Nakheel sukuk maturity, Commodity Murabaha House, KFH in joint venture with US-based REIT

The first trading day of the Commodity Murabaha House arrived. The exchange, now called Bursa Suq Al-Sila', will initially transact only in Ringgit, but will eventually allow trading in other currencies. The trades are currently based on crude palm oil (using current month futures prices) that provide Islamic banks a way to meet short-term liquidity needs by purchasing palm oil with deferred cost-plus markup payment. The commodity can be sold in the spot market after delivery. While controversial for its similarities with interest-based lending, commodity murabaha is a common financial transaction used by Islamic banks to deal with short-term liquidity needs. In the first day of trading, RM200 million ($56.5 million) in commodity murabaha was executed by CIMB Islamic, which traded RM3 billion ($848 million) per month in 2008 and has traded RM6 billion ($1.696 billion) so far this year.

Kuwait Finance House has formed a joint-venture with US-based REIT UDR to purchase up to $450 million of class 'A' buildings. This is the first re-entry of KFH into the U.S. property markets since exiting prior to the financial crisis. The joint venture, KFH will contribute 70% and UDR will contribute 30%.

The National continues to provide the best coverage of the upcoming Nakheel sukuk maturity in December, first with an article about the danger should Nakheel be unable to pay on the maturity and another article about the rise in secondary market prices for Nakheel which may signal that Nakheel will be able to make repayment. Nakheel may be one of the beneficiaries of the Dubai government's bailout funded by its $20 billion in bond issues. Despite the higher prices in the secondary markets, Nakheel's sukuk carries a yield of around 60% at current prices according to data provided by Zawya. The initial lease payments were 6.345% and the sukuk holders receive half of the lease payments upon maturity according to the offering circular which I described in an earlier post.

Other News

• Dow Jones launched two new Islamic indices, Islamic GCC and Islamic MENA.
  
• The new CBB Sukuk al-Ijara (6 months maturity) was oversubscribed by 300% and yields 1.05%.
  
• Islamic finance is "better placed to take advantage of the improvement in the capacity factor of renewables - the percentage of time that a plant is operational" according to iQuantis Ltd.
  
• Malaysia's Artice IV consultation with the IMF included several mentions of the country's Islamic financial industry.