Sunday, May 02, 2010

Nakheel to repay maturing sukuk on May 13, equity vs debt in Islamic finance

An unnamed government spokesman says that Nakheel's sukuk maturing on May 13th even if there is no formal debt agreement according to Bloomberg. Heiko Hesse and Andy Jobst of the IMF provide their own analysis of the Nakheel situation including what I believe is the first analysis of how the issue of Shari'ah-compliance might create issues with the resolution of the company's problems (as described by the conventional thinking about the proposed debt restructuring plan. I have aired my own views in the past on this blog, but unless a Shari'ah board were to weigh in the actual impact of requiring Shari'ah-compliance for a restructuring plan cannot be known.

Kuwait Finance House Malaysia has offered several real estate financing transactions using an equity-based (mudaraba or musharaka) model, while most other banks have not. Shari'ah scholar Aznan Hasan, who I had the pleasure of hearing speak at the recent UFANA conference in Toronto, is quoted in the article saying "Whether it is debt or equity that suits you better, it depends on commercial and business decisions, not syariah matters". I would tend to agree with Aznan Hasan on this, although I my own views on the use of equity versus debt in Islamic finance has gone back and forth during the time I have written this blog.

Other News

  • There are concerns over the cash levels to fund coupons and principal repayment of the Villamar sukuk, although the issuer denies there is a cash crunch.
  • Qatar First Investment Bank raises a number of important challenges facing the Islamic financial industry.
  • Regardless of the outcome of the UK election, the government will likely continue to encourage Islamic finance by removing barriers that make Islamic finance more difficult and costly compared with conventional finance. The official position as described by the FSA has been 'no obstacles, no special favors'.
  • A South African private equity firm plans to extend Islamic private equity funds towards black economic empowerment (BEE) projects.
  • Zurich Financial Services plans to enter into the takaful markets in Saudi Arabia and Malaysia.
  • Kuwait Finance House, the country's largest Islamic bank, saw its profits fall in the first quarter of 2010 compared to the same period last year. The profits for 2009 were down significantly from 2008.
  • A writer describes Islamic finance as instructional to provide capital on attractive terms. However, while the article is interesting and the points well made, its description of the industry bears little resemblance to how Islamic finance works in practice.

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