ruled out a plan to sell Islamic bonds in 2011 because the government saw no need to raise additional funding. France has legislation in place to facilitate a sale and has yet to proceed with an issue.

Ireland has a Muslim population of 30,000, according to a Department of Finance document covering the nation’s Islamic industry issued in March 2010. Roman Catholics make up 87% of Ireland’s population.

The Islamic Cultural Centre for Ireland and the Immigrant Council of Ireland have all called for more Shariah-compliant initiatives, the report said.

“There’s been no objection to Islamic products being sold in Ireland,” said Mr Smith, who is also a director in charge of the 10-member Association of Southeast Asian Nations at the IDA.

The European debt crisis provides an opportunity for Islamic finance to grow given it is rooted in ethics and religion, according to Nik Norzrul Thani, the chairman of Malaysian law firm Zaid Ibrahim & Co.

“What Ireland is doing is a step in the right direction,” Nik Norzrul said in an interview in Kuala Lumpur.

“Ireland’s ambition to be a Shariah-compliant hub is a recognition that Islamic finance isn’t only for Muslims.”

Read more:

source : Irish Examinar

Indonesian government to offer retail sukuk bonds next March

JAKARTA: The Indonesian government will begin offering retail Islamic debt papers (sukuk) to individual investors in March, after previous issuances drew strong interest, despite the shaky global financial market.
The Finance Ministry’s Debt Management Office (DMO) began accepting applications from banks and brokerages to be sales agents for the government’s fourth issue of syariah-compliant bonds, English daily The Jakarta Post quoted DMO chief Rahmat Waluyanto as saying.
Sales agents would be appointed on January 4 and the offering would be in March. Government debt papers were attractive to individual investors because the return rates were higher than bank deposits. It was also viewed as safe because of government guarantees.
In its last retail sukuk issuance in February, the Indonesian government raised 7.34 trillion rupiahs (US$800.06 million) with an annual coupon rate of 8.15 per cent to be paid monthly, compared with a 6.75 per cent bank deposit rate guaranteed by the Indonesia Deposit Insurance Corporation (LPS).
The government’s retail bond offerings had received strong demand from individual domestic investors, with the last sukuk issuance, exceeding its six trillion rupiah target.
Meanwhile the latest regular retail bond offering saw 20.35 trillion rupiah in bids, although the government ended up selling 11 trillion rupiah in debt papers.
The issuance of government debt papers, in the form of regular and sukuk institutional and retail bonds in rupiah and US dollar dominations, was a move to finance development projects and plug an estimated state budget deficit equal to 1.5 per cent of the country’s gross domestic product (GDP).
The global financial market had been hit by high-level volatility in the stocks, bonds and currency markets on international fund sell-offs over fears of a global economic slowdown on the eurozone debt crisis and the stalling US economic recovery.
Rahmat had dismissed concerns on the retail sukuk issuance due to the shaky markets, saying that the retail market was relatively resilient to crisis, as the investors were individuals. — Bernama

Read more:

Sri Lanka, Malaysia partners to promote Islamic banking and bonds

Sri Lanka’s Wealth Lanka Management (Pvt) Ltd, an investment house, and Al Tayseer Advisory Services Sdn. Bhd a Malaysia based consultancy has linked up to provide Islamic banking and bond market instruments, officials said

The firm advices on Islamic banking and corporate finance and advisory services for specialist industries like steel, cement and cotton.
“We find Sri Lanka as an emerging market for Islamic finance with immense future growth potential,” Al Tayseer Advisors Services, chief executive and partner Fahd Hashim, told reporters in Colombo.

“Sri Lanka is the second fastest growing economy in Asia right now and growth is linked to public sector investment with imports of cement steel.”

Al Tayseer can help with setting up plants or acquiring them to supply commodities to Sri Lanka, Hashim said.

The firm was also working in Pakistan. Hashim said it was already advising a Pakistan based cement maker that is exporting to Sri Lanka. In addition to corporate finance the consultancy also advised in materials and energy efficiency and use of carbon credits.

Mangala Boyagoda, head of Wealth Lanka Management, a senior fixed income specialist in Sri Lanka said the new partnership could provide Shariah based bond market products to help create an interbank market in Islamic finance.

“You cannot develop Shariah banking without an interbank market,” Boyagoda said. “We are looking at the possibility of raising a Shariah government bond.”

Though several banks have Islamic finance units in the country, they have constraints in Treasury management due to lack of compliant products.

The partnership will also advice on setting up Islamic banking units or outsource such units for banks, finance companies and leasing firms, Hashim said.

source : lbo – Sri lanka

Sharia debt funds post biggest gains

Karachi: Pakistan’s biggest Sharia- compliant debt funds are posting the best returns for sukuk investors this quarter as an export revival boosts bonds sold by the government and agricultural companies.

The JS Islamic Pension Savings Fund-Debt, owned by JS Investments, and the NAFA Islamic Aggressive Income Fund, managed by NBP Fullerton Asset Management, recorded gains of 3.9 per cent and 3.2 per cent, data compiled by Bloomberg show. The Meezan Capital Protected Fund-I run by Kuwait’s Noor Financial Investment returned 3 per cent, ranked third among 76 such vehicles tracked by Bloomberg. The three Karachi-based funds oversee 57 billion rupees (Dh2.4 billion) of assets. Pakistan’s government forecasts economic growth will more than double to 2.5 per cent in the 12 months ending June 30.

source : gulf news

Sukuk bill may be revived despite pastors’ opposition

Korean lawmakers may revive legislation scuttled earlier this year amid opposition from church leaders that would pave the way for the first Islamic bond sales in the country.

A group of legislators will review the proposal as early as November regulating taxes on sukuk, or bonds that comply with Shariah law, said Choi Sung Soo, assistant director of the office of the committee’s Chairman Kang Ghil Boo. Lee Man Sub, head pastor at the Korean Association of Church Communication, was among Christian leaders seeking to stop the plan on concern Islamic charities would funnel contributions to terrorist activities from zakat, a tax paid by Muslims with wealth to be distributed to the poor and needy.

Sukuk sales in the nation could reach $1 billion a year as companies including GS Engineering & Construction Corp. try to raise financing that complies with Islam’s ban on interest to build power plants and skyscrapers in the Middle East, according to Korea Investment & Securities Co. The United Nations has a list of hundreds of organizations and individuals it suspects of supporting terrorism in a bid to control funding.

“Several church pastors have approached me, worried that Korean money would go to terrorists,” Yoo Il Ho, a committee member who belongs to the governing Grand National Party, said in an interview in Seoul. “But I told them that these bonds have nothing to do with that.”

There are about 35,000 Muslim residents in Korea and more than 100,000 Muslim foreign workers, said Cho Min-Haeng, director of administration at the Korean Muslim Federation in Seoul. The country has a population of about 49 million.

Protestants and Roman Catholics together make up the largest religious group in Korea, comprising 18.3 percent and 10.9 percent, respectively, according to a 2005 population census from the statistics office. About 23 percent are Buddhist and the rest are mostly non-religious, the census said.

Approving the tax “will be like pouring gasoline over a burning fire,” said Lee, whose organization represents the nation’s Christian groups in the media in Seoul. “That money can be used for terrorism, or money-laundering in our banks. It’s unfair to give them a tax advantage and with all that money pouring in, they could take control over our economy.”

He also cited concern proceeds would fund Islamic schools and infrastructure at home, which will mean “more Koreans may become Muslim.”

Korea Investment, a Seoul-based brokerage that said in February it hired Shariah scholar Mohammed Daud Bakar to help structure Islamic financial products, has put plans on hold because the legislation has yet to be approved. Mohammed Daud declined to comment in an e-mailed response to questions.

Concern that sukuk will fund terrorist activities is a “certain kind of phobia” and is difficult to substantiate, said Lee Yul Hee, head of the Islamic finance team at Korea Investment in Seoul.

Closer ties with the Middle East would help narrow Korea’s only regional trade deficit, he said. The Gulf Cooperation Council states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates pumped 68 percent of Korea’s oil and 53 percent of its natural gas last year, causing a $38 billion deficit, according to the Korea International Trade Association.

Korea Electric Power Corp., the nation’s biggest supplier, won a $20 billion contract to build nuclear power plants in the U.A.E. in December. Samsung Engineering Co., its biggest engineering company, won a $1.5 billion contract in April to build utility and offsite facilities for a gas project in Abu Dhabi. Samsung C&T Corp., the second-biggest contractor, built the world’s largest tower in Dubai. All the companies are based in Seoul.

Woori Investment & Securities Co., a unit of Korea’s third-largest financial company, signed an agreement in March with Qatar Islamic Bank SAQ, the Gulf state’s biggest Shariah- compliant lender, to cooperate in investment banking services, the Asian company said in an e-mail on March 10.

Mohamed Azahari Kamil, head of Asian Finance Bank Bhd., the Malaysian unit of Qatar Islamic, said the issue of terrorism was never discussed.

“There’s not enough evidence to prove that” charities are being used to fund terrorism, Mohamed Azahari said in an interview from Kuala Lumpur. “The accusation is baseless.”

Islamic bonds, which are based on the exchange of asset flows rather than interest, returned 3.7 percent this quarter, beating a 0.8 percent gain in the three months ended June 30, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Debt in developing markets gained 7 percent this quarter, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

The spread between the average yield for sukuk and the London interbank offered rate narrowed eight basis points, or 0.8 percentage point, so far in August to 393, according to the HSBC/NASDAQ index.

Global sales of sukuk fell 14 percent to $10 billion so far this year, according to data compiled by Bloomberg. Issuance totaled $20.2 billion last year, up 43 percent from 2008. Debt offerings will increase in the second half, led by first-time issuers, because of improved international market conditions, Standard & Poor’s said in a statement on July 28.

The yield on Malaysia’s 3.928 percent dollar-denominated Islamic note due June 2015 fell 25 basis points this month to 2.67 percent, according to prices from the Royal Bank of Scotland Group Plc.

Korea’s Ministry of Strategy and Finance is pushing ahead with plans to sell Islamic bonds to diversify financing, said Sohn Byung Doo, director at the international financial policy division in Seoul. The global credit crisis in 2008 caused international funds to leave the country, he said.

“Sukuk will allow Korea to diversify funding sources, especially since capital flight during a crisis may dry up money pools,” he said. 

source : korea herald