Following this weeks announcement by Government of Indonesia that it intends to re-enter the Sukuk market with a Sovereign issuance of around US$1 Billion, this paper from International Islamic Financial Market (IILM) presents an overview of Indonesia and its Sukuk market presenting a legal and structural overview.
Kuwait Finance House in its June Sukuk Report summarised the Sukuk market as follows:
• 1H14’s issuances of sukuk posts an increase of 8.2% y-o-y to record USD66.2bln
• June is the second most performing month in 2014 year-to-date worth USD11.6bln
• It is expected for 2014’s sukuk to surpass 2012’s record USD131.2bln annual issuance volume
Download full report: KFH June Sukuk
Emirates NBD, the quasi-national Dubai bank opened up a representative Indonesian office in November 2013 and thus far, its forays into the Sukuk arranger market had been largely for Dubai centric outfits such as Dubai Investment Park, Emaar, DEWA, Emirates Islamic Bank and Jebel Ali Freezone.
The appointment by Indonesian Government as well as recent Sukuk deals for Al Baraka Turk, and Al Hilal Bank illustrate Dubai’s growing international ambitions to be seen as a leading financial hub, as well as an Islamic Finance centre are on track.
Formed in 2007 from a merger of Emirates Bank and National Bank of Dubai, Emirates NBD is a major Middle Eastern banking group with assets worth roughly US$90.4 billion.
The “Dubai – Capital of Islamic Economy” initiative, launched in 2013, seeks to place the emirate on the international economic map in three years as the global destination of choice that provides Islamic products, finance and services as well as raising the standards for the management and quality of this sector to new levels.
Indonesia has picked Standard Chartered, HSBC, and Emirates NBD as arrangers for its upcoming $1 Billion sukuk issuance, a senior finance ministry official said Thursday.
The Southeast Asian country has the biggest population of Muslims in the world but its Islamic finance industry lagged behind neighbouring Malaysia, the biggest sukuk issuer in the region.
International Islamic Liquidity Management Sukuk
The IILM announced that it would be conducting an auction on 17th July 2014 for value of $860 Million the issuance of the IILM Short-Term (3 month maturity) Trust Certificates (Sukuk) under its regular issuance programme.
The issuance by Saxony-Anhalt attracted strong demand and was fully subscribed, with 60% of the issue going to investors in Bahrain and the UAE and the remaining 40% to investors in Europe, particularly those in France and Germany.
The €100 million Ijarah sukuk (Islamic sale-and-leaseback debt instrument) was fully redeemed in 2009. In 2009, Germany’s Federal Financial Supervisory Authority (BaFin) accepted a request from a foreign institution to conduct banking operations within the country in accordance with Islamic principles. However, without a full banking licence, the range of offerings remained limited. A follow-up conference on Islamic finance was organised by BaFin in May 2012, which had a special focus on Shari’ah-compliant capital market products (Islamic funds, sukuk and asset-backed securities).
The German market has also witnessed the offering of a new Shari’ah-compliant investment product that is benchmarked to the WestLB Islamic Deutschland Index. This is comprised of shares in ten German firms whose business activities are conducted in line with the Shari’ah. German financial institutions also actively participate in the Islamic finance industry via their subsidiaries in London, Dubai and Kuala Lumpur. These institutions could play a key role in attracting Shari’ah-compliant funds to Germany through their established networks and expertise.
The prospects for the further development of Islamic finance in Germany are rather solid. First, Germany is the largest economy in Europe and it features the largest Muslim population (4.1 million people, against 3.5 million in France and 2.9 million in the UK). Second, German exporters could use institutions offering Islamic financing solutions as alternative sources of funding and thereby further enhance their funding profiles. Third, Islamic trade finance products offer the potential to strengthen trade ties with countries such as Turkey; a country which is an active trading partner of Germany and that has a budding Islamic finance sector.
The primary market sukuk issuances volume reached USD44.5bln as at end 4M14 and this volume is 1.6% higher than the USD43.8bln volume in 4M13.
The issuances were led by sovereign and quasi-sovereign issuers who collectively accounted for approximately 82% or USD36.5bln of the total issuances. The issuance momentum has varied m-o-m with a generally slow start in 2014 on account of higher funding costs stemming from the US Fed’s tapering exercise that sent yields on fixed income instruments spiralling upwards, particularly in emerging markets.
In Mar-14, corporate sukuk issuances notably slowed down on account of an absence of GCC-based issuers following an intra-GCC diplomatic dispute. Finally, April’s monthly issuance volume of more than USD13.4bln marks it as the most performing month for 2014 YTD and the third most performing month in the last 12 months. Overall, the performance of the primary market in 2014 YTD has set an optimistic outlook for the remainder of this year and with a healthy and diverse pipeline in place for 2014, which includes debut issuances from the UK, Luxembourg, South Africa, Hong Kong and Tunisia, the prospects are bright moving forward with annual issuances expected to once again exceed the USD100bln mark this year.
Download full report: KFH Islamic Finance Report
Following a record setting year, the sukuk market is becoming a viable alternative financing vehicle for local businesses, the National Commercial Bank (NCB) said in its “Saudi Economic Perspectives 2014-2015” report released recently. Malaysia holds the top spot for Islamic financing with a total number of 637 issues last year worth $80.9 billion. Saudi Arabia firmly came in second with a record setting $15.2 billion worth of sukuk, up 36.4 percent Y/Y, through 20 issues.
Download full Report: NCB Saudi Economic Perspectives 2014-2015
The Treasury stated “The process of issuing a Sukuk remains in place as a medium-term project to access a new investor base”
London Stock Exchange today welcomes the listing of the UK Government’s first Islamic bond, or Sukuk. The listing is the first for a country outside the Islamic world and raised £200m on orders totalling more than £2billion. To mark the occasion, Government Ministers, the Rt Hon Sajid Javid MP – Secretary of State for Culture Media and Sport and Minister for Equalities, and Andrea Leadsom MP – Economic Secretary to the Treasury opened trading in a special Market Open Ceremony at London Stock Exchange this morning.
Economic Secretary to the Treasury, Andrea Leadsom, said:
“Today’s listing of Britain’s sovereign Sukuk, the first outside the Islamic world, is great news for our financial services. The strong demand for the Sukuk not only delivers good value for money for the taxpayer, but also cements Britain’s position as the western hub of Islamic finance and is a part of our long term economic plan to make Britain the undisputed centre of the global financial system.”
Xavier Rolet, CEO, London Stock Exchange Group said:
“We’re delighted to welcome the UK Government ministers to open our markets this morning. The fact that the UK is the first country in the Western world to launch a Sukuk bond, and the exceptional demand for the bond highlights London’s standing as the world’s leading international financial centre. It also confirms the UK as a key destination for foreign, Shariah-compliant financial products and institutions.”
The UK sovereign Sukuk will have a maturity of five years and use the Al-Ijara structure, the most common structure for sovereign Sukuk. The Sukuk will be underpinned by rental income from three central government office properties, which will remain in government ownership during the lifetime of the Sukuk.
More than $38 billion has been raised through 54 Islamic Sukuk issues – including four this year – in London, which is also home to six Islamic banks.
UKIFS presents an overview of Islamic Finance in the UK. Since this report was published the UK became the first non-Islamic country to issue a Sovereign Sukuk.
