Sunday, June 06, 2010

Islamic pricing benchmark, Khazanah sukuk

The International Shariah Research Academy for Islamic Finance (ISRA) in Malaysia is planning to release a study on a proposed Islamic benchmark pricing rate in 2011. The proposal received criticism about the practicality of having two different pricing benchmarks within Malaysia. The criticism has merits and the development of a separate Islamic yield curve would provide limited benefit compared to other areas that the effort required could be directed towards like strengthening Islamic financial institutions' liquidity management. However, if Islamic financial products move beyond replication of conventional financial products and take on different risk characteristics than conventional products, a separate pricing benchmark could be useful for new issuers because the pricing would reflect the balance between supply and demand for Islamic financial products in the secondary markets.

Malaysian state-owned Khazanah Holdings may issue S$500 million ($354 million) in sukuk to finance its purchase of Parkway Holdings, a hospital operator. The sukuk would be the largest issued in Singaporean dollars passing a S$200 million issue from the Islamic Development Bank.

Other News

  • The final decision on Tamweel and Amlak, two troubled Dubai-based Islamic mortgage companies could come this month. It is reported that Dubai Islamic Bank is seeking to increase its share of Tamweel to over 50%. Tamweel's statement on its restructuring did not confirm or deny Dubai Islamic Bank's reported plans.
  • Saturna Capital, the fund manager of the Amana Funds received a fund license in Malaysia.
  • A credit union in the US is offering Islamic financial services.
  • Gulf African Bank, one of the first Islamic banks in Kenya, reported a profit in the first quarter of 2010 and expects its first full-year profit this year.
  • Pakistan hopes to double the share of Islamic banks in the country over the next 3 years, to 12% of total assets. For comparison, Malaysia is set to reach the 20% mark this year.
  • An article discusses the idea that Dubai World attracted more attention than its overall impact in the financial markets and points out that the reason for the near-default was the financial and economic conditions as well as company-specific factors that were not related to Nakheel using a sukuk rather than a conventional bond to raise financing.
  • Nakheel has begun paying contractors and may resume construction on some projects "within weeks".
  • A Malaysian bai bithaman ajil (BBA) sukuk was placed on negative ratings watch. The BBA structure is used extensively in Malaysia, but not accepted in most other countries.
  • The government of Kazakhstan is supporting Islamic finance in the country with the assistance of Abu Dhabi, whose government owned bank Al Hilal opened an Islamic bank in Kazakhstan.

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