Thursday, May 14, 2009

S&P, State Street reports, Nakheel bailed out by Dubai gov't, TID defaults on sukuk, first in the GCC

In its 2009 Islamic Finance Outlook, Standard & Poor's discusses some of the challenges facing the industry but "continues to foresee a bright future for Islamic finance". S&P Credit Analyst Mohamed Damak believes that "The long-term pipeline for sukuk issuance is healthy, and the market is attracting interest from an increasing number of issuers in both Muslim and non-Muslim countries." The report is available for download (pdf) from

The Nakheel $3.5 billion sukuk that matures in December is one of the most at risk sukuk following the default of the Investment Dar sukuk. An article describes the sukuk and challenges facing Nakheel, most of which I covered in a post on my blog at Zawya (which was also posted here). They have also said they received financial assistance from the Dubai government.

The Islamic finance industry is going to see a significant test of its legal structures and the relative importance of common and Shari'ah law in the resolution of defaults in the next few years, according to an article from Reuters. As in the case of Beximo Pharmaceuticals v. Shamil Bank of Bahrain earlier this decade, I think it is highly unlikely for many cases to be determined by the Shari'ah-compliance or lack of compliance unless they have specific clauses that forces the dispute resolution first to an arbitration involving Shari'ah scholars. In most cases, like the Beximo case, the contracts are subject to English (secular) law and the Shari'ah-compliance is not an issue.

According to the Chairman of Dubai Financial Market's Shari'ah Board Dr. Hussain Hamad Hassan, the exchange is planning a release of comprehensive standards on sukuk issuance, listing secondary market and market making. The announcement of the standards is expected within about two weeks once they are approved.

Other News
  • State Street issued a report on Islamic finance. It included the observation that "Western markets may also get close to thoughts and policies that underline Islamic finance."
  • Despite a challenging year in Islamic finance, the assets in the industry within Bahrain grew by 50% from $16.4 billion to $24.6 billion according to the Central Bank of Bahrain.
  • The BBC has a story on Islamic finance.
  • Abu Dhabi Commercial Bank is planning to launch an Islamic subsidiary, Abu Dhabi Commercial Islamic Finance Company, soon. This is one of the first new banks launched in the GCC in a while following the economic difficulties facing the region.
  • Dubai Gold Certificates, the ETC traded on NASDAQ Dubai has attracted significant interest from institutional investors.
  • Islamic banks face difficulties in expanding internationally in the short-term although increasing geographical diversification can provide long-term benefits according to a report by Moody's.
  • Two Qatari Islamic financial institutions have applied for approval to operate in France.
  • Islamic finance is soon coming to Spain with the launch an Islamic current account at a building society in the Balearic Islands.
  • Kyrgyzstan is moving forward on plans to adapt regulations to allow Islamic financial institutions.
  • The Philippino dairy industry may opt to raise up to 5 billion pesos ($105.6 million) to finance a breeding program for increasing milk production using a sukuk if that will help attract funds from Saudi Arabia and other countries with Muslim majorities.
    The Labuan Offshore Financial Services Authority (LOFSA) reported growth in Islamic finance:
    "Islamic Financial Services

    The Islamic finance industry and the retakaful sector remained active in 2008. The retakaful gross contributions increased by 48.2% to USD162.3 million, driven by four full-fledged retakaful operators and nine retakaful windows.

    This is followed by the Islamic private fund management. Five new Islamic private funds were established in 2008, with an approved fund size of USD1.5 billion increasing the total Islamic private funds to USD2.8 billion. This represents one-third of the total size of private funds in Labuan IBFC. The growth in the portfolio of the Islamic funds reflects the emergent role of Labuan IBFC in facilitating Shariah compliant investment activities in the region.

    In the Islamic banking sector which comprises 6 Islamic banks and 3 banks with Islamic windows, the total deposits grew to USD337.3 million from USD250 million in 2007."
  • ABC Bank plans to expand its offering of wholesale Islamic finance products in Europe and in particular in the UK and France.

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