Tuesday, June 08, 2010

New sukuk issues, Rushi Siddiqui on Islamic development indicators, update on AIG lawsuit

Ahmed Salem Bugshan (ASB) Group is planning a five-year, $100 million ijara sukuk. In addition to this sukuk, a number of other sukuk have been announced. The Bahrain branch of the Kuwait Turkish Participation branch is among the issuers planning a sukuk, with their $100 million sukuk expected to be issued "within the next two or three months". Indonesia is planning on issuing its next sukuk for 1 trillion rupiah ($108 million) on June 15. The sukuk will be sold with maturities of 5, 7, 10 and 20 years, which adds to the small number of sukuk with longer (10+ year) maturities. The issue is a part of what the government expects to be $1.082 billion in sukuk issued this year. About half of that amount has already been issued. The sukuk will make up nearly 5% of Indonesia's sovereign debt issuance this year to fund a deficit targeted at 2.1% of GDP. Indonesia's central bank and Ministry of Finance are working on tax incentives for Islamic financial institutions.

Rushdi Siddiqui contemplates the need for a development indicator to measure the 'pulse' of the Islamic financial industry. Besides his hypothetical BBC World News anchor's statement that the "TR Islamic Business confidence was up 2 per cent", he covers some important issues in the Islamic finance industry. He asks whether the sukuk defaults/restructurings are credit issues or something more. In general, I think that they are primarily credit risk issues, although the Investment Dar court case, which he raises, indicates the presence of Shari'ah risk if institutions in the future attempt to use a secular court like the UK to repudiate contracts based on ex post Shari'ah-non-compliance. He also asks whether the reduction in operations at the Islamic Bank of Asia reflect a point of concern as well as concerns about the lack of integration between the standards-setting bodies AAOIFI and IFSB. HIs article in Gulf News is a wide ranging, questioning piece that very thought-provoking. An article describing a recent conference in Brunei quotes Rushdi Siddiqui as saying that the sukuk market could be an important source of funding for the halal sector. It has been notable to me that there has not been much sukuk activity to finance the halal industry even when there have been sukuk issued to provide financing to conventional financial companies like GE Capital.

The plaintiffs in a lawsuit against the US government about AIG's Islamic finance business have requested a summary judgement. The lawsuit, which legal scholars with expertise in first amendment cases said was unlikely to succeed, challenges the legal right of AIG to engage in Islamic finance after the US government bailed it out taking an 80% equity stake. The press release from the plaintiff's lawyers also repeatedly invokes the bogus claim that Islamic finance is connected with terrorism. Readers could easily find better uses for their time than reading this press release.

Other News

  • Amlak and Tamweel are considering alternatives in case the planned government-backed merger does not happen.
  • Arcapita expects a "sizeable financial loss" for the year ended June 30 and plans to publish its third quarter (ending March 31) results on Friday, a month after the date set by its regulator.
  • A speaker at a conference in Bahrain raised the important issue of the tension between management goals and the requirements in Islamic financial institutions for Shari'ah-compliance.
  • The National Bank of Kuwait launched another series of its Thahabi Ijara Fund that will lease equipment primarily to the 1,000 largest companies in the US.
  • The latest monthly update is available about the Dow Jones Islamic Indices performance. There was one misstatement: "Germany issued a ban on short-selling for certain financial stocks, a move which is coincidentally in line with Islamic Law. Short-selling is haram since Islam, in addition to riba, denies excessive speculation (i. e. gambling) called maysir." The most often cited reason why short-selling is prohibited in Islamic finance is that it involves selling something that the seller does not own. Maysir is often cited as a reason why conventional options and derivatives are prohibited.
  • Russia is slowly seeing growth in its Islamic finance sector.
  • Standard Chartered is planning to enter Saudi Arabia to increase its Middle Eastern business.
  • A fund manager in Malta is trying to enter the GCC.
  • The Islamic Development Bank launched an online database on Islamic financial institutions, IBIS.

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