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Innovating for the Future: The Next Generation of Post Credit Crunch Sukuk
Structures
22nd April 2009
Global Sukuk Market Back on Track with Spate of Asian Offerings as London
Sukuk Summit Beckons
The global Sukuk market is back on track with Asia setting the pace through
a spate of focused offerings and even tighter pricing compared with
conventional bond issuances. Despite the on-going global economic slowdown
and the financial crisis, investors are putting their faith in the Sukuk
market suggesting that the underlying strengths and fundamentals of the
market remain attractive.
Not surprisingly, several countries including France, Indonesia, Hong Kong,
Kenya and Nigeria have recently or are in the process of changing their laws
to introduce tax neutrality to facilitate Islamic financial products in
their jurisdictions.
Indonesia's debut US$500m 5-year international benchmark sovereign Sukuk
Al-Ijarah launched a few days ago is a point in case. The Sukuk is
oversubscribed to the tune of US$3bn even before the issuance has officially
closed. The fixed rate pricing of 9% to 9.25% is much tighter that the 11.6%
priced for conventional Government of Indonesia bonds. And the rating of
"BB-" assigned to the Sukuk by Standard & Poor's is not even an investment
grade.
This new-found appetite for investment in Sukuk is a definite sign of a
revival of the global Sukuk market. With these encouraging developments, ICG
are organizing the 2009 London Sukuk Summit, the third successive summit in
the series, along the theme 'Innovating for the Future: The Next Generation
of Post Credit Crunch Sukuk Structures/Preparing for the Next Wave of ICM
Offerings'. The Summit is preceded by a Sukuk Masterclass titled
'Understanding Sukuk - Issues, Structuring, Innovation' conducted by a team
of experts.
The timing of the summit could not be more opportune and follows on from the
highly successful inaugural London Sukuk Summit along the theme 'Strategies
for Today; Demystifying Islamic Capital Market Products' held in June 2007;
the equally successful follow-up London Sukuk Summit in June 2008 along the
theme 'Gearing up for UK Sukuk Originations', and the inaugural and
well-attended 2009 Asia Sukuk Summit along the theme 'Towards a New Silk
Route for Islamic Finance' held on 18th-19th February 2009 in Hong Kong.
The Indonesian Sukuk is the second offering by Jakarta in 2009 so far. In
January the Indonesian Ministry of Finance issued the country's debut
sovereign retail local currency Rupiah Sukuk - an offering which raised
Rupiah 5 trillion (US$540m) from the domestic market as part of its public
borrowing requirement.
Similarly, the Bank of Indonesia, the central bank, earlier this year issued
four regulations governing the operation of Islamic banks and covering rules
on minimum reserves at the central bank; clearing the creation of an Islamic
interbank money market; and Bank of Indonesia promissory notes designed only
for Islamic banks, which adopt profit sharing principles.
The Indonesian issuance is preceded by several other important developments
in the Sukuk market which underpin the current revival:
1. In Malaysia, the RM60bn economic and financial stimulus package,
which includes a RM15 billion fiscal injection in the form of guarantees to
the financial sector, announced by the Government in March 2009 is already
impacting on revitalising the local Sukuk market. The Government is
establishing a Financial Guarantee Institution to provide credit enhancement
to companies that raise funds from the bond market including the Sukuk
market. "Appetite for Sukuk has not dampened. We have a number of corporates
lining up to issue Islamic securities. But they were forced to delay the
issuances in 2008 and first quarter 2009 because it was too costly to issue
Sukuk as the pricing was too high. But with access to government guarantees,
we are confident there will be an improvement in pricing and the market will
soon take off again," says a Malaysian Government source.
2. In an attempt to stimulate savings among the young, Bank Negara
Malaysia, the central bank, is issuing RM5bn of Shariah-compliant Savings
Bonds for Malaysian citizens over the age of 21.
3. Sukuk issuances in Malaysia totaled around RM21bn in 2008; and is
expected to total RM14.5bn over the next few months. In late March 2009, the
Malaysian National Housing Finance Corporation (Cagamas), sold RM915m of
Islamic bonds which were oversubscribed 2.2 times. Cagamas alone plans to
sell RM14bn of bonds in 2009, of which about half could be Islamic bonds.
4. In April too, France became the latest European country to emulate
the United Kingdom in overhauling its tax laws to facilitate Islamic
financial transactions such as Murabaha (cost-plus-financing) used primarily
in commodity finance; and for Sukuk (Islamic securities).
5. The Islamic Development Bank (IDB) is imminently to issue a US$500m
global Sukuk as apart of its US$1bn programme announced last year. The IDB
may extend the volume of this programme depending on demand. The IDB is also
exploring bilateral local currency issuances such as the RM1bn MTN programme
in Malaysia last year.
6. In January, the Monetary Authority of Singapore (MAS) launched a
local currency Reverse Enquiry Sukuk facility which will provide
Shariah-compliant regulatory assets for local and regional Islamic and other
interested banks.
7. Another issuance in January was the US$40m Darahim Sukuk Basket - a
3-year Note issued by BNP Paribas on behalf of Darahim Capital of Bahrain
and which will purchase a portfolio of mainly GCC high-grade rated Sukuk.
8. In Ankara, the Turkish government has submitted a draft law to
Parliament which would pave the way for the issuance of the country's debut
sovereign Sukuk.
9. In Jordan, the Ministry of Finance has completed a study and
consultation on the possible issuance of the country's debut sovereign
Sukuk. The Central Bank of Jordan is urging the Government to do so.
10. In Hong Kong, Financial Secretary, John C Tsang, confirmed in his
2009/10 Budget Speech in February that legislation will be sent to the
Legislative Council during this year to facilitate tax neutrality between
Islamic financial products and equivalent conventional ones. This would
include Islamic real estate, commodity Murabaha and Sukuk products.
The Islamic capital markets is indeed poised to play an important role in
the next stage of development of the global Islamic finance sector per se
which has better withstood the vagaries of the credit crunch and the global
financial market.
The challenge is to consolidate these Islamic Capital Markets and Sukuk
structures and to come up with even more imaginative and economically
productive structures and products. The market developments whether they be
in Dubai, London, Hong Kong, Singapore, Bahrain, Jeddah, Hong Kong or Kuala
Lumpur are underpinned by progress in enabling regulation, legislation,
innovation, Shariah governance, diversification and market education.
The 2009 London Sukuk Summit is specifically aimed at harnessing these
developments to keep you informed about the Sukuk market developments and
innovation; to provide a platform for dialogue with your peers; and to give
you a voice in contributing to the future direction of the Islamic debt and
capital markets. Can you afford to not to be part of this informative,
inspiring and imaginative process!
For further information, please contact us on 020 8200 9002 or email us at
i...@icg-events.com. You can also visit the official event website at
www.sukuksummit.com
<http://dotm1.net/1775063/567646526/46535944/861848/55405/0/t2.aspx>
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