Dubai World asks for standstill agreement, including Nakheel sukuk

The big news of the day was the $5 billion that the Dubai Department of Finance raised from two government-owned banks in Abu Dhabi that will be managed by the Dubai Financial Support Fund. Following this announcement, Dubai World saw a chief restructuring officer appointed to manage the sizable debts of the government-related entity. Dubai World, which guarantees the $3.52 billion sukuk issued by Nakheel which matures on December 14th, has asked debtors for a standstill agreement for six months. This would delay repayment of both the Nakheel sukuk as well a sukuk maturing in March from Limitless , another property company. [UPDATE 11/27: The maturing debt from Limitless is not a sukuk, it is a $1.2 billion, 2-year syndicated loan from 18 mostly GCC-based financial institutions. It was priced at LIBOR+125 basis points.]

The move was rather shocking, especially since the market price of the Nakheel sukuk was reflecting a full repayment of the principal and deferred lease payments, plus an additional amount due because no qualified public offering was issued during the sukuk term. The price of the sukuk fell from around 110 to 86 following the announcement and many ratings agencies cut the ratings on other Government Related Entities. If the standstill agreement is not voluntary, it could be a default event, which is reflected in the dramatic rise in the price of insuring Dubai's debt against default, although Dubai World is not formally part of the government and the Dubai World debt is not guaranteed by the government.

UK and Malaysian Islamic banks launched a standardized wakala agreement for inter-bank depositss. The contract is designed to reduce the reliance on commodity murabaha, which has attracted criticism.

The Saudi Arabian Monetary Authority governor Dr. Muhammad Al Jasser discussed the systemic concerns that regulators need to focus on when regulating Islamic financial institutions, especially those that operate across multiple countries. Dr. Zeti Akhtar Aziz, the governor of Bank Negara, also spoke recently on the regulatory focus for Islamic financial institutions being the liquidity management of Islamic financial institutions. The IFSB has established a liquidity management task force earlier this year.

Other News

• KFH-Turkey received an Islamic banking license from the Dubai International Financial Center.
  
• The Islamic Financial Services Board launched a new guideline for takaful institutions.
  
• Middle East & Asia Capital Partners will launch a Shari'ah-compliant fund to finance renewable energy next year.
  
• Tamweel continues to prepare for the merger with Amlak, which is expected to be put before shareholders as early as January.
  
• Deutshe Bank converted $30 million of its $100 million convertible murabaha from Gulf Finance House.
  
• Reuters describes a Shari'ah-compliant microfinance effort in Helmand province, Afghanistan. The program is very basic providing goods in kind and charging an 'administration fee' of 2%, presumably to recover costs associated with servicing the loans.
  
• Islamic banks in Lebanon are small, but have been successful so far.
  
• Tamweel, the troubled Dubai mortgage lender has refused to take delivery of 200 units due to the lack of completed infrastructure according to Emirates Business 24-7.
  
• Deloitte appointed Daud Vicary Abdullah to head its Islamic Finance Industry group.
  
• The deputy finance minister of Malaysia, Awang Adek Hussin confirmed that two foreign banks' Islamic banking license applications have been shortlisted by Bank Negara.