Tuesday, 6 December 2016

Event Summary (KLS2017) - KL Conference on Sukuk 2017


KL Conference on Sukuk 2017

Date    : 21-22 November 2017
Venue : Premiera Hotel, Kuala Lumpur - Malaysia

“An international gathering of practitioners, scholars and experts to discuss and share their knowledge, expertise and experience on the principles, instruments and issues related to Sukuk, to be held at the world’s leading Islamic financial centre…Kuala Lumpur.”

Event site : www.sukuk.conference.blogspot.com

KEY FOCUS/TOPICS:
- Global and regional development of Islamic finance
- Ensuring Shariah compliance in Islamic financial instruments
- Global and regional development on Sukuk
- Types of Sukuk structures
- Innovative Sukuk structures
- Shariah issues on Sukuk
- Lefal Issues on Sukuk
- Challenges on Sukuk
- Sukuk during Global economic uncertainties

SPEAKERS:

Speakers are selected from Islamic banks, takaful operators, academicians, legal practitioners, consultants, regulatory bodies.

Among the speakers are:


WHO SHOULD  ATTEND:
- Islamic bankers/bankers
- Regulators
- Head of governmental departments
- Financial planners/wealth advisors
- Financial consultants
- Legal practitioners (lawyers)
- Academicians (lecturers)
- Takaful/insurance operators
- Entrepreneurs (businessmen/importers/exporters etc)
- Investors
- Other professionals 

REGISTRATION:
Early Bird Fee: 
Registration with payment by 23 October 2017
Malaysian   :  RM1,700
International  :  USD700

Normal Fee:
Registration with payment after 23 October 2017
Malaysian  :  RM2,000
International  :  USD700
Special fee for Malaysian university lecturers :  RM1,200 (group discount not applicable)

Fee is inclusive of lunch, refreshments and seminar package only.


Group Discount:
Enjoy 10% discount for 3 or more delegates registered from the same organisation and the same billing source.

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(will be uploaded soon...for now you may request for tentative program or you will be given a tentative program when register online)

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ORGANISER


VENUE


Premiera Hotel, Kuala Lumpur - Malaysia

MEDIA PARTNERS


Kuala Lumpur


Green sukuk herald new era of environmentally responsible investment


The Paris Agreement on climate change with its tougher rules on reducing the emission of greenhouse gases is seen by many analysts as a driver for the advancement of so-called green bonds, and with them green sukuk, a new variety of Islamic bonds for investments in environmental-friendly and clean energy projects. 

The new climate agreement prompted a number of Islamic banks to consider an expansion of their product ranges in socially responsible investments towards “green finance” in order to catch up with their conventional peers, many of which are already placing green bonds for years quite successfully. And, notably, two of the six signatory Gulf Cooperation Council (GCC) nations, Saudi Arabia and UAE, which are also the region’s largest sukuk issuers, surprisingly quickly ratified the Paris accord, enforced it on November 4 and December 3, respectively, and are supposed to take respective “green action’ in a variety of fields, including financing.


In a nutshell, green bonds evolved in the conventional finance world as a specific sub-set of bonds used for clean energy projects, mainly issued by renewable energy companies or by corporations for the construction and operation of green assets. They were introduced by the World Bank as early as in 2008 to give investors an innovative method to support clean energy and other low-carbon projects. Since then, conventional financial instruments supporting green projects have been on an impressive upward growth trajectory, with financial heavyweights such as Goldman Sachs, Blackrock, Norway’s sovereign wealth fund and many other large conventional asset managers jumping upon the bandwagon.


In the Islamic finance world, the development was a bit slower. Reasons are that, namely in the oil-rich Gulf States, the perception of environmental problems has not been particularly distinct in the past, and initiatives against climate change long had no priority in government policies or in civil society. But with the slump in oil and gas prices, the need for economic diversification and the growing advantage of the West, particularly Europe, in environmental technologies, the Gulf States noticed a need for action. Some of the Gulf banks are now embracing the green bond concept by starting to include green sukuk, realising in the process that ethical requirements of green projects fit in well with Shariah-compliance.


The Bahrain-based General Council for Islamic Banks and Financial Institutions found in a survey released last month that Islamic banks indeed want to increase green financing options. The survey, based on responses from 86 Islamic finance institutions across 29 countries mainly from the Middle East and Southeast Asia, as well as Africa, said close to one-third of small Islamic banks cited a “moderate exposure” to the green and renewable energy sectors, compared to 15.5% for large Islamic banks which means there is still considerable potential for Shariah-compliant green financing across the industry.
Technically, a green sukuk is not a complicated Islamic finance product.


“The structuring of a green sukuk wouldn’t be much different from that of a normal sukuk. The sukuk’s structure would largely depend on the available green assets to support the sukuk or the environmentally friendly project to be financed,“ says Hari Rai, Dubai-based partner of international law firm Latham & Watkins. “Given the size of the global sukuk market, it is almost surprising that Islamic banks and sovereigns have so far not really tapped into the potential of a green sukuk,“ he adds.


There have been some recent examples, though. In Malaysia, the largest sukuk issuer globally, a local lender has introduced green mortgages to facilitate installation of solar systems, while an Islamic bank in Jordan is developing alternatives to medium-term loans to fund energy efficient and renewable energy projects. There have also been new initiatives to promote green sukuk, namely the Green Sukuk and Working Party (GSWP), jointly established by Masdar City’s Clean Energy Business Council, the Mena branch of the Climate Bonds Initiative and the Gulf Bond and Sukuk Association. It aims to promote and develop Shariah-compliant financial products to invest in solutions that seek to prevent climate change. 


The scope of green sukuk can be quite substantial. They can not only be used to finance construction of green developments or infrastructure, but also to refinance construction or project debt or to finance the payment of a government-granted green subsidy. Eligible assets for green sukuk as per the international Climate Bond Standards include solar parks, bioenergy plants, wind energy, clean water, hydropower and agricultural irrigation projects, energy efficiency applications and low-carbon buildings, low-carbon land use, electric vehicles and infrastructure, geothermal energy and marine-related environmental projects.

However, who is eager to contribute to a cleaner environment by investing into a green sukuk should also take into account the challenges as with any other investment, for that matter. While demand for green sukuk will certainly grow in the future and Gulf governments are likely to promote them more intensely, they entail a higher risk profile than conventional sukuk while the secondary market for them is still small and performance measurement standards for the segment aren’t developed yet.


SOURCE: Gulf Times/6 Dec 2016

Sukuk market long way from 2012 heyday - report

The market for sukuk, or Islamic bonds, is struggling to recover from last year's dip in issuance and it could take years for supply to return and even longer to address pent up demand, a report released on Tuesday showed.
Sukuk have become an important funding tool for both banks and corporates across the Middle East and Southeast Asia, but a reliance on sovereign issuance and an economic slowdown due to lower oil prices have taken their toll.
Issuance of sukuk is down 18 percent for the first nine months this year compared with the same period last year, while the year-end figure could exceed $50 billion, according to a report by Thomson Reuters.
Issuance is estimated to gradually recover over the next few years to $54 billion in 2017 and $59 billion in 2018, but this is well below the record $134 billion seen in 2012.
This is largely due to the lasting effects of Malaysia's central bank decision to stop issuing short-term sukuk in 2015, opting instead for targeted Islamic treasury bills reserved for domestic Islamic banks, the report said.
Several Gulf countries including Saudi Arabia have also opted to fund their budget deficits with conventional bonds, amid lack of new names such as Britain and Hong Kong, which tapped the market in 2014.
Despite this, there has been a shift in the structures used to design sukuk, which could appeal to new issuers.
Sukuk are Islamic investment certificates that pay returns on money invested, instead of interest, to obey Islam's ban on interest, with over a dozen different structures in use.

An agency-based structure known as wakala had the highest value of sukuk issued in 2016 at $12.1 billion, a hybrid format that allows issuers to use a smaller level of tangible assets to underlie a sukuk transaction.
This has displaced sukuk based on ijara, a sale and lease-back contract popular among Gulf issuers, which saw $7.3 billion worth of issuance this year.
Ijara requires tangible assets for the full amount raised via sukuk, restricting its use by firms with fewer eligible assets on hand.
Diversification of funding sources remains the most appealing reason to issue sukuk, according to the report's survey of investors and sukuk arrangers conducted during August.
Sukuk still lack active secondary markets while governments have yet to incorporate them into their debt management strategies, steps which could increase their appeal, the survey found. 
SOURCE: Reuters/6 Dec 2016


Monday, 5 December 2016

Global sukuk issuance exceeds RAM’s projection, Malaysia still leads




KUALA LUMPUR: RAM Rating Services Bhd said global sukuk issuance as of end-November 2016 totalled US$72bil (RM319.9bil), surpassing its earlier projection of US$55bil to US$65bil (RM244.3bil to RM288.8bil) for the year.

In a statement on Monday, RAM said Malaysia retained its top spot with a 41.7% market share, followed by Indonesia (16.4%), the United Arab Emirates (11.0%), Turkey (7.1%) and Pakistan (6.7%).

The ratings agency noted that the corporate sector posted a 35.5% year-on-year jump in global sukuk issuance to US$30.6bil (RM135.9bil) as of end-September this year versus US$22.6bil (RM100.4bil) in the same period last year.

The top three issuers were originated from Malaysia, the UAE and Qatar, namely the Public Sector Home Financing Board (US$0.96bil), Emaar Sukuk Ltd (US$0.75bil) and the State of Qatar (US$0.72bil), respectively. 



A total of US$5.9bil of global sukuk was issued in September, bringing the year-to-date (YTD) issuance to US$58.9bil for the month.

RAM also highlighted that a total of RM9.6bil of domestic sukuk was issued in September, leading to a YTD issuance value of RM99.5bil.

“True to tradition, local-currency sukuk issues were dominated by the financial services and infrastructure and utilities sectors,” it said.

RAM head of Islamic finance, Ruslena Ramli, said large issuances from the financial and infrastructure sectors had been a boon to the sukuk market, and were likely to remain a key catalyst of future growth.

“As of end-November this year, the issuance value of domestic Islamic debt securities stood at RM125.3bil, exceeding RAM’s full-year projection of RM100bil to RM120bil,” she said.


SOURCE: Bernama/5 Dec 2016

Monday, 28 November 2016

The rise of the Sukuk

The financial crisis of 2008-09 once again proved that the structural flaws of conventional system result in its frequent collapse. Among the multiple quoted reasons, one of the most prominent ones is excessive leveraging and low transparency owing to the absence of the mandatory requirement of complete information. Hence, the focus in the post-financial crisis has shifted towards having greater accountability, enhancement in transparency, improvement in governance and a strict limit on leveraging. This has persuaded the world to look towards Islamic finance as a viable financial alternate.

The prohibition of usury and encouragement of risk-sharing forms a financial system that creates a direct link with the real sector. This demonstrates that there exists a strong link between the performance of the asset and return on the capital used to finance it. The asset-backed nature of Islamic financial transactions, in addition to the prohibition on speculative activities and the key pillars of equity, justice and transparency on which the Islamic financial system is based make it a more stable and prudent system than its conventional counterpart. Sukuk, the most popular global instrument of Islamic finance, is being used by many developing countries as a tool of fiscal policy for economic development.

Broadly there are two types of Sukuk: (i) Asset-based Sukuk – raising finance where the principal is covered by the capital value of the asset, and the returns and repayments to Sukuk-holders are not directly attached to those assets; and (ii) Asset-backed Sukuk – raising finance where the principal is covered by the capital value of the asset but the returns and repayments to Sukuk-holders are directly linked to the performance of these assets. In terms of structure, 14 different types of Sukuk structures have been recognised by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), a Bahrain-based standard Setting organization.

These structures are mainly based on the underlying modes of Islamic finance, namely murabahah, musharakah/mudharabah, wakala, istisna and ijarah among others, or combinations of these. Since its inception, various structures of Sukuk have been successfully used by corporates and governments to raise funds. Projects like roads, railways, airports and hospitals etc, which generate revenues from tangible assets and are consistent with the Islamic rules of finance, are particularly appropriate for Sukuk financing. Given the importance of infrastructure development for sustainable economic growth, there is a large demand in emerging markets for Sukuk. Sukuk enhance the stability of financial institutions by providing them with improved portfolio diversifications and liquidity. Sukuk also encourage genuine transactions as these are based on real, identifiable, existing assets. This results in the development of a stable and sound economy, founded on real assets and productive activities as opposed to artificial paper based transactions. Strict adherence to Shariah principles of ownership, transparency and risk-sharing ensure a relatively resilient position of Sukuk than conventional bonds.

 According to research, it has been proven that Islamic securitisation –particularly due to its ethical foundation and its reliance on real tangible assets if implemented – would have, arguably, reduced some of the unfavourable outcomes of the 2008 financial crisis, as real collateral limits the possibilities of speculative activities. Pakistan joined the global Sukuk market with the issuance of its first international sovereign Sukuk of $600 million in 2005. In the domestic Sukuk market, the first Sukuk was issued in 2006. Since then more than 90 Sukuk (including corporate Sukuk and Government of Pakistan Sukuk) have been issued. However, in terms of volume, GoP Ijara Sukuk dominate the overall Sukuk market of the country. Al-ijara Sukuk, the most popular structure, represent ownership of equal shares in a rented real estate or the usufruct of the real estate. For Sovereign Ijara Sukuk of the government of Pakistan, a special purpose vehicle (SPV) known as the Pakistan Domestic Sukuk Company Limited (PDSCL) was established; the PDSCL issues Sukuk.

The PDSCL raises funds from Sukuk-holders to acquire assets from the government and declare trust on these assets for the benefit of Sukuk-holders. Each Sukuk certificate represents an undivided beneficial ownership interest in the trust assets. Subsequently, the trustee leases the assets for periodic payment of rentals for the life of the Sukuk. The rentals are received periodically by the trustee and distributed to the Sukuk-holders over the life of the Sukuk. On maturity of the Sukuk, the trustee sells the trust assets and the government purchases the assets while the proceeds are paid to the Sukuk-holders. Till now the government has issued total 18 domestic Sukuk and three international Sukuk. However, the share of Pakistan in the global market is still very low. According to the International Islamic Financial Market (IIFM), in the Sukuk database of December 2015 Pakistan’s share was below three percent (the issuance of two domestic Sukuk of Rs196.6 billion and one international Sukuk post-December 2015).

Given that Pakistan has identified the country’s infrastructure needs in its Medium Term Development Framework, the financing for carrying out such developmental projects can be achieved through issuance of Sukuk. Owing to its inherent strengths along with infrastructure requirements in the world, the global Sukuk market is expected to remain buoyant. The issuance of Sukuk is a complex process, and detailed documentation is required at each stage which ensures transparency. The expansion and progression of the Sukuk industry requires coordinated efforts from all stakeholders including issuers, regulators and investors. The potential of Sukuk for economic growth, strengthening financial stability and catalysing inter-regional investment flows makes it an attractive asset class for issuers and investors. Going forward, it is hoped that the government will exploit the potential of Sukuk for broad-based development of the country. The writer is a joint director at the Islamic banking department of the SBP.

SOURCE: The News / 28 November 2016

Tuesday, 22 November 2016

Jordan looks to sukuk to bolster financial toolkit

Building on recent growth in Islamic finance, Jordan is expanding its funding options and tapping a rising market through the issuance of sukuk (Islamic bonds).

Two issuances

This year the Central Bank of Jordan (CBJ) issued two rounds of sharia-compliant sovereign bonds for the first time in the country’s history. 
The first offering, released in May, used a murabaha (cost-plus financing) structure and was valued at JD75m ($105.7m). The sale successfully attracted JD205m ($289m) in bids from investors at a coverage ratio of 2.73. Meanwhile, the second sukuk, issued in mid-October, used an ijara (leasing) structure and was valued at JD34m ($47.9m). The latter sale was more than three times oversubscribed.
The bonds have a five-year maturity, with expected profit rates of 3.5% and 3.01%, respectively.
While both issues have been termed sovereign, the May sukuk – which was designed to provide liquidity to finance the operations of two government-owned companies, the National Electric Power Company and the Water Authority of Jordan – is backed by the utility companies rather than the government, whereas the October issue – which will be used by the Ministry of Finance (MoF) – is guaranteed by the government.
The sales were accompanied by a move in September, when the government signed an agreement with the International Islamic Trade Finance Corporation to finance basic imports with sharia-compliant funds.
The Jordanian government expects net domestic borrowing will reach approximately JD896m ($1.26bn) this year, according to press reports.

Market snapshot

The recent sukuk offerings are part of a broadening of Jordan’s Islamic financial services industry in the past couple of years.
At the end of July last year the Governorate Development Fund (GDF) – which was established in 2011 to finance small and medium-sized projects, as well as entrepreneurial initiatives – partnered with the Hajj Fund to offer sharia-compliant financing options.
The GDF plans to use a variety of Islamic financial structures, such as murabaha, ijara and istisnah, to fund industrial and service projects that aim to increase employment in the country.
Last year also saw the Jordan Dubai Islamic Bank (JDIB) launch sharia-compliant investment certificates of deposit, the first to be offered by an Islamic financial institution in Jordan.
Earlier this year flagship carrier Royal Jordanian finalised a $275m, five-year loan facility, which will be partially funded through Islamic financing, to pay down its incurred debt and restructure the company.

Strong foundations

Islamic finance is not new to Jordan, with local lenders Jordan Islamic Bank (JIB) and the Islamic International Arab Bank operating in the country since the 1970s and 1990s, respectively.
Yet, while Jordan introduced a framework for the sector as early as 1978, with the implementation of the Jordan Islamic Bank for Finance and Investment Act No. 13, it was not until more recently that the government began to proactively encourage the burgeoning industry.
Last year the CBJ took another regulatory step, issuing the Corporate Governance for Islamic Banks Instructions No. 61, which aim to increase accountability and transparency among Islamic financial institutions.
The Islamic finance industry in Jordan, though small, has been steadily growing since 2010, when JDIB – established by the Dubai Islamic Bank and its partner Jordan Dubai Capital – began its operations. One year later local company Al Rajhi Cement offered Jordan’s first sukuk, a seven-year, JD85m ($119.6m) issue.
In 2012 Parliament passed the Islamic Finance Sukuk Law, enabling both private and public entities to issue sukuk in dinars and foreign currency. The long-awaited legislation had been in development since 2010.
Building on this, in April 2014 the government passed new by-laws specifying the structure and transfer framework for issuance of sukuk. This was followed in July of that year by the Jordan Securities Commission’s introduction of rules allowing the issuance of sharia-compliant debt.

Future growth

The legislation has helped the Islamic financial sector bolster the country’s debt market.
In May local real estate developer Al Tajamouat for Touristic Projects, also known as Taj Mall, sought to shore up its finances, with the JDIB and investment bank JordInvest jointly issuing JD45m ($63.6m) worth of sukuk on behalf of the company.
Meanwhile, the government has introduced proposals to further develop Jordan’s Islamic financial services industry.
In a bid to make sukuk available at the retail level, the MoF commissioned the establishment of the Islamic Corporation for the Development of the Private Sector last year with the objective of providing sukuk-related technical help to private sector companies.
Signalling future growth, in September the Economic Policy Council – a 15-member body chaired by King Abdullah II – proposed to expand the targeted sukuk market to individuals, as well as create a JD150m ($212m) private equity fund, to be partially financed by Islamic banks.
SOURCE: Oxford Business Group / 22 November 2016

Wednesday, 16 November 2016

Bahrain approaches banks about sukuk sale in Q1 2017

The Kingdom of Bahrain is in talks with lenders for an Islamic bond, or sukuk, which is expected to be issued in the first quarter of 2017, banking sources told Reuters.
No banks have been appointed yet to arrange the debt transaction, the bankers said on condition of anonymity because the information has not been made public. The size of the debt issuance will be a minimum of $500 million, one of the banking sources said.
Bahrain's Ministry of Finance was not available for immediate comment.

The Kingdom has some $5 billion-equivalent in debt maturing in 2017, mostly consisting of short-term local currency treasury bills. It has no U.S. dollar bond expiring next year, Thomson Reuters data shows.
Bahrain's latest U.S. dollar debt issuance was in October, when it sold a $2 billion comprising a $1 billion sukuk and a $1 billion conventional bond.
The $1 billion long seven-year sukuk, maturing in February 2024, carries a 5.625 percent coupon rate, while the conventional bond, with a 12-year maturity period, was issued with a 7 percent interest rate.
The bonds were arranged by Bank ABC, BNP Paribas, Credit Suisse, JP Morgan and Standard Chartered.
Bahrain is rated BB by S&P and BB+ by Fitch.
(Editing by Jason Neely)
SOURCE: Reuters/16 Nov 2016


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