Dana Gas released the final terms on its restructuring of the $1 billion sukuk that matured on October 31st, and they were within the terms expected. The $1 billion sukuk (of which $80 million was bought back, and will be cancelled) had $70 million in cash paid to sukuk holders with the remainder split between a convertible and non-convertible sukuk, with an average coupon of 8%, due in 5 years. This is not much higher than the 7.5% coupon the original sukuk had, but the conversion price which is not fixed as I understand it, but will come in at between Dh0.75 and 1.00 (the stock is currently trading in the low Dh0.40 range).
Using a back of the envelope calculation with a 20% discount rate, that amounts to about a 30% haircut in present value terms for sukuk holders (excluding the value of the conversion feature for the convertible tranche of the sukuk), which is probably a good deal for sukuk holders if the company can collect on its receivables from Egypt and Iraq (a small portion of which from the latter were received by Dana Gas shortly before the restructuring agreement was made public).
Sukuk holders could have enforced the guarantee on the assets that were put up to secure the sukuk which amounted to the company's assets in Egypt (the company asserted that these gas concessions could be cancelled if sukuk holders enforced on the collateral) and a built but not yet operational natural gas import terminal and processing plant in Sharjah. The latter asset was probably not of much value since it would be time consuming and costly to go through the UAE court system (not to mention not guaranteed to be successful) to take possession of the asset. Not to mention that it has been entangled in a dispute with Iran's national oil company over the agreement to import gas .
There are likely other terms included in the final restructuring agreement that are not yet known, which may include rights (just speculating here) to Dana Gas' 3% interest in MOL, the Hungarian company with which it is operating its assets in Kurdistan, which were not a part of the collateral of the original sukuk (or perhaps a covenant that Dana Gas cannot sell that asset without using a portion of the proceeds to repay creditors). But that is just a guess on my part and I don't have any information about whether it was included (if you know, please email me).
The bigger story here is that there is now precedent set for a restructuring of a UAE-based private sector sukuk. That doesn't carry any weight in the local court system, but it might for future cases where a private sector corporate sukuk issuer runs into trouble. There is now at least one situation that can be used as a point of reference.
The legal environment in the UAE and the limitations on foreign ownership, not to mention the lack of a bankruptcy regime will continue to introduce uncertainty for creditors (even where the sukuk is subject to English law, since English law judgments are not enforceable in the UAE). However, the bankruptcy law being developed has continued to face delays. That is not necessarily problematic if the delays are done in a way that produces something something that is able to translate from law to practice. One can only hope that the delays are due to a desire to 'get it right' and not just dragging of feet or bureaucratic intertia that favors the status quo.
Showing posts with label Iraq. Show all posts
Showing posts with label Iraq. Show all posts
Tuesday, December 11, 2012
Wednesday, March 07, 2012
Dana Gas sukuk news analysis (update)
In a news analysis I wrote for The Islamic Globe about the Dana Gas sukuk, I wrote about the focus by investors on the ability of Dana Gas to turn receivables into cash in Egypt. I wrote: "Fortunately for Dana Gas, its production in Kurdistan through the Pearl Petroleum Co., of which it owns 40%, has continued to grow, although there is a problem collecting receivables there as well, albeit less severe than in Egypt. " However, new developments in Iraq may put the Kurdistan projects at risk. The central government of Iraq has long maintained that oil deals with the Kurdistan Regional Government are invalid and the government has not been shy about making life difficult for companies that do deals directly with the regional government, even oil majors like ExxonMobil. Exxon has not made a final decision about whether to abide by the central government's wishes or continue with its agreement with the regional government, but its decision could provide clarity on whether the Iraqi government is able to overturn existing contracts signed with the regional government. For Dana Gas, this clarity could be a positive, or another source of uncertainty about its ability to continue growing its production in Iraq, that provides a bright spot amidst continued uncertainties in Egypt.
Friday, February 03, 2012
Do Islamic financial institutions care about Islamic microfinance?
The CGAP microfinance blog highlights the lack of progress in developing laws to facilitate microfinance since the Arab Spring. One point the post makes is that "The irony in all this is that only in Syria and Yemen, two countries still heavily affected by the uprisings, did the governments sanction savings mobilization by MFIs meeting minimum standards."
It is interesting to me that in both these countries where microfinance was sanctioned by the governments there have been Islamic microfinance institutions, in Jabal al-Hoss in Syria and Hodeidah in Yemen. There is still much to do in both countries, and in both countries there are more pressing needs with the departure of Ali Abdallah Saleh from Yemen and the continued fighting in Syria against Bashar al-Assad.
However, despite the continued unrest in both countries, there have been examples of demand for Islamic microfinance which suggests that there is probably demand in other countries where the Arab Spring has run its course. These countries should move forward on both conventional and Islamic microfinance development as a top priority. Some may point out that there are more weighty concerns in the forefront today, but I would argue that the development of programs to provide economic opportunities should be at the forefront because the Arab Spring largely arose out of one man, Mohammed Bouazizi, very publicly died after setting himself on fire due to having his livelihood snuffed out by the police when they confiscated his fruit crates and electronic scale.
It is fair to question whether Islamic microfinance is well developed enough to be moved to the top of the agenda alongside conventional microfinance. However, with so many resources being devoted to developing the (macro) Islamic finance industry, there should be an equivalent commitment to developing Islamic microfinance. Today, two of the biggest Islamic microfinance programs are being facilitated with funding for technical support from the US international aid agency USAID in Afghanistan and Iraq. Where are the Islamic finance institutions who claim to embrace corporate social responsibility, ethical finance and a concern for the poor in laying the groundwork for Islamic microfinance to develop across the MENA region after the Arab Spring?
It is interesting to me that in both these countries where microfinance was sanctioned by the governments there have been Islamic microfinance institutions, in Jabal al-Hoss in Syria and Hodeidah in Yemen. There is still much to do in both countries, and in both countries there are more pressing needs with the departure of Ali Abdallah Saleh from Yemen and the continued fighting in Syria against Bashar al-Assad.
However, despite the continued unrest in both countries, there have been examples of demand for Islamic microfinance which suggests that there is probably demand in other countries where the Arab Spring has run its course. These countries should move forward on both conventional and Islamic microfinance development as a top priority. Some may point out that there are more weighty concerns in the forefront today, but I would argue that the development of programs to provide economic opportunities should be at the forefront because the Arab Spring largely arose out of one man, Mohammed Bouazizi, very publicly died after setting himself on fire due to having his livelihood snuffed out by the police when they confiscated his fruit crates and electronic scale.
It is fair to question whether Islamic microfinance is well developed enough to be moved to the top of the agenda alongside conventional microfinance. However, with so many resources being devoted to developing the (macro) Islamic finance industry, there should be an equivalent commitment to developing Islamic microfinance. Today, two of the biggest Islamic microfinance programs are being facilitated with funding for technical support from the US international aid agency USAID in Afghanistan and Iraq. Where are the Islamic finance institutions who claim to embrace corporate social responsibility, ethical finance and a concern for the poor in laying the groundwork for Islamic microfinance to develop across the MENA region after the Arab Spring?
Tuesday, May 18, 2010
Future growth in Islamic finance, sukuk news
Future growth in Islamic finance
An article in the National newspaper provides a good summary of the growth areas in Islamic finance, as well as the areas of controversy which remain in these areas. The largest focus is on whether creating Shari'ah-compliant hedging contracts is a help or hindrance for the growth of the industry. In some aspects I can see how it reinforces the view that Islamic finance does nothing but mimic conventional financial products. However, as the article notes, longer term financing like what would be necessary for project finance, would be largely absent were there not a way to hedge against currency, commodity price or interest rate fluctuations.
The article also discusses the lack of Islamic microfinance. Moinuddin Malim, the CEO of Mashreq Al Islami, is quoted as saying "We have not yet reached our real audience. We need to develop microfiannce to enable communities to thrive in their own right and bring living standards to them". I would disagree with his characterization of "bringing living standards to them" and replace that with bring affordable, Shari'ah-compliant financial alternatives, but it is definitely an underserved area of Islamic finance. The CGAP competition which recently closed (and I advised two groups who submitted proposals) is a good effort because it focuses on providing seed money to develop sustainable financial institutions (either non-profit or for-profit). However, outside of this and a few efforts by a couple small efforts by (mostly) global financial institutions in Islamic finance, there has been not much more than lip service paid to the need for Islamic microfinance.
There is a lot more to Islamic finance than just structured products that mimic conventional finance for large corporations and sovereigns. Islamic retail banking fills some of the need with a reach towards a larger number of Muslim consumers, but there are many Muslim (and non-Muslim) 'unbanked'. This is the consumer base that the Grameen Bank was formed to serve and it has now attracted a lot of attention from larger financial institutions. The same need is present for the Islamic financial industry to fill and it should be a quicker transition for Islamic financial institutions to recognize this need (and potential) now that conventional microfinance is well established with participation from the larger financial institutions. It is also ideally suited to the underlying ethics behind Islamic finance, which should feel a greater need to promote economic empowerment based on its ethical foundations.
Another article describes the re-emergence of innovation within the Islamic financial industry which has largely been absent during the recession. There are areas--like liquidity management--where innovation can be a positive development to increase the available investment opportunities (particularly short-term and overnight). However, there are also a lot of 'innovations' during the 2005-2008 period in structured products and especially real estate, where 'innovation' can turn into 'high fees with little other benefit'. One example of this that has been described in detail was Gulf Finance House, which was described in a recent paper by Mohammed Khnifer.
The issue of standardization remains contentious. The debate, however, depends on what standardization means, which Debshis Day of Clifford Chance pointed out, is unclear. "Standardization, what does that really mean? It is very difficult for everybody to agree on one thing. People need to understand that even in a conventional market there is not pure standardization". I would agree with him that complete standardization is neither possible nor probably desirable. There are certain areas (like the ISDA-IIFM derivatives standard and the IIFM standardized murabaha agreement) where standardization can be beneficial by reducing costs associated with replicating the same structure. However, these standardized contracts are not, nor should be, mandatory. There are numerous areas where improvements can be made and leaving the door open to new products or new variations of existing products makes sense for the industry as a whole.
Sukuk News
Unicorn Investment Bank and Standard Chartered report they have mandates to work on issuance of $6 billion in sukuk this year. Reportedly, over $4 billion of this amount will be advised by Standard Chartered. An executive at HSBC, Mohammed Dawood, says that issuance of dollar-denominated sukuk may reach $5 billion, matching the previous year's total. The total issuance may be $8.5 billion, about last year's level, but far below the pre-crisis levels in 2007 and 2008. However, due to the Greek crisis and Ramadan, most issuance will be pushed into the third quarter. Al Rajhi Bank, which has been largely absent from the sukuk market due to concerns by its Shari'ah board over the compliance of the sukuk in the markets, plans to launch a sukuk with Cagamas, the Malaysian housing finance agency, in June. Indonesia recently sold $467.5 million in sukuk to the government-managed Hajj fund.
U.S. issuers could make up part of the issuance in the second half of this year or in 2011. GE Capital, which issued a $500 million sukuk last year (my summary of that sukuk) is planning a 'benchmark' sized sukuk in late 2010 or 2011, which is generally over $500 million. In addition, Unicorn Investment Bank, which has a U.S.-based private equity subsidiary UIB Capital, is working on a $250 million sukuk for a U.S.-based company. The only two sukuk issued by U.S.-based companies so far have been the East Cameron sukuk, which ended with investors owning the underlying asset after the issuer entered bankruptcy, and the 2009 GE Capital sukuk.
Another rare issuer coming to market is Malaysia, which will likely offer its first international sukuk since 2002. The sukuk, expected to be an ijara sukuk with a 5-year tenor is said to be backed by government hospital assets. The issue is reported to be a $1 billion, however, it has not been formally announced and is expected to be announced at an Islamic economic forum in Kuala Lumpur.
Robin Amlot writes an interesting review of an e-book published by Euromoney, written by Parvez Daruwalla and Shahzad Siddiqui, in Islamic Business & Finance. The e-book talks about whether the sukuk structure, and in particular sovereign sukuk, could be done better.
Article by the CEO of Gatehouse Bank
Richard Thomas, the CEO of Gatehouse Bank, an Islamic wholesale bank in the UK, has an article about Islamic finance. While in general, he speaks to the general outlook for Islamic finance globally, he makes two notable points. First, he does not fall into the "Islamic finance is immune from the crisis" trap and secondly, he acknowledges the overlap between Islamic finance and ethical/sustainable finance. He writes:
Other News
An article in the National newspaper provides a good summary of the growth areas in Islamic finance, as well as the areas of controversy which remain in these areas. The largest focus is on whether creating Shari'ah-compliant hedging contracts is a help or hindrance for the growth of the industry. In some aspects I can see how it reinforces the view that Islamic finance does nothing but mimic conventional financial products. However, as the article notes, longer term financing like what would be necessary for project finance, would be largely absent were there not a way to hedge against currency, commodity price or interest rate fluctuations.
The article also discusses the lack of Islamic microfinance. Moinuddin Malim, the CEO of Mashreq Al Islami, is quoted as saying "We have not yet reached our real audience. We need to develop microfiannce to enable communities to thrive in their own right and bring living standards to them". I would disagree with his characterization of "bringing living standards to them" and replace that with bring affordable, Shari'ah-compliant financial alternatives, but it is definitely an underserved area of Islamic finance. The CGAP competition which recently closed (and I advised two groups who submitted proposals) is a good effort because it focuses on providing seed money to develop sustainable financial institutions (either non-profit or for-profit). However, outside of this and a few efforts by a couple small efforts by (mostly) global financial institutions in Islamic finance, there has been not much more than lip service paid to the need for Islamic microfinance.
There is a lot more to Islamic finance than just structured products that mimic conventional finance for large corporations and sovereigns. Islamic retail banking fills some of the need with a reach towards a larger number of Muslim consumers, but there are many Muslim (and non-Muslim) 'unbanked'. This is the consumer base that the Grameen Bank was formed to serve and it has now attracted a lot of attention from larger financial institutions. The same need is present for the Islamic financial industry to fill and it should be a quicker transition for Islamic financial institutions to recognize this need (and potential) now that conventional microfinance is well established with participation from the larger financial institutions. It is also ideally suited to the underlying ethics behind Islamic finance, which should feel a greater need to promote economic empowerment based on its ethical foundations.
Another article describes the re-emergence of innovation within the Islamic financial industry which has largely been absent during the recession. There are areas--like liquidity management--where innovation can be a positive development to increase the available investment opportunities (particularly short-term and overnight). However, there are also a lot of 'innovations' during the 2005-2008 period in structured products and especially real estate, where 'innovation' can turn into 'high fees with little other benefit'. One example of this that has been described in detail was Gulf Finance House, which was described in a recent paper by Mohammed Khnifer.
The issue of standardization remains contentious. The debate, however, depends on what standardization means, which Debshis Day of Clifford Chance pointed out, is unclear. "Standardization, what does that really mean? It is very difficult for everybody to agree on one thing. People need to understand that even in a conventional market there is not pure standardization". I would agree with him that complete standardization is neither possible nor probably desirable. There are certain areas (like the ISDA-IIFM derivatives standard and the IIFM standardized murabaha agreement) where standardization can be beneficial by reducing costs associated with replicating the same structure. However, these standardized contracts are not, nor should be, mandatory. There are numerous areas where improvements can be made and leaving the door open to new products or new variations of existing products makes sense for the industry as a whole.
Sukuk News
Unicorn Investment Bank and Standard Chartered report they have mandates to work on issuance of $6 billion in sukuk this year. Reportedly, over $4 billion of this amount will be advised by Standard Chartered. An executive at HSBC, Mohammed Dawood, says that issuance of dollar-denominated sukuk may reach $5 billion, matching the previous year's total. The total issuance may be $8.5 billion, about last year's level, but far below the pre-crisis levels in 2007 and 2008. However, due to the Greek crisis and Ramadan, most issuance will be pushed into the third quarter. Al Rajhi Bank, which has been largely absent from the sukuk market due to concerns by its Shari'ah board over the compliance of the sukuk in the markets, plans to launch a sukuk with Cagamas, the Malaysian housing finance agency, in June. Indonesia recently sold $467.5 million in sukuk to the government-managed Hajj fund.
U.S. issuers could make up part of the issuance in the second half of this year or in 2011. GE Capital, which issued a $500 million sukuk last year (my summary of that sukuk) is planning a 'benchmark' sized sukuk in late 2010 or 2011, which is generally over $500 million. In addition, Unicorn Investment Bank, which has a U.S.-based private equity subsidiary UIB Capital, is working on a $250 million sukuk for a U.S.-based company. The only two sukuk issued by U.S.-based companies so far have been the East Cameron sukuk, which ended with investors owning the underlying asset after the issuer entered bankruptcy, and the 2009 GE Capital sukuk.
Another rare issuer coming to market is Malaysia, which will likely offer its first international sukuk since 2002. The sukuk, expected to be an ijara sukuk with a 5-year tenor is said to be backed by government hospital assets. The issue is reported to be a $1 billion, however, it has not been formally announced and is expected to be announced at an Islamic economic forum in Kuala Lumpur.
Robin Amlot writes an interesting review of an e-book published by Euromoney, written by Parvez Daruwalla and Shahzad Siddiqui, in Islamic Business & Finance. The e-book talks about whether the sukuk structure, and in particular sovereign sukuk, could be done better.
Article by the CEO of Gatehouse Bank
Richard Thomas, the CEO of Gatehouse Bank, an Islamic wholesale bank in the UK, has an article about Islamic finance. While in general, he speaks to the general outlook for Islamic finance globally, he makes two notable points. First, he does not fall into the "Islamic finance is immune from the crisis" trap and secondly, he acknowledges the overlap between Islamic finance and ethical/sustainable finance. He writes:
"Islamic finance has, however, been met with enormous challenges. It has not escaped the global downturn despite Islamic banks being safeguarded by the nature of their Shariah principles against exposure to subprime mortgages and the other toxic assets that have hurt the balance sheets of so many of the world’s biggest financial institutions. "
[...]
As it is, a substantial amount of business transacted in an ethical or sustainable format may qualify as Sharia compliant. This demand for products and investments, while primarily fuelled by the world’s 1.3 billion Muslims, is supporting interesting crossover products that benefit from the same ethical criteria."
Other News
- Golden Belt Sukuk holders approved the dissolution of the sukuk trust, making the sukuk holders unsecured creditors of Saad Group.
- The Central Bank of Bahrain's sukuk al-ijara issue was oversubscribed by 230%. The sukuk has a maturity of 182 days.
- Dana Gas reset the conversion rate on its sukuk according to JPMorgan Chase & Co., the calculation agent.
- South African investment management firm is planning on launching its products outside of its home country including within Europe.
- Aston Business School will launch an MSc and PhD program in Islamic banking with sponsorship from the CEO of Dubai-based Surgi Tech.
- Al Rajhi Steel Industries, a Saudi rebar manufacturer obtained a $196.5 billion Shari'ah-compliant bank loan to finance construction of a new plant in Jeddah.
- The Iraqi bank Ashur Bank is exploring offering an Islamic banking window, for which it submitted an application six months ago to the Central Bank of Iraq. 7 of Iraq's 42 banks are Islamic banks.
Monday, June 01, 2009
(Late) Weekend Update
The Saudi government plans on starting a Fannie Mae-like institution to encourage the growth of sukuk and conventional bond markets. The counry is estimated to have a home ownership is 62% according to Ibrahim al-Assaf, the finance minister for the country, although some analysts estimate it at less than 1/2 this level. The development would provide a boost for Islamic banks by allowing them to remove assets from their balance sheet and also providing a large source of supply of sukuk to the market, which in turn could help provide Islamic banks with a better, more liquid investment to hold against short-term liabilities like deposits. However, the securitization into sukuk would have restrictions on the number of various types of Islamic mortgages. Although ijara mortgages are generally considered transferrable because they include ownership of an underlying assets, murabaha mortgages would not (except at par vale) because transfer represents the sale of cashflow from a loan, not an actual asset.
A Central Bank of Bahrain official, Abdul Rahman Al-Baker, executive director of financial supervision pointed out that as the industry crosses the $1.5 trillion mark (estimates of the size of the Islamic financial industry vary widely), it needs to broaden the customer base it addresses:
HSBC Amanah is joining a growing number of companies launching sukuk funds with their HSBC Amanah Sukuk Fund that will be domiciled in Saudi Arabia. The fund is expected to hold about 12 to 14 companies' sukuk from the GCC region and have a 4-year maturity.
Banking officials in Iraq are looking at ways to encourage Islamic banks according to Central Bank advisor Mudher Kasim. The article describes the difficulty facing Islamic banks due to the regulation about banks investing in real estate and their mandatory capital reserves.
Advantage Consulting Company Managing Director Safa Abdul Rahman Al-Hashem provides a criticism of products that replicate conventional financial products.
A Central Bank of Bahrain official, Abdul Rahman Al-Baker, executive director of financial supervision pointed out that as the industry crosses the $1.5 trillion mark (estimates of the size of the Islamic financial industry vary widely), it needs to broaden the customer base it addresses:
"In addition to adequate regulations there is a need for creating the necessary framework for investment instruments targeting small investors, medium size investors, as well as professional or high net-worth individuals, who would like to invest their funds in accordance with Shariah principles,"
HSBC Amanah is joining a growing number of companies launching sukuk funds with their HSBC Amanah Sukuk Fund that will be domiciled in Saudi Arabia. The fund is expected to hold about 12 to 14 companies' sukuk from the GCC region and have a 4-year maturity.
Banking officials in Iraq are looking at ways to encourage Islamic banks according to Central Bank advisor Mudher Kasim. The article describes the difficulty facing Islamic banks due to the regulation about banks investing in real estate and their mandatory capital reserves.
Advantage Consulting Company Managing Director Safa Abdul Rahman Al-Hashem provides a criticism of products that replicate conventional financial products.
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