Malaysian government investment agency Khazanah raises US$750 million in Islamic bonds

"Malaysia's Khazanah raises US$750 million in world's first exchangeable Islamic bond", International Herald Tribune, September 28, 2006

Following the bid close yesterday, the Malaysian state-owned investment company Khazanah Nasional Bhd, has now concluded its world-first issue of RM 2.76 billion (US$750 million) Islamic exchangeable bonds. The bonds were marketed in the region as well as in the Middle East, predominately in Saudi Arabia, Qatar, UAE and Kuwait. The bonds will be convertable into shares of Khazanah-controlled Telekom Malaysia Bhd, the largest Malaysian telecoms company. As with other exchangeable bonds, holders have the option of holding the notes until maturity in 2011. Malaysia's Business Times provides more details on the bonds:

"The certificates were priced at 100 per cent of the principal amount with yield to maturity of 5.07 per cent. They will carry an annual periodic payment of 1.25 per cent and exchange premium of 19 per cent over the 1-day volume weighted average price of TM shares on September 27 2006." --"Khazanah issues world's 1st Islamic exchangeable bonds" (September 28, 2006)

One analyst speaking to the Business Times on the use of Islamic bonds rather than placement of shares indicated that the former are more easily to sell because of the large excess of demand over supply of sukuk. Currently, Khazanah owns a 40 percent stake in Telekom Malaysia; if all the bonds are exchanged, Khazanah will still be the single largest shareholder, but their shareholdings will fall to 30 percent of all shares.

Malaysian government investment arm to issue up to $750 million in sukuk

"Khazanah may issue US$750m Islamic bonds", Business Times (Malaysia), September 27, 2006


The investment arm of the Malaysian government, Khazanah Nasional Bhd will issue at least RM1.84 billion (US$500 million) exchangeable bonds that can be converted into shares of Telekom Malaysia Bhd, Malaysia's largest telecom company, also controlled by Khazanah. The deadline for submitting bids is today and depending on demand, the issue might be increased to RM 2.76 billion (US$750 million).

Royal Bank of Scotland approved to open offices in Bahrain

"Bahrain grants RBS licence to open office", MENAfn, September 27, 2006

The Royal Bank of Scotland (RBS) is the latest Western bank to successfully open new branches in the Middle East. While RBS has not become involved with Islamic banking, the article cites Central Bank of Bahrain officials hints that it could become RBS's "first experiments in Islamic banking". If RBS entered the Islamic banking industry, it would join other Western banks like Deutsche Bank, Citigroup and HSBC in a rapidly growing market for Shari'ah-compliant financial products.

HSBC Bank Middle East Ltd. approved to operate on the DIFC

"HSBC Middle East gets DFSA license", Trade Arabia, September 27, 2006


HSBC's Middle East banking division, including its Islamic financial services vehicle HSBC Amanah, has won approval by the Dubai Financial Services Agency to operate on the Dubai International Financial Centre (DIFC).

Conference on Islamic Infrastructure Project Financing in Doha, Qatar

"Meet to discuss project finance", Peninsula (Qatar), September 27, 2006

An article outlining what the focuses will be at the World Islamic Infrastructure Finance Conference (WIIFC), scheduled for November 5-6, 2006 in Doha, Qatar. The conference will discuss the areas in which Islamic project financing is used most commonly and areas in which its use is growing the most rapidly.

Islamic Banking discussed in a Banking & Finance Supplement - Gulf News

"Islamic banking comes of age", Banking & Finance Supplement - Gulf News, September 27, 2006


The entire supplement touches upon the relationship between Islamic banks, which have 15 percent of the market in UAE, and conventional banks, which have the rest. The supplement also has an article devoted to Islamic banking, which summarizes the developments of the past 30 years. The main conclusion of the article, written by the Associate Director of Standard & Poors is that Islamic banks need to merge in order to become competitive on a global scale and also the two largest regional sources of Islamic banking, the Middle East and East Asia, need to harmonize their Shari'ah standards.

Indonesia to offer sukuk next year

"Indonesia planning to sell Islamic bonds", International Herald Tribune, July 18, 2006

Indonesia announced earlier this year that it is planning to begin issuing Islamic bonds (sukuk) next year. The hope of many issuers of sukuk is that it will attract investment from the oil-rich Middle East, as well as from other Muslim investors who want to follow Shari'ah law when they invest their money.

Cayman Islands-based firms leading in sukuk issues

"Cayman Islamds Emerge as Leading Islamic Finance Domicile", Investors Offshore, September 26, 2006

The market for sukuk is expanding rapidly and many of the companies issuing the sukuk are domiciled in the Cayman Islands.

Japan may launch first sukuk by G7 country

In the previous post, a story referred to plans by the Japan Bank for International Cooperation (JBIC) to launch an Islamic bond (sukuk) in the near future. Stories from August and early September of this year in the Taipei Times and Asian Banker (August & September) suggest that the JBIC is looking at issuing sukuk valued at between $300 million and $500 million on the Malaysian exchange as early as January 2007. Malaysia accounts for roughtly 2/3rd of the global sukuk market.

Islamic finance expanding among Muslims and non-Muslims

"Islamic finance prospers, backed by non-Muslims", Middle East Times, September 25, 2006

The growth in Islamic finance has been rapid, particularly in the past five years and non-Muslims are taking advantage of Islamic finance as well. Japan will be the first non-Muslim country to issue Islamic bonds to attract investors from the Muslim world if it goes ahead with its current plans. The article says that the following Western banks offer Shari-ah-compliant products: Citigroup, Deutsche Bank, HSBC, Lloyds TSB and UBS, although many of these banks only offer Shari'ah-compliant products outside of the United States.

Islamic securitization increasing

"Securitisation As Source of Funding Gains Appeal", BERNAMA, September 25, 2006

The growth of Islamic securitization in Malaysia is a growing quickly mode of finance. Islamic securitization, which involves sharing profit and loss between investors and managers. The only restriction placed upon Islamic securitizations is that the underlying contract must be Shari'ah-compliant. "Securitisation allows businesses to go directly to the capital markets for funding without having to go through the traditional banking channels," says Malaysian Ratings Corporation Bhd (MARC) specialist in securitization and credit derivatives.

Qatar National Bank seeks to cash in on growth of sukuk

"QNB sees sukuk as major growth area", The Peninsula (Qatar), September 23, 2006

The Qatar National Bank, having recently completed a US$ 100 million sukuk for the Qatar Real Estate Investment Company, sees sukuk as one of the areas in which growth is likely to be the fastest in the future, as it has been since 2001, growing by 45 percent per year since then. The article adds one interesting supposition about why sukuk are often held to maturity, that the demand for them outstrips their issue. As the issue of sukuk grows, this is likely to diminish and a secondary market is likely to emerge.

Financial Times explores Islamic finance in depth

"The Wealth Issue: Make Money, Not War", Financial Times, September 22, 2006

In an extended Weekend edition article, the Financial Times explores the development of Islamic finance through the lens of how Western investment banks have expanded their offerings into Islamic finance. This is a very comprehensive view from the West of Islamic finance.

Deputy CEO Of Amlak Finance on the growth of Islamic finance

"Old ideas and new practices", Gulf News, September 23, 2006

In this article, the deputy CEO of Amlak Finance, Shahli Akram describes how Islamic finance works, how quickly it has been growing as well as why he believes its appeal will extend not just across Muslim communities. His main belief is that by its very structure, Islamic finance is more stable than conventional finance because of its ties to the real economy and its prohibition of speculation.

Malaysian construction firm KL Sentral to issue Islamic bonds in October

"Malaysia KL Sentral to sell 700m rgt bonds - source", Yahoo! Asia News, September 22, 2006

"Malaysian construction firm Kuala Lumpur Sentral Sdn Bhd plans to sell about 700 million Malaysian ringgit ($191 million) worth of Islamic bonds". The bonds would be for refinancing the company's debt and would have maturities up to 7 years. The company is working with HSBC and the Kuwait Finance House on the issue. According to the article, Islamic (Shari'ah-compliant) bonds made up three quarters of all bond issues in Malaysia.

"Malaysia KL Sentral to sell 700m rgt bonds - source", Yahoo! Asia News, September 22, 2006

"Malaysian construction firm Kuala Lumpur Sentral Sdn Bhd plans to sell about 700 million Malaysian ringgit ($191 million) worth of Islamic bonds". The bonds would be for refinancing the company's debt and would have maturities up to 7 years. The company is working with HSBC and the Kuwait Finance House on the issue. According to the article, Islamic (Shari'ah-compliant) bonds made up three quarters of all bond issues in Malaysia.

Britain's Financial Services Agency (FSA) to open licensing process for Islamic mortgages

"Authorisation process for the new home finance activities", Financial Services Agency (UK) Press Release, September 22, 2006

Applications to become licensed for Islamic leasing home purchase plans (Ijara) begins November 6 and runs until April 6, 2007. According to the press release frin the FSA, "After 6 April 2007, when the new regimes start, it will be illegal for any firm that is not FSA authorised or an Appointed Representative of an authorised firm to carry on [...] Ijara home finance business."

Bahrain-based Al-Salam Bank looking to expand into Asia

"Bahrain's Al Salam Bank eyes Asian acquisition: exec", Gulf Times, September 22, 2006

The story quotes an executive at Al Salam Bank, Yousif Taqi, speaking to reporters in Malaysia as saying that "We are looking at some asset targets, but still we have to do due diligence". The Bahrain-based bank recently completed a US$111 million IPO. The bank has licenses to operate in Sudan and Algeria. Within the Middle East it plans to expand into Syria next, while India, Pakistan and Malaysia are likely destinations for the bank in Asia.

First U.S. originated sukuk issued by Texas-based oil company

"BSEC announces the successful closing of the first ever oil and gas Shariah compliant securitisation", AMEinfo, June 20, 2006

The Texas-based oil company East Cameron Partners made the first U.S. originated sukuk issue with their US$165.67 million issue. The issue was handled by Merrill Lynch and the Beiruit, Lebanon-based company Bemo Securitisation (BSEC), which provides Shari'ah-compliant securitization to SMEs. According to the AMEinfo story:

"This deal is the first ever Islamic securitisation rated by S&P; it is the first ever Islamic securitisation originated out of the US. It is the first securitisation embedding Shariah compliant hedges. It is also the second Islamic true sale securitisation originated and structured by BSEC. "

East Cameron Partners has reserves based offshore of Louisiana.

Islamic bond market to expand with future entrance of Gulf oil firms

"ANALYSIS-Islamic bonds may get a lift from Gulf oil firms", MSNBC, September 20, 2006

According to Reuters, the issuance of Islamic bonds (sukuk) will see a large increase in the next few years as Gulf oil companies use sukuk instead of conventional means of financing. Saudi Aramco, the Saudi oil producer is planning US$50 billion in investment over the next few years and may fund some of that through sukuk issue. The government of Qatar is thinking about issuing US$60 billion in sukuk to finance energy projects by 2010.

Sabah Ports to offer US$40 million in sukuk

"Sabah Ports proposes RM150 m Islamic securities", The Edge Daily, September 20, 2006

Sabah Ports, the Malaysian port terminal operation will issue RM150 million (US$40 million) in Islamic bonds (sukuk) to finance capital expenditures. The issue will have maturity lengths between 3 and 10 years with a Murabaha (cost-plus) underwritten issue of RM70 million (US$19 million) with a maturity of 7 years.

Kuwait Finance House Malaysia to offer sukuk on behalf of Chinese company

"KFH to sell Islamic bonds for Chinese firm", Malaysia Star, September 20, 2006

The Kuwait Finance House Malaysia will sell between US$200 and 250 million in Islamic bonds (sukuk) on behalf on an unnamed Chinese firm. The issue is the first sukuk issue by a Chinese firm. The bonds will be available with maturities of 5- and 10-years.

Sukuk offered with put and call options

"Unicorn Investment Bank and WestLB successfully close US$150m Sukuk for Investment Dar", AMEinfo FN, September 20, 2006

The offered musharaka sukuk is the first of its kind to have a put and call options that let the buyer exit at year three with the same provision for the seller. The sukuk has been approved by the Shari'ah boards of both Unicorn Investment Bank and Investment Dar.

Syria to offer takaful licenses

"Syria licenses first takaful insurance firms", AMEinfo FN, September 20, 2006

The Syrian government issued three licenses to companies to begin operating in the takaful (Islamic insurance) industry. The market for these products in Syria is estimated at US$500 million per year. Until now, there were only a few (mostly Lebanese) firms allowed to operate in Syria

MNRB & Munich Re setup Islamic Reinsurance in Malaysia

"MNRB, Munich Re to set up retakaful units", Business Times (Malaysia), September 19, 2006

Local Malaysian takaful company MNRB Holdings Berhad has joined with Munich Re, the German firm that is the second largest reinsurance company in the world, to offer Shari'ah-compliant reinsurance, called retakaful. Bank Negara Malaysia (the Malaysian Central Bank) has estimated the size of the takaful industry at US$1.8 billion, growing at 25 percent per year and expected to have US$7.4 billion in global annual premiums in 15 years.

Islamic corporate bonds to grow significantly in the Middle East

"Corporate Sukuk Market Growing in the Middle East", PR Newswire, September 19, 2006


The Cayman-based law firm Walkers has seen significant growth in use of sukuk for corporate financing in the Middle East and according to Robert Varley, a partner in the Dubai office, "While the sukuk market is still very small compared to the conventional debt market, there is enormous potential for growth from both local investors and international markets". Dow Jones has launched the Dow Jones Citibank Sukuk Index on April 2, 2006, the first of its kind.

Corporate sukuk markets in the Gulf growing rapidly

"Investors tap into wave of Islamic bonds", Financial Times (sub. rqd.), September 18, 2006

The Financial Times has an article on the front of their Companies & Markets section about the explosive growth of sukuk (Islamic bonds) in the Gulf region. According to Trowers & Hamlins, US$4.6 billion in corporate sukuk were issued within the first six months of 2006, led by the $US3.5 billion issue by Dubai Port, Customs & Free Zone Corp

South African Bank begins offering Islamic banking

"Islamic banking takes off", The Herald Online (South Africa), September 18, 2006

ABSA Bank began offering Islamic banking services at five branches (with expansions expected in the future). Absa Islamic Bank managing director Ahmed Moola is quoted addressing the size of the market for Islamic banking services, "Islamic banking is a $400-billion global industry. It was pioneered in Egypt and has been around for 30 years. We have lots to catch up on". According to the CIA World Factbook, 1.5 percent of the population of South Africa is Muslim.

Qatar Real Estate Investment Company (QREIC) completes sukuk issue

"QNB, Al Islami announce closure of QREIC property project sukuk", Gulf Times, September 18, 2006


The QREIC will back the sukuk with two residential buildings leased to Qatar Petroleum. The $100 million issue is the first in a series of funding instruments issed by the QREIC. In all, the one completed and three other planned funding instruments will be worth a total of $270 million.

Asian Finance Bank to start in Q1 2007

"Asian Finance Bank set to start next year", Gulf Times, September 18, 2006

On the sidelines of the Institute of International Finance (IIF) conference in Kuala Lumpur, the the Qatar Islamic Bank and other investors announced. The market for the bank will be Malaysia, Singapore, Brunei and Indonesia as well as Malaysian countries doing business in Qatar. The banks products will be targeted at corporations and high-net worth individuals.

UK Financial Services Agency introduces new regulation of Islamic mortgage market

"New housing market protections for consumers", AWD Moneyextra, September 16, 2006

After public consultation earlier this year and subject to Parliamentary approval, beginning April 6, 2007, the Financial Services Agency will regulate more Shari'ah-compliant mortgage products. The regulation will affect equity release plans, where homeowners can withdraw equity from their homes, and ijara (leasing where the bank purchases the house and leases it to the homeowner for a fixed amount of time before the title is transfered to the buyer).

Aircraft could be used significantly as the asset backing sukuk issues

"Aircraft 'sukuk' set to soar over Gulf", ITP Business News, September 17, 2006

Nadim Fattaleh, regional director at Boeing Capital Corporation (BCC), among industry experts, predicts that sukuk (Islamic bonds) backed by aircraft coule become a large market. The aircraft would be purchased using investors' funds and then leased to airlines for use (ijara if the asset remains owned by the original purchaser or ijara wa iktina if the lease ends with the transfer of the property to the lessee).

Gulf bankers see expansion of Islamic banking to Asia

"Gulf bankers highlight opportunities in Islamic banking", Channel News Asia, September 17, 2006.

At the Arab Asia Financial Forum, on the sidelines of the IMF/World Bank meeting in Singapore, Gulf bankers discussed the large potential market for Islamic banking and finance in Asia. "According to the Union of Arab Banks, there are some 470 Arab banks managing assets worth more than US$1 trillion, US$632 billion of which are deposit-based." While the article does not mention the percentage of these assets that are in Shari'ah-compliant deposit accounts and investments, it is generally thought that there are between US$200 billion and US$300 billion in assets within the Shari'ah-compliant investment and banking sectors and this figure is growing at around 15 percent per year.

Dubai International Financial Exchange offers accredited investment courses

"DIFX offers top investment course", TradeArabia, September 16, 2006

"The Dubai International Financial Exchange (DIFX) Academy, the region's leading financial training provider, will next month hold the first of its benchmark investment courses accredited by the UK Securities & Investment Institute (SII)."

Brunei moving towards becoming a major center of Islamic finance

"Brunei drives finance centre", Brunei Times, September 16, 2006

The Minister of Finance of Brunei, Pehin Orang Kaya Laila Setia Dato Seri Setia Haji Abd Rahman bin Haji Ibrahim, speaking at the opening of the Brunei Islamic Finances Forum is paraphrased as saying "Brunei already had the required infrastructure, along with the legal and regulatory framework, to promote business. At the same time it could protect the rights of all stakeholders, making the country a safe financial haven."

The government of Brunei recently issued its first sukuk al-Ijarah, Islamic-compliant bonds based on leasing of government property.

Mutual funds with religious-based investment criteria expanding rapidly

"Faith-based funds start making noise", Chicago Tribune, September 17, 2006

The use of religious-based criteria for investing has grown rapidly, outpacing the overall growth in the mutual fund industry. According to Morningstar, Inc., a Chicago-based provider of investment research, assets in religious-based funds was $16.03 billion at the end of July, up from $2.37 billion in 2000. Saturna Capital Company's Shari'ah-compliant fund Amana funds, based in Bellingham, Washington has assets of $315 million today, up from $30 million in 2003.

"At the 43rd annual convention of the Islamic Society of North America, held earlier this month in Rosemont, Ill., sessions included "Concepts of Islamic Banking" and "Estate Planning in Compliance with U.S. Law and Shariah Obligation."

One of the scheduled speakers in a session called "Retirement Planning and Options" was Monem Salam, director of Islamic investing for Saturna Capital Corp. of Bellingham, Wash., which runs the Amana funds."

LOFSA to create standards for cross-border taxation of Islamic financial products

Labuan Offshore Financial Services Authority (Lofsa) has begun developing a tax convention about cross-border taxation of Islamic financial products in line with the Organization for Economic Cooperation and Development (OECD) agreement on double taxation.

Malaysian Deputy Finance Minister Datuk Dr Awang Adek Husin says that:
"Islamic banking assets amounted to RM117 [US$31.8] billion, takaful assets RM6.2 [US$1.7] billion and Islamic private debt securities RM125 [US$34] billion."
"In the first half of this year, a total of 26 new corporate sukuk issues with a total value of RM23 [US$6.3] billion were announced and as at end-June this year, sukuk issues made up 70 percent of the total Malaysian bond market,"

Prudential PLC to offer offshore Islamic products in Malaysia

"Prudential To Launch Islamic Offshore Product Early Next Year", Malaysia National News Agency, September 15, 2006

Prudential Fund Management Bhd plans to launch its first range of Islamic offshore product in foreign currency in the first quarter of next year. Initially, the products would be targeted to West Asia, but eventually expanded to include the United States or Europe.

UBS gains approval to open Dubai office

"UBS obtains license to set up branch in the Dubai International Financial Centre", UBS Press Release, September 14, 2006

UBS has been cleared to open a branch in the Dubai International Financial Centre (DIFC) by the Dubai Financial Services Authority. UBS hopes that they can "use the new DIFC branch to grow its already well-established Islamic Finance capability in the region and become a leading force in Shari’a product development and structuring within the Gulf region."

Dubai aiming to lead in market for sukuk

"Dubai sees role in sukuk trade", Brunei Times, September 14, 2006

The Brunei Times reports that the Dubai International Finance Centre (DIFC) has begun planning to become marketmakers in the sukuk (Islamic bond) market. Currently, there is little in the way of a secondary market for these instruments, so they are illiquid and held until maturity. The DIFC predicts that with sukuk issuance expanding from US$ 13 billion today to US$100 billion in five years, there will be an expansion in secondary markets for sukuk.

Malaysia sets out regulations on the Malaysian Islamic Finance Centre

Reuters India reports that Bank Negara Malaysia, the central bank of Malaysia, has issued new regulations designed to increase the market share of the MIFC in the worldwide. In the press release, the new guidelines are:

"part of the Government initiative to promote and strengthen Malaysia's position as a centre of origination, distribution and trading of Islamic capital market and treasury instruments, Islamic fund and wealth management, international currency financial services, and takaful and re-takaful business."

Islamic Banking Forum in Doha, Qatar on September 14th

MENAFN reports that Al Safa Islamic Banking Services, a Qatari-based bank will be convening an open forum on Islamic banking on September 14th at 6:00 p.m. The expert panel will be made up of Sheikh Abdul Aziz Al Khulaifi from Qatar, Dr Mohammed Al Elgari, Professor of Islamic Economics at King Abdulaziz University, Jeddah, Saudi Arabia and Dr Abdul Sattar Abu Ghuda from Syria. The facilitator will be r. Mohamed Mandani, Deputy CEO of Commercialbank.

Commercial Bank International to start Islamic financial company

On September 12, Middle East North Africa Financial News Network (MENAFN) reported that the Commercial Bank International will increase its share capital in order to start an Islamic financial company. The company had wanted to make its operations completely to Islamic banking, but that was rejected by shareholders. The bank wants to raise capital to $500 million, with the bank providing 40 percent and 60 percent coming from strategic partners. It has appointed Ernst & Young to begin the search for strategic partners.

Islamic finance will continue to grow rapidly

The Middle East North Africa Financial News Network (MENAFN) reports today that Mohammed Paracha, Executive Vice President of the Bahrain-based Al Salam Bank and advisor to the Bank of England on Islamic Finance predicts continued growth in the market as conventional banks add Shari'ah-compliant products. Speaking to the Bahrain Tribune, Mr. Paracha said:
"Without any doubt the industry is going to get larger. It is already the largest growth sector within banking globally - growing by 10 to 15 per cent a year. Now that people are understanding more about the risks involved, how these deals are done and the key issues, they are realising the markets here and the region want to do it this way and there's no reason it can't be. [...] the big banks are looking to do more and more."
Mr. Paracha was one of the speakers in a three-day conference in Manama, Bahrain sponsored by the Bahrain Institute of Banking and Finance