Sukuk

English: Islamic bond (Plural. Also see Saak.)

Definition: An asset-backed bond which is structured in accordance with Shariah and may be traded in the market.

A Sukuk represents proportionate beneficial ownership in the underlying asset, which will be leased to the client to yield the return on the Sukuk.

IFN weekly market roundup: 14th – 20th January 2017

The week has seen a flurry of activities in the Islamic finance world with sovereign Sukuk finding solid grounds and their corporate counterparts promising potential for 2017. The industry is taking regulations seriously with new and revamped legislation underway. Institutions and firms are announcing their fiscal results for 2016, with an analysis of last year and expectations for the new year. Europe brings in good news in the fintech sector as Fitch announces Takaful prospects for two Southeast Asian Islamic powerhouses.

SOVEREIGN SUKUK
From Asia, the government of Indonesia auctioned sovereign Sukuk (SPN-S 11072017 and four project-based Sukuk series), with an indicative target of IDR6 trillion (US$449.4 million) on the 24th January. Brunei issued its 141st series of short-term Sukuk Ijarah for BN$100 million (US$69.77 million). Maturing on the 13th April 2017, the 91-day facility was priced at 0.63%.

Qatar’s central bank sold QAR8 billion (US$2.2 billion)-worth of Sukuk on the 16th January. The  while the Central Bank of Bahrain’s monthly Sukuk Salam Islamic securities has been 100% fully subscribed. 
In Africa, Egypt made headlines this week. The country could be issuing a US dollar Sukuk facility in 2017, after the investor meetings for its conventional bond that are scheduled to end on the 23rd January.

NON-SOVEREIGN SUKUK
The week saw potential Sukuk announcements for 2017 with Bahrain’s Nogaholding engaging banks for either an Islamic or conventional facility, reported Reuters; and Saudi’s Jabal Omar looking into the Sukuk market this year, according to its CEO, Yasser Al Sharif in an interview with Bloomberg. 

From Southeast Asia, Fitch Ratings said that Malaysian firms continue to be the most active corporate Sukuk issuers. Fitch expects Sukuk issuance to maintain growth momentum in 2017 and in turn bring in more Sukuk alongside conventional bonds to the market. Sunway Treasury Sukuk of Malaysia has issued RM100 million (US$22.43 million)-worth of Islamic commercial papers on the 19th January 2017. 

The Investment Corporation of Dubai is preparing to launch its US$700 million US dollar Sukuk by next week, after a five-day roadshow in Asia, the Middle East and Europe, according to GlobalCapital. 

In Bahrain, the bourse has listed a six-month Sukuk Ijarah facility worth BHD26 million (US$68.47 million) and three other treasury bills, amounting to BHD201 million (US$529.34 million), according to a statement. 

REGULATIONS
The Chartered Institute of Islamic Finance Professionals issued the CIIF Code of Ethics and CIIF Standards of Professional Conduct which set out principles on par with other codes of ethics by its peers, both foreign and local.

Over in the Middle East, the government of Azerbaijan signed a grant agreement with the IDB for the provision of technical assistance in drafting an Islamic financing legislative base, according to Trend. Iran’s Banking Reform Bill, a law outlining reforms in the country’s banking sector, will reportedly be finalized in the parliament’s spring session.

BANKING & FINANCE
The National Transmission and Despatch Company of Pakistan secured Islamic and conventional financing facilities worth PKR18 billion (US$171.43 million) to finance the installation of a 250 km 500 kV transmission line from Thar Desert to Matiari district, according to The News. The country’s quarterly housing finance review by the central bank also reported that Islamic banks led in terms of home financings compared to conventional banks in the third quarter of 2016. The total amount of financings by Islamic banks was PKR25.8 billion (US$245.94 million) during the period.

Abu Dhabi Islamic Bank has introduced its first Islamic equity investment structured note of 2017 to aid investors’ exposure to undervalued blue chip companies from a range of sectors. 

The International Center for Education in Islamic Finance has signed an MoU with the International Federation of Red Cross and Red Crescent Societies to research financial instruments to increase humanitarian initiatives, including the development of Sukuk social impact bonds, Waqf and Zakat endowment funds among others. 

NEW ENTITIES
Herbert Smith Freehills announced that it has received a Qualified Foreign Law Firm license from Bar Council Malaysia. Its new Malaysian office will open in May 2017.

ASSET MANAGEMENT
In Malaysia, the takeup of the Employees Provident Fund’s Simpanan Shariah reached RM59.03 billion (US$13.22 billion) of the initial RM100 billion (US$22.43 billion). The fund also allocated RM50 billion (US$11.22 billion) as further injection for Simpanan Shariah 2018.

Securities & Investment Company entered into a strategic partnership with Trucial Investment Partners for the Shariah compliant SICO Trucial US Real Estate Income Fund estimated to be worth US$50 million, possibly launching in the second quarter of 2017. 

FINTECH
EETHIQ Advisors from Luxembourg and the French asset manager 570 AM are partnering on two fintech initiatives, EETHIQ founder and managing director Rachid Ouaich told IFN. The first project is to increase 570 AM’s Shariah compliant digital mortgage offering to European countries other than France; while the second is to create a personal finance management platform with the capability to link to banking accounts that would incorporate Shariah compliant financial products and automated Zakat calculations.

TAKAFUL
Fitch Ratings opined that Takaful products demand is low in Indonesia caused by a lack of awareness and a robust Islamic finance system. As for Malaysia, the country’s Takaful industry continues to achieve higher growth than the conventional sector, contributed by a firm presence and consumer awareness.

Agrobank, a Shariah compliant institution, established Agro Nurani, the country’s first Takaful coverage for persons with disabilities. The scheme offers benefits including cash allowance for disabilities caused by accidents. 

MOVES 
Norashikin Mohd Kassim has left CIMB-Principal Islamic Asset Management (CIMB-Principal IAM) to join an Islamic bank; Chief Investment Officer Mohd Fadzil Mohamed has stepped up as acting CEO.

Dubai International Financial Center Authority welcomed its new CFO, Yazan Mohamad Nasser. Yazan was previously the CFO for Emaar Malls with 30 years of experience in finance and audit. 

Purple Boulevard’s Sukuk ratings reaffirmed

MALAYSIA: The ratings on Purple Boulevard’s RM250 million (US$56.09 million) in nominal value Sukuk Ijarah have been reaffirmed by RAM predicated on the net property income of the underlying asset, Ampang Point Shopping Center. Purple Boulevard is the SPV of Nadin Holdings and Nadin Management.

According to a press statement, the reaffirmation for the facility, which falls under the SPV’s RM450 million (US$100.96 million) multi asset-backed Sukuk Ijarah program, is as follows: Senior Class A of up to RM95 million (US$21.31 million) at ‘AAA/Stable’; senior Class B of up to RM15 million (US$3.37 million) at ‘AA3/Stable’; senior Class C of up to RM15 million at ‘A3/Stable; and guaranteed Class D of up to RM125 million (US$28.04 million) at ‘AAA(fg)/Stable’. The program’s subordinated Class E of up to RM200 million (US$44.87 million) is unrated.

Maxis’s Sukuk now tradable

MALAYSIA: Maxis Broadband’s unrated Sukuk Murabahah program worth up to RM10 billion (US$2.24 billion) in aggregate nominal value has been confirmed as tradable and transferable as of the 19th January pursuant to the Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework, according to an official announcement.

 

QCB announces Sukuk yield results

QATAR: Qatar Central Bank (QCB) has announced a total yield of QAR8 billion (US$2.2 billion) in Sukuk sales on the 16th January 2016, according to a statement. Issues QA0003529765 and QA0003529756, with allotted amounts of QAR250 million (US$68.61 million) each, yielded 2.5% and 3.1 % respectively. Issue QA0003529774 worth QAR3 billion (US$823.26 million) yielded 3.75% whereas issue QA0003529783 amounting to QAR4.5 billion (US$1.23 billion) yielded 4.25%.

Sukuk issuance maintains growth trend

GLOBAL: Fitch expects Sukuk issuance to maintain similar growth rates in 2017 and believe Islamic facilities will command a larger market share driven by the decision of governments to issue Sukuk alongside conventional bonds. Fresh Sukuk issuance with a maturity of over 18 months from the GCC, Malaysia, Indonesia, Turkey and Pakistan increased to US$40 billion in 2016 from approximately US$32 billion the year before, translating into a 28.5% share of total bond and Sukuk issuance, a slight drop from 29% in 2015, confirmed the rating agency in a statement. Malaysian firms continue to be the most active corporate Sukuk issuers.

 

Bahrain Bourse lists short-term Sukuk Ijarah

BAHRAIN: Bahrain Bourse has listed a six-month Sukuk Ijarah worth BHD26 million (US$68.47 million) and three other treasury bills, amounting to BHD201 million (US$529.34 million), according to a statement. With the listing of those issues, the total number of treasury bills and Sukuk Ijarah listed on the bourse reached five with a total value of BHD591 million (US$1.56 billion).

Brunei issues 141st Sukuk Ijarah

BRUNEI: Autoriti Monetari Brunei Darussalam has, on behalf of the government of Brunei, issued its 141st series of short-term Sukuk Ijarah for the total amount of BN$100 million (US$69.77 million), according to a statement. The 91-day facility was priced at 0.63% and will mature on the 13th April 2017. With this issuance, the Bruneian government has thus issued over BN$10.53 billion (US$7.35 billion) worth of short-term Sukuk Ijarah securities since the maiden offering on the 6th April 2006, and the total holdings of Sukuk outstanding of the Bruneian government until the 12th January 2017 stood at BN$573.2 million (US$399.92 million).

ICD to issue Sukuk next week

UAE: The Investment Corporation of Dubai (ICD) is all set to launch its US$700 million US dollar Sukuk by next week, after a five-day roadshow in Asia, the Middle East and Europe, according to GlobalCapital. The issuance, from the ICD’s US$2.5 billion trust certificate issuance program, will be a Reg S Sukuk facility with a maturity up to 10 years. Originally, the intention was to divide the US$1 billion transaction equally between conventional bonds and Sukuk, but market demand saw the Sukuk upsized to its present size.

 

Jabal Omar possibly issuing Sukuk this year

SAUDI ARABIA: Jabal Omar, Saudi’s real estate development company focusing on the Hajj and Umrah industry, is looking to tap into the Sukuk market this year, according to its CEO, Yasser Al Sharif in an interview with Bloomberg. The Sukuk facility, aimed at securing investments for potential merger and acquisition strategies and to fund risk management measures, could be either a riyal or US dollar issuance. 

 

Qatar sells Sukuk and conventional bonds

QATAR: Qatar’s central bank sold QAR15 billion (US$4.12 billion)-worth of Islamic and conventional government bonds in its first domestic government debt offer this year, Reuters quoted a central bank official as saying. The central bank raised QAR8 billion (US$2.19 billion) from the Sukuk issue and QAR7 billion (US$1.92 billion) from conventional bonds, according to the official. A document sighted by Reuters showed the central bank offered three-year bonds at 2.5%, five-year bonds at 3.1%, seven-year bonds at 3.75% and 10-year bonds at 4.25%.

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