Dubai update, Islamic finance & foreclosures

Dubai will issue at least $1 billion in bonds in two tranches, one of 5-year tenor and one of 10-year tenor. The (conventional) bonds would be the first issued by Dubai since the debt crisis sparked by the near-default of the Nakheel sukuk. Nakheel, which has received 85% approval from trade creditors, close to its target of 95 percent acceptance, is reported to have applied for listing of $1.6 billion in sukuk with NASDAQ Dubai. The sukuk will be issued to pay 60% of the trade creditors' claims, with the remainder being paid in cash.

In other Dubai-related news, Dubai Islamic Bank took a majority stake in Tamweel, the troubled Islamic mortgage company in Dubai, which led to a sharp rise in the price of Tamweel's sukuk. The move reduces the prospects of a merger between Amlak Finance and Tamweel, which was reported to be likely as a way of dealing with the troubled Islamic mortgage companies. Tamweel has also begun foreclosures on properties owned by people who have left the Emirate and they say in cases where people are still in the Emirate, they are trying to "find a resolution which is satisfactory to both". The issue of default and foreclosure on Islamic mortgages is one that should be balanced between the commercial needs of the mortgage holders and the ethics underlying Shari'ah, which urges lenders to be patient with borrowers who run into financial difficulties.

In general, the commercial logic will outweigh the ethical obligation to work with creditors to avoid causing undue harm for the creditor. However, this is an area where I think Islamic finance can set itself apart from conventional finance. In the post-credit crisis where foreclosures have become commonplace, there have been a number of reported excesses where banks have been overzealous in foreclosures: GMAC Mortgage has come under investigation for problems with the legal documentations and in a bizarre incident, a man in Florida with no mortgage had his home foreclosed on. In many foreclosures, there is no hope for the borrower to become current on the mortgage and foreclosure is nearly inevitable. However, there are many other cases where a negotiated settlement can be reached that is better for the borrower as well as for the lender, who will see a higher recovery value than if they foreclosed on the property and sold it into a depressed market. And one solution that has been proposed (for the conventional market) would seem ideal for an Islamic bank committed to moving towards greater profit-and-loss sharing. Instead of foreclosing on the property, there would be a negotiated refinance into a more affordable mortgage and in exchange for the concession, the lender would have right to a share of any appreciation in the home price when it is sold.

Rushdi Siddiqui focuses his latest column on the need for "reflection, reassessment and reality check" (his 'R-cubed'). He makes some great points including some that I have also highlighted like the problem facing takaful providers (none of which have failed to date): "The link between Takaful operators and Islamic investing is close, as premiums must be deployed in a Sharia-compliant manner. Although there have been no bankruptcies announced in the Takaful industry since beginning of 2009, there have been challenges."

The Lawyer has a great article on the effect of Sheikh Usmani's comments on sukuk, which were followed by a ruling from the AAOIFI Shari'ah Board, as well as the financial crisis. It cited a KFH Research/NCB Capital report on the recovery in sukuk during the past year.

• Efforts to establish an Islamic bank in South Korea have faced significant hurdles.
  
• An article in the National says that Islamic finance can thrive in Dubai. The article notes that Islamic finance is based on an opposition to excess and describes the cause of the financial crisis as "excess risk, excess rewards, excess concern with short term results" without explaining how some companies--most notably Nakheel, which financed many projects with sukuk--became ensnared in the crisis themselves.
  
• Nigeria plans to issue a sovereign sukuk within the next 12 months as it tries to become the Islamic finance hub for Africa.
  
• Indonesia plans to issue 1 trillion rupiah from sukuk in an auction on October 5.
  
• Armen Papazian, a fellow of the Judge Business School at the University of Cambridge, says that Islamic finance should focus on creating an entire financial system based on Shari'ah-compliance, not just individual products.
  
• Standard Chartered is launching a nostra account product in the US for international clients that will be based on commodity murabaha.
  grow significantly and the VP of global wealth management at HSBC Amanah, Shahzad Wairach, estimates its potental of "20 percent growth over the next three to five years".
  
• Bank of London and the Middle East is planning to offer a Shari'ah-compliant Absolute Return Fund that is "in no way a hedge fund". Efforts to create Shari'ah-compliant hedge funds have been criticized for their synthesized short sales.
  
• The Central Bank of Bahrain's latest issue of sukuk al-salam was oversubscribed.
  
• Kuwait's banking system has 35 percent of assets in Islamic banks.
  

Shari'ah scholar licensing, IIT sukuk, Islamic indices

Bloomberg has a more detailed article about the planned Shari'ah scholar certification body, although the details are not yet fully described. I think this is a positive development because it will provide a way for newer or less recognized scholars to build credibility and become selected to be members of Shari'ah boards. This will increase the number of qualified scholars with experience that could be the biggest development to get around the well publicized lack of scholars that are selected to serve on Shari'ah boards. Currently, most Islamic financial institutions select the most recognizable Shari'ah scholars to gain credibility about the Shari'ah-compliance of their offerings. This has led to the top scholars being on many, many Shari'ah boards, which limits the amount of time they can devote to each. This could lead to less thorough review of each product than if the workload were spread across a larger number of scholars. Hopefully the ISRA proposal will move beyond the planning stage and on to become an organization that carries as much weight and recognition as AAOIFI or the IFSB.

There is an article in The Banker about Islamic indices, which have only been around since 1999 when Dow Jones launched their Islamic Finance World index. The article is interesting and notable because it mentions the absence of ETFs (not total absence; there are a few, but not many and most are very small). The Islamic funds industry has grown significantly in the past 10 years, so it seems that the ETF sector would be a natural area for growth as an alternative to actively-managed mutual funds.

The small sukuk ($10 million) from the International Innovative Technologies, which is the first UK-based company to issue a sukuk, is being heralded as the first of many from the UK and Europe. However, I think it is unlikely that this small sukuk, which was subscribed by one entity, Millenium Private Equity, will have that effect. The sukuk--a sukuk al-musharaka--came obout when an investor in IIT suggested Islamic finance as a way to finance the business. This (along its small size and status as a 'first') reminds me of the East Cameron sukuk, which was issued by the US-based wildcatter oil & gas firm with properties offshore Louisiana. While I am not predicting that the sukuk will end up the same way the East Cameron sukuk did (with the bankruptcy of the issuer), I do think that the idea that a small sukuk from a relatively unknown issuer can spark further issuance is overstated. It will take a larger, more well-known issuer to demonstrate that sukuk are the "real thing" to other potential issuers in the UK and Europe. That may happen in the near-term, but it will not make IIT the one that broke the market open. However, it is a start--albeit a small one--that will generate plenty of media attention that could make a sukuk from a better known issuer less surprising. It will be interesting to see what happens from here.

The secretary-general of AAOIFI, Dr. Mohamad Nedal Alchaar, has an opinion article in The National about the potential for France to develop its Islamic finance industry.

Other News

• The current issue of Opalesque's Islamic Finance Intelligence has several interesting articles. One by Shahzad Siddiqui and Toby Birch discusses gold bullion and Islamic private equity. Mohammed Khnifer discusses what happens when sukuk default.  Nikan Firoozye discusses the structure of the consecutive or rolled murabaha. The full issue can be downloaded by clicking through to any of the articles.
  
• South Korea may revive the bill to put sukuk on par with conventional bonds, after it was scuttled earlier this year.
  
• According to an IMF report, the driving force behind the growth in the industry after 2000 was the rise in oil prices, not 9/11. I hope to post something on the report when I have a chance to read it.
  
• The Thai Securities & Exchange Commission will issue rules for sukuk in October, according to the body's Secretary-General.
  
• Kuwait Finance House-Turkey may issue $100 million more in five-year sukuk, after its first issue in August, which was also the first sukuk issued in Turkey. The government of Turkey may consider issuing sukuk "in the future" according to the Finance Minister Mehmet Simsek.
  
• The Central Bank of Bahrain's Sukuk al-Salam was oversubscribed with BD73.5 million ($195 million) in subscriptions for the BD12 million ($31.5 million) issue. The return on the three month securities will be 0.69%.
  
• DIFC Investments will make a scheduled $2.88 million periodic payment on its $1.25 billion sukuk on time, according to a statement posted on NASDAQ Dubai.
  
• A paper in South Africa discusses the basics of Islamic banking.
  
• Malaysia issued four takaful licenses, primarily to foreign companies as it liberalizes its financial sector in a bid to attract more Islamic finance.
  
• Islamic finance could exceed $2 trillion in the next three-to-five years.
  

Indonesia sukuk, rules on forward currency transactions, ISRA to set up Shari'ah scholar org

Indonesia sold sukuk through a private placement for 336 billion rupiah ($37.45 million). There was an indication that the government would move away from the auction method towards private placements after several auctions where the yields demanded by investors were higher than the Ministry of Finance was willing to expect. The higher yields versus conventional bonds were attributed to lower liquidity in secondary markets for sukuk compared to conventional bonds in Indonesia, something that is common in other countries as well. The current issue is non-tradable sukuk with a yield of 7.3% maturing in 2014.

The Shari'ah Advisory Council of Bank Negara Malaysia, the country's central bank, ruled that no payment can be made in exchange for a forward currency transaction used for hedging (based on a binding promise, wa'ad). The basis for the ruling was that the upfront fee would turn the transaction into a bilateral wa'ad, which is viewed as a contract, which is not permissible. The unilateral (binding) promise is viewed as acceptable because it is a promise made without compensation. The issue of bilateral wa'ad also emerged as a stumbling block in the IIFM report on sukuk repo transactions.

The International Shari'ah Research Academy for Islamic Finance (ISRA) may set up an international body for Shari'ah scholars with the hope of creating a (self-)regulatory organization for Shari'ah scholars. Currently, there is no international body that regulates Shari'ah scholars, although the procedures for Shari'ah-compliance are standardized through AAOIFI and the IFSB. I think it is a good effort, but I agree with Muneer Khan, head of Islamic finance at the law firm Simmons & Simmons, who is quoted saying that "It's very difficult to set up an international body which actually has the power to effect these changes [...] It all depends on voluntary cooperation. A lot of work would have to take place behind the scenes to get regulators to sign up".

The editor of Arabian Business, Damian Reilly, wrote an opinion piece in the paper about Moody's recent downgrading of Bahrain's rating from A2 to A3. He says that, despite Moody's claim that the ratings downgrade was based on its budget deficits and dependence on higher oil prices of $80 to balance its budget, it was based on Moody's view that the outlook for Islamic banking in 2011 was diminished. The Moody's analysis also cited the size of Bahrain's banking sector--much of which is Islamic banks--that has assets of three times the country's GDP. Mr. Reilly counters that the large size of Islamic banking as a share of the country's banking sector--and that industry's better performance in the financial crisis--suggests that Moody's is becoming more cautious on Islamic banking. In my opinion, his point avoids the real detriment that a global recession can have on an Islamic banking system. Even if the Islamic banking system performs better than conventional banks, the government would find it hard to support the banking industry if things became worse. The budget deficit is currently 7.3% of GDP (expressed another way, 2.4% of total banking assets) and even a small requirement for cash from the government by the banking industry would have a disproportionally large share of the country's GDP and also a large increase in the budget deficit, which could make the country's creditors uneasy.

JP Morgan estimates that the tradable sukuk paid to Nakheel's creditors for 60 percent of what they were owed (with the remaining 40 percent paid in cash) are worth about 60% of their value if they made all principal and periodic payments. The estimates of their fair value is based on Nakheel being able to pay "almost all" coupon payments but JP Morgan doubts Nakheel's ability to repay the principal in 2015. The five-year sukuk have a coupon of 10% per year. The terms of Nakheel's payment to trade creditors was higher than their offer to debt holders of Dubai World, who extended maturities of debt with a 1% yield. The holders of Nakheel's 2009 and 2010 sukuk received redemption in full with funds from the Dubai Financial Stability Fund and the 2011 sukuk are expected to be repaid in full from the same source.

Other News

• The Islamic Development Bank's $3.5 billion sukuk program securities will be listed in Kuala Lumpur and London. So far $1.1 billion has been issued and another $1 billion will be issued by year end in 5-, 7-, and 10-year sukuk. This is separate from the RM1 billion sukuk that was listed on Bursa Malaysia yesterday.
  
• The bill to put sukuk on equal footing with conventional bonds in the tax code in South Korea has been held up by the (unfounded) concern that it could lead to money laundering and financing of terrorist groups. This is unfortunately not an isolated case where unfounded fears hamper the growth of Islamic finance.
  
• The East Asian region lead the Dow Jones Islamic Indices in August according to a report from Dow Jones.
  
• Affin Bank has applied for the first Islamic bank license in China, according to an article in Business Times. The Ningxia Hui Autonomous Region was working in 2009 to develop a pilot Islamic financial services institution in northwest China.
  
• Indonesian bank BNI Syariah wants to partner with foreign investors to expand its Islamic banking business.
  
• Another article discusses the dichotomy between the GCC and Malaysia in the state of their Islamic finance sectors, primarily new sukuk issuance.
  
• The CEO of the Qatar Exchange, Andre Went, says it is drafting new rules to cover trading in bonds and sukuk. Trading was expected to begin in September, but Mr. Went did not say when trading would begin.
  

Rushdi Siddiqui interviews four scholars, sukuk update

First, thank you to those who have responded with feedback about a possible email newsletter of blog postings (and maybe other commentary). I would appreciate any other feedback, either as a comment to this post or in an email to blake@sharingrisk.org.

I think that Rushdi Siddiqui's latest article, an interview with four prominent Shari'ah scholars, Dr. Hussain Hamid Hassan, Dr. Mohammad Daud Bakar, Yousuf Talal DeLorenzo and Dr. Mohammad Akram Laldin is one of the most important articles for everyone interested in Islamic finance to read. It contains insights into how Shari'ah scholars see their role, the role of Shari'ah governance and the integration of younger less well-known scholars into the Shari'ah advisory role. It contains the most candid reflections of Shari'ah scholars that I have seen published about their own role both as advisors to Islamic financial institutions and as teachers and mentors of the Shari'ah scholars who will someday fill their shoes.

There is a good chunk of news about sukuk from the last couple days. The forward looking news starts with a $1.9 billion sukuk issued by Saudi Electric Company, which was issued at 95 basis points over SIBOR. As I wrote about in July 2009, the last sukuk from SEC was at a significant premium (160 bps over SIBOR) compared to it's (pre-crisis) sukuk issuance which was priced at 45 bps over SIBOR. The current sukuk is still at a premium to its 2007 sukuk, but by a far smaller margin. The shrinking yield premium for highly-rated issuers could lead to other non-high-grade corporate issuers to re-enter the sukuk market. The last estimate I have seen of the sukuk pipeline (sukuk planned but not issued) from Standard & Poor's was $50 billion, which likely includes lower rated corporates waiting for yield spreads for new issuance to decline.

Issues of sovereign sukuk, both domestically and internationally, remains active with Malaysia issuing a three-year, $311 million (MYR 3 billion) Sukuk 1Malaysia 2010 for domestic investors. In the wake of the Greek debt crisis, Indonesia is trimming but not cancelling the sukuk issuance expected in June or July of this year, but reiterated guidance that it would be a "benchmark" size, which typically means at least $500 million. The previous announcement was that the sukuk would be for $750 million. The Dubai Multi Commodities Centre just redeemed its $200 million, five-year sukuk issued in May 2005 with a final $20 million repayment. The certificateholders of Nakheel's $980 million Nakheel Development 2 sukuk have been told informally that the sukuk will be repaid on time. The funds necessary to repay the sukuk are reported to have been provided by the Dubai Financial Support Fund. This could spark some controversy among other Dubai World subsidiaries' creditors groups who have not yet finalized a debt restructuring which could see the other debt maturities extended and a 1% interest rate paid to creditors.

An article tackling the oft-debated issue of standardization in Islamic finance provides a very interesting view on the issue and what the current issues raised by tawarruq and the TID v. Blom Bank case. Reuters adds a factbox about the regulation of Islamic finance globally.

PricewaterhouseCoopers raises the issue, likely to confront Asian issuers of sukuk, about whether the illiquidity (and possible fluctuations) in their currencies will hamper the development of their Islamic finance appeal outside of the region. The issue has been confronted to some degree with Indonesia's dollar-denominated global sukuk issue last year and talk about a 10-year Malaysian dollar-denominated sukuk. There should remain a focus on developing domestic markets for Islamic finance, particularly within Indonesia where Islamic finance remains less developed. However, the internationalization of Islamic finance within Southeast Asia (and potentially South Korea, Japan and China) will strengthen the industry as a whole by providing additional geographical diversification for investors in dollar (and euro and pound and yen) denominated sukuk.

Thursday bullets

• Saudi Electric Company cut the yield guidance on its next sukuk issuance to 95 basis points over SIBOR compared to a spread of 160 basis points over SIBOR for its last sukuk.
  
• The Asian Development Bank is considering starting a multi-billion sukuk program.
  
• Dubai World will begin not paying interest on its debts beginning this month.
  
• Yuri Asset Management received approval for the first Islamic investment fund.
  
• Bank Islam and several Middle Eastern investors are looking to invest in Bank Muamalat's rights issue.
  

Islamic finance was not unscathed by the global financial crisis

I am getting a bit irritated with some of the media coverage of the Islamic finance industry. It is not that the articles are repeating any of the easily disproved negative comments about Islamic finance; in contrast, I am disappointed by the reporting because it is too positive. An article by AFP provides a few of the specific claims that are either not true or exaggerations (although this article is not unique, there are many articles repeating the same claims). The subtitle of the article claims that "Islamic finance has emerged unscathed from the global crisis". This is not true. Profitability at Islamic banks are down because of the recession and there have been enough distressed Islamic financial institutions (The Investment Dar, International Investment Group, Gulf Finance House) to claim that the industry is 'unscathed'. The first sentence of the article qualifies 'unscathed' by adding the word 'relatively' to the statement in the subtitle and the remainder of the article is more nuanced (it focuses on the need for tighter regulations). The financial crisis disproved, hopefully for ever, the notion that Islamic finance can be 'immune' from crisis. The article notes that:

"However, the global economic turmoil, which felled some mainstream banking institutions, has highlighted the need for the industry to shore up areas where it may be on shaky ground.

These areas of shaky ground for the most part reflect areas where there is not sufficient products available to Islamic financial institutions to survive downturn in asset values and (for banks) liquidity crunches.

Remember, the final nail in the coffin for many of the conventional investment banks was not necessarily the asset price deterioration of the toxic mortgage-backed products they held. That contributed (just as any asset price deterioration would), but the institutions were felled by a shortfall of liquidity after their funding dried up. During September and October 2008, the investment banks fell one after another and the primary thing that allowed JP Morgan and Goldman Sachs to avoid similar fates was their conversion to commercial banks, which allowed them access to the Federal Reserve as the lender of last resort. Had the Fed not been willing to step in, those banks might well have met similar fates as Bear Stearns and Lehman Brothers. The situation for Islamic banks will be similarly precarious in any future financial crisis: there are not lender of last resort facilities available that are Shari'ah-compliant and without this, the maturity mismatch between demand deposits and short-term sukuk (liabilities) and longer-term assets could turn a liquidity crisis into a solvency crisis as the banks would be forced into a firesale of assets.

The continuous reporting that Islamic finance emerged unscathed by the recent crisis lends some authority to belief that it will be impervious to future crisis and breeds dangerous complacency within the industry. It also somewhat minimizes the significant challenges that Islamic finance faces in its maturation process. If it withstood the most severe financial crisis since the Great Depression, the thinking might go, it will not have much to worry about until the next big global crisis which could be decades in the future. It would be far easier to worry about potential problems now when financial stability is in the forefront of the news than to wait and try to either develop it when the Islamic financial markets are booming, much less when the crisis does in fact hit.

Other News

• The central bank in Malaysia is drafting regulations covering ibrar, the rebate used in some contracts. In general, ibrar is used where a customer defaults on a murabaha or BBA transaction because under the cost-plus sale, the full amount is due in a default including the profit for the entire amount. In contrast, in a conventional mortgage, the balance due is the unpaid principal plus interest. Ibrar is used to make the economic outcome in an Islamic finance transaction equivalent, but is discretionary for the Islamic bank, which has created uncertainty and legal disputes. The central bank is expected to put the policy in front of its Shair'ah board by the end of May.
  
• France is seen as moving 'too slow' on Islamic finance.
  
• An article by Morrison & Foerster LLP describes (with transaction diagrams) the structure of principal-protected structured products.
  
• The latest sukuk al-ijara from the Central Bank of Bahrain was oversubscribed by 310%.
  
• The government of Indonesia is planning another global sukuk for October 2010. The government is also considering Islamic T-bills and retail sukuk to diversify funding sources.
  
• The Jordanian government is interested in issuing sukuk.
  
• South Korea's legal changes for companies to issue sukuk have been held up in the National Assembly. The chart for sukuk issuance looks inaccurate. It projects $30 billion in issuance in 2010 exceeding the 2007 total. IFIS reported that total issuance in 2007 was $47 billion.
  
• Pakistani Islamic banks are considering into Afghanistan.
  

Islamic finance conferences in Malaysia and South Korea

There are a number of articles about the "Contribution of Islamic Fiannce Post Global Financial Crisis" conference held in Kuala Lumpur, Malaysia yesterday:

• "5 ways to widen Islamic finance's acceptability," Business Times
  
• "Changes to Capital Market Services Act to be enforced next month," The Star Business
  
• "Raja Nazrin: Islamic finance crucial to reform global finance rules," The Edge Malaysia
  
• "Changes in Act to strengthen Shariah Advisory Council," Bernama
  
• "Bank Muamalat: Islamic finance on steady growth path," The Star Business
  

Qatar Islamic Bank signed a memorandum of understanding with Woor Investment & Securities Inc, a South Korean investment firm, to cooperate on Shari'ah-compliant investments. A conference was held in Seoul on Islamic finance and sukuk and if legislation is passed soon, the first South Korean corporate sukuk could be issued in late 2010.

Other News

• Dubai has only tapped $500 million of its $2.5 billion loan from Abu Dhabi government-owned bank Al Hilal bank.
  
• SEI breaks down the performance differences in 2009 between the MSCI World and MSCI World Islamic.
  
• Islamic financial institutions now have $822 billion in assets according to the Saudi Arabian central bank governor Muhammad Al Jasser.
  
• Kazakhstan is planning to issue Islamic bonds this year.
  
• An Expert Council on Islamic Economy was formed in Tatarstan in a meeting organized by islamic-finance.ru.
  
• The governor of the Central Bank of Syria spoke at the 5th Islamic Banks and Financial Institutions conference held in Damascus about many of the issues (risk management, liquidity management and prospects for financing infrastructure projects) that have been at the forefront recently.
  

Reuters Islamic finance summit

Reuters Islamic Finance Summit

There are a number of articles about sukuk from the Reuters Islamic finance summit. This is not terribly surprising because of the place of sukuk as the 'face' of Islamic finance, especially among Western investors. There are a few issues raised in these articles.

One article describes how the development of sukuk by French issuers, in particular, an $1.37 billion (1 billion euro) sukuk from an unnamed corporate issuer, has been delayed by the uncertainty about legal rules about sukuk in France. The French parliament passed a law recently clarifying the legal and regulatory treatment of sukuk, but it was thrown out by the courts on procedural grounds. France has said it wants to be a European hub for Islamic finance, but in the absence of a resolution of these issues, it is unlikely that it will be able to catch the U.K. quickly where regulatory and tax changes have already been made to put Islamic finance on a level playing field.

There are a few somewhat conflicting articles about Islamic finance in the Gulf that, despite the seeming contradictions, describe the situation facing Gulf issuers in the wake of Dubai World's request for a debt standstill (which investors were reminded of by recent news as well as other sovereign debt issues in Greece). The capital markets for new sukuk are relatively frozen right now, especially in the UAE and there have been few non-sovereign issues in the past year. However, there is significant latent demand by money market funds for high-grade corporate and sovereign issues.

An advisor to Morgan Stanley, Yavar Moini, does provide some background for what is needed to unlock this latent demand and bring new sukuk to market: domestic capital market development. However, in order for this development to occur, there needs to be greater legal certainty about how sukuk behave in different situations and for different structures. The advantage that many sovereign issuers have over corporate issuers in this environment is that many Gulf states (Dubai excepted) have signficant oil reserves that finance the government budgets and with oil prices having recovered, the revenue to repay debts on time is less uncertain than with corporate issuers whose ability to pay is less certain and more dependent on local economic conditions. This is, of course, accentuated for issuers looking to issue sukuk backed by real estate projects like Dar Al Arkan, which issued a smaller than expected high-yield sukuk (10.75% coupon) to raise $450 million compared to expectations of between $500 million and $750 million.

Worldwide, Mohd Daud Bakar, a Shari'ah scholar, expects that the leading country for new issues (ex-Malaysia) will be Saudi Arabia, based on its need for infrastructure projects and economic growth fueled by the rebound in oil prices. He expects 10 to 15 sukuk issues from Saudi issuers during the year. Bakar is also working for the South Korean Korea Investment & Security Company, which is structuring a sukuk for issue after the country passes a proposed bill to create a tax exemption for sukuk.

Apart from these new issues, there could be additional sukuk activity in the secondary markets with several Gulf-based banks launching sukuk funds. There have been a few sukuk funds launched since the onset of the financial crisis beginning with one launched by Algebra Capital in August of 2008. These funds will probably try to tap the desire for investors to invest in sukuk while taking advantage of depressed prices in some sukuk in the secondary markets. The growth in secondary markets will be aided by these funds who will provide a bid for distressed and other sales of sukuk holdings. The test for the markets will be whether these funds will then warehouse these sukuk until maturity or whether secondary markets will become liquid enough for them to sell holdings before maturity. If these funds become active players in the sukuk secondary markets, they could lower pricing for new sukuk by increasing the liquidity of sukuk (which would lower the liquidity premium attached to new sukuk issues).

An article with quotes from a lawyer in Islamic finance, Farmida Bi, and Toby Birch, the founder of Birch Assets Ltd., provides some interesting comments on the difference between sukuk and conventional bonds. Ms. Bi is quoted: "Investors have realized after Dubai World that what they are buying is not typically something that (gives) recourse to an asset". Mr. Birch described that "If bonds were properly Islamic there would be no guaranteed rate of return: the idea of a sukuk is you share the income flow because you are a co-owner of the real assets". This is, I think, the correct assessment of the situation of the sukuk market, but I am concerned that the selling of Islamic finance as asset-backed, while selling asset-based sukuk may reflect a flaw in how the industry markets itself and in particular, the difference between substance and rhetoric. If Islamic finance promotes itself as different because it is asset-backed, it should offer product that are secured by assets. In other cases, it should use investment structures that share risk between issuer and investors (like the Saudi Hollandi Bank sukuk). What is creating confusion is where structured of a sukuk based on an asset leaves investors without recourse to that asset. Islamic finance is not always asset-backed, but in the structures where an asset is involved, investors should have recourse to that asset.

In a related article, Mohd Daud Bakar, describes that the industry was developed to allow Muslims to buy houses and cars and has not yet moved beyond this area to involvement in the real economy. He is right to some degree; the Islamic finance industry is largely contained to offering products to others within the financial services industry with the exception of retail institutions which....offer financing for houses and cars for consumers. Another article describes the prospects for private equity in Islamic finance and real estate is now again in vogue in Islamic finance. The debate on the connection between the Islamic finance industry and the real economy is somewhat constant in the background, but the questioning of this connection (and the same discussion in conventional finance) somewhat loses the point that finance is by its nature somewhat disconnected from the real economy except that it is engaged in providing financing for everything else. If there were a concern about financial industry people becoming involved directly in the economy to directly benefit others, I think the best outlet would be Islamic microfinance. It is still relatively underdeveloped and could use the (volunteer) efforts of the top minds in Islamic finance.

Despite the growth touted for Indonesia in an article I linked to yesterday, there are a number of hurdles for Islamic finance in Indonesia, despite its large Muslim population. The primary obstacle is tax and regulatory difficulties for Islamic financial products (and I have seen other articles which cited endemic corruption as another obstacle. However, if the information in this article is correct, there may be a simple lack of demand from consumers, either through lack of understanding of Islamic finance or a belief that Islamic finance is not authentic or necessary in its current for, which replicates (or 'camouflaflaged' as it was described by the cheif economist at Bank Danamon, Anton Gunawan) conventional finance.

A company, Halal Industries, plans to establish a halal park in Wales.

Other News

While many Islamic investment banks are selling assets, Unicorn Investment Bank is considering raising between $250 million and $500 million in equity for acquisitions and distressed asset sales.

Gulf Finance House restructures debt; Warde on Islamic finance in the U.S.

Gulf Finance House repaid $200 million of its maturing $300 million debt facility after reaching an agreement with its creditors to defer the remaining $100 million for six months under a new murabaha agreement. The Islamic investment bank has another $50 million maturing on March 3 that is also expected to be delayed. The company saw its credit rating cut to selective default (SD) on the announcement.

Ibrahim Warde suggests that Islamic finance could be beneficial for the United States by creating new financial institutions and demonstrating that the U.S. is interested in "promoting a new era of equal economic prosperity and opportunity for Muslims here and abroad".

Other News

• The sixth monthly issue of the Opalesque Islamic Finance Intelligence is now available. It is a good read, as always.
  
• Amlak is "hopeful" that the UAE federal government will approve its merger with Tamweel.
  
• The Saudi firm Dar Al Arkan will raise $750 million in sukuk, although as other news stories (linked to on Monday's post) note, the uptake has been weak.
  
• Korea Investment & Securities Co says that South Korea needs Islamic finance to curb its trade deficit. The firm recently hired Shari'ah scholar Mohammed Daud Bakar to "help it structure Islamic financial products".
  
• Kuwaiti Islamic bank, Boubyan Bank had only received subscriptions for 85% of its rights issue and said its board would recommend reopening the issue.
  
• Dubai Islamic Bank postponed its board meeting to discuss a wakala arrangement using funds from the UAE ministry of finance.
  
• Indonesian takaful growth will slow to 30%.
  

Pipeline of sukuk grows, despite uncertainty about bankruptcy laws; GFH buys back sukuk

There has been reports that the pipeline of 'planned sukuk' is quite high with past estimates of $45 billion which has been increased to $50 billion by Standard & Poor's as reported in the DIFC Sukuk Guide. However, as the new issuance seized up again following the Dubai World standstill request, these estimates may not necessarily turn into actual new issues in the foreseeable future. With the myriad of issues about the legal enforceability by investors raised by the Dubai World and Nakheel crisis, many potential issuers may delay or cancel planned issuances. To take an optimistic perspective, the well reported confusion over bankruptcy laws may move some of the new issuance to other countries outside of the Gulf and may also lead to the development of new bankruptcy laws.

Gulf Finance House announced it was going to repurchase $9 million of its $200 million sukuk. This is in contrast to other sukuk issuers which had a chance to repurchase their issued sukuk at distressed levels, some of whom have subsequently defaulted on their sukuk. It is an interesting idea for issuers to take advantage of distressed prices in secondary markets known for its illiquidity. However, in many cases, distressed prices, despite the illiquidity, do reflect the prospects of a default.

Other News

• The DIFC Sukuk Guide (pdf), which was released recently, reports that the total issuance of sukuk in the GCC between 2000 and 2008 was $26.8 billion.
  
• The Investment Dar, the Kuwaiti financial institution which defaulted on $100 million in sukuk, has reached agreement with enough creditors to approve its restructuring plan. Details of the plan have not yet been released. Most reports of the plan say that The Investment Dar will sell most of its assets in order to repay creditors.
  
• The bill to provide tax breaks to put sukuk on a level playing field with conventional bonds in South Korea has been held up in the National Assembly.
  
• Italian insurance company Generali is considering a joint-venture with Qatar Islamic Bank to launch a takaful company in the GCC with possible expansion across Europe in Asia.
  

A scholar raises issues of copy-cat products, IFC sukuk, South Korea considers sovereign sukuk

Shari'ah scholar Dr. Hatem El-Karanshawy, a former director of the Central Bank of Egypt, cautions the Islamic finance industry on 'Islamizing' products that do not inherently fit with Islamic principles. He says that venture capital can fit in well with few modifications. The growth in Islamic finance has been accompanied by 'copy-cat' versions of conventional financial products using contracts that allow Shari'ah scholars to approve them. In many cases, these products do provide value, but as I mentioned in a blog post two months ago, there is a need to keep in mind whether new innovation is beneficial in Islamic finance just as in the conventional financial industry.

The International Finance Corporation's $100 million sukuk is receiving favorable coverage from Arab News, which points out that many Arab countries have not yet stepped into the Islamic capital markets to raise funds. In addition to the most recent sukuk (and a Ringgit-denominated one it issued in 2004), the IFC has been involved in several other Islamic finance transactions over the past few years.

South Korea appears to be the latest non-Muslim majority country to work to attract Gulf money by passing laws that put Islamic finance including sukuk on equal regulatory and tax footing to conventional bonds. The country recently announced a list of state-owned companies that the government is looking to privatize and which it seeks Gulf investment. In addition, the government is considering an $80 billion initiative for environmentally-sustainable areas of growth. The government is also on a roadshow to gauge interest in a $500 million - $1 billion sovereign sukuk.

Other News

• HSBC is considering subscribing to the second $10 billion tranche of bonds issued by Dubai. The first tranche was purchased by the UAE central bank.
  
• Islamic banks' assets grew by 66% between the end of 2007 and the end of 2008 according to the Union of Arab Banks.
  
• The NY Times published an article on the growth of Islamic finance in universities' curricula.
  
• According to Standard & Poor's, the performance of Shari'ah-compliant equities lagged in the third quarter, a period when a lot of the leading stocks were financials.
  
• Bahrain-based Al Baraka plans on spending $30-$50 million on a bank acquisition in Indonesia. The bank also says that the IPO of its Syrian unit is oversubscribed.
  

Dubai wades back into international capital markets, sukuk coming back or are defaults too strong a headwind for the next year

Dubai Civil Aviation may issue sukuk and conventional bonds to refinance $1 billion in debt maturing in November, in signs that Dubai may be re-approaching the sukuk and bond markets despite uncertainty about the level of debt in government-related entities like Dubai World and Nakheel, which has a $3.52 billion sukuk maturing in December. The ability of Dubai to tap capital markets has been buoyed by the return of risk appetite among investors as well as the repayment a month early by Nakheel of over $1 billion in bank debt extended earlier this year. However, there is still skepticism about Dubai's ability to restructure its debt and government-related entities.

A senior executive at Nomura believes that there will be a further uptick in the issuance of new sukuk by corporate and sovereign issuers in the next 18 months. The issuance through the end of September was $13.5 billion, primarily out of Saudi Arabia, which accounted for 44% of issuance and included sukuk from Saudi Electric Company and the Islamic Development Bank. Other more recent data shows that $18 billion in sukuk have been issued so far this year.

The sukuk market remains in a state of flux because of the unresolved issues about asset-based and asset-backed sukuk, which is discussed in an article in the Financial Times. The important point brought up in the FT article is that not all sukuk transfer ownership of the underlying asset to the investors. In many cases of asset-based sukuk, the asset is transferred to the SPV that issued the sukuk but with a repurchase agreement that requires the issuer to repurchase the asset in the case of default. This means that the asset ownership transfers back to the company and the sukuk holders are given essentially an IOU that the company will redeem the principal of the sukuk in a default. This is different from an asset-backed sukuk where ownership is transferred to the sukuk holders, who then have legal right to the asset. This was the case in the East Cameron sukuk, which was based on an overriding royalty interest that entitles the sukuk holders to a share of production in the underlying lease. Other sukuk transfer ownership of a tangible asset (the ORRI is legally recognized as real property in Louisiana, but is not a transfer of the underlying properties being drilled, which are leased from the US government).

Other News

• The World Bank's IFC sukuk price guidance is 35-40 basis points over 5-year US Treasuries.
  
• Jordan is considering offering sukuk to cover its growing budget deficit.
  
• A columnist in the Guardian discusses the role of regulation and religion in finance.
  
• Emirates Development Bank, the government funded bank that is anticipated to take over Islamic mortgage lenders Amlak and Tamweel is one step closer to launch, although the fate of Amlak and Tamweel remains uncertain.
  
• Saudi Electric may tap sukuk markets again to finance a new contract the firm signed.
  
• There is a nice article is in a Minnesota paper about local organization African Development Center, which offers Shari'ah-compliant home and business financing.
  
• An English paper has a good article about the growth of Islamic finance.
  
• Korea needs incentives for investments in sukuk, according to the head of Doha Bank's representative office in the country.
  
• Islamic Finance Resources links to a recent paper on the history of Islamic finance in France, a relevant article given the recent French law about Islamic finance that was struck down by the constitutional court on procedural grounds.
  
• Ithmaar is offering a rights issue as well as a 5-year mandatory convertible sukuk.
  
• Gatehouse Bank, based in the UK, joined Paris Europlace, a Paris-based organization that promotes the French financial industry and established an Islamic Finance Commission in December 2007.
  

Gulf Finance House/Macquarie Joint Venture, Other News

Gulf Finance House and Macquarie signed a Memorandum of Understanding to establish a joint venture Islamic financial services platform. Macquarie may invest up to $100 million in the joint-venture and there are reports that it will be structured as a convertible murabaha and will be launched in the beginning of 2010. There is also a story from Australia that has a slightly different perspective from Macquarie's end.

Other News

• Korea will exempt foreign holders of sukuk issued by local firms from taxes on the periodic payments.
  Gulf Air used an ijara financing for eight new airplanes.
  
• Lahem al Nasser at Asharq Alawsat offers his perspective on the recent Moody's report on Islamic banks.
  
• Dubai Silicon Oasis received a AED300 million ($82 million) investment from Abu Dhabi Commercial Bank structured as a mudaraba.
  

Dubai may issue more bonds to support government related entities, Kuwait government may bail out TID

Dubai has handed out nearly half of its first tranche raised in its recent $10 billion to government related entities including DP World and Nakheel. The government of Dubai is also likely to issue another $10 billion tranche of bonds to continue to support GREs including assistance to Nakheel as its $3.52 billion sukuk reaches maturity in December (a sukuk I discussed earlier this month). Troubled Islamic mortgage providers Amlak and Tamweel will not be merged until after they are restructure, plans for which are expected in a "few weeks" according to Sheikh Khalid Bin Zayed Bin Saqer Al Nahyan.

The Kuwaiti government may bail out troubled Islamic investment bank The Investment Dar which recently defaulted on its sukuk, the first such default in the GCC. Critics point to a mismatch between cash flow and liabilities as well as the company's highly leveraged position which included its partial takeover in a leveraged buy-out of Aston Martin. Two interesting paragraphs in the article, which touches on systemic risk in Islamic finance, the topic of my forthcoming opinion piece in Business Islamica magazine:

"Bankers agree that the TID default may be a one-off and would not have a contagion effect even if there were one or two more defaults in the Sukuk or wider Islamic finance market. The financial market generally also prices in default probabilities to a certain extent.

"Another Islamic capital markets expert, however, warned that the main "issue has always been a lack of transparency in the structure and Shariah compliance process. The issuance is also not under a well-regulated jurisdiction familiar with Islamic financial products. Obviously there will be some contagion, as investors will now relook at the structure of the product they are holding. But it is fortunate that there is no secondary market otherwise the mark to market valuations across the board would be in a state of disarray."

Other News

• The Saudi Gazette has an article summarizing the speech given by Enad Al-Menaie, the chairman and managing director of the Liquidity Management House at the 6th IFSB Summit in Singapore recently.
  
• Brunei issued the 30th in its series of short-term ijara sukuk. So far the country has issued over B$1.6 billion ($1.1 billion) in ijara sukuk since April 2006. One of the topics discussed at the AAOIFI conference was the use of arbitration instead of commercial, secular courts in handling disputes about Islamic financial products.
  
• AAOIFI held its annual Shari'ah Conference in Bahrain on May 18-19, 2009. Indonesia will host a meeting of Shari'ah scholars from Southeast Asia later in May.
  
• Indonesia may issue another sukuk, this one for IDR 5 trillion ($485 million), later this year.
  
• UM Financial Group, a Canadian Islamic finance company, and Mint Technology are launching prepaid cards targeting the Muslim community in the country.
  
• An interview with Eric Meyer, CEO of Shari'ah Capital describes their strong balance sheet and the performance of their long-short equity funds which focus on commodities.
  
• The managing director of Korea Investment & Securities Co. Ltd. discusses the country's interest in Islamic finance in an interview.
  
• Bank Islam and MayBank Islamic have both denied reports that they may merge.
  

FT special report, Tamweel and Amlak, and other news

Financial Times Special Report on Islamic Finance

One article focuses on the Shari'ah scholars and includes details about the dissent among the Shari'ah scholar community about Sheikh Usmani's criticism of some sukuk forms. I have been generally supportive of his criticism as an example of how the Shari'ah scholars are using their influence to shape the future of the industry, but the focus on strict interpretation also limits innovation in the industry. The issues of standardization and workload on the Shari'ah scholars (as well as the shortage of 'brand name' scholars) has hampered the industry's growth by focusing scholars efforts on certifying plain vanilla Islamic financial products instead of allowing them to focus on more controversial products and help shape the dialogue about the future direction of the industry.

Another article takes up the breather given to scholars caused by the global credit crisis to debate and deliberate on the industry's future. This is a vital topic for an industry that has grown so rapidly in recent years and will ultimately help the industry's progress. One interesting tidbit from the article is that the industry appears near to seeing an alternative to commodity murabaha for short-term liquidity management. Another article focuses on this issue and on standardization.

The sukuk market could be set for a resurgence as global credit conditions are under less stress and one of the principal sources of liquidity--oil revenues--should rebound a bit with the rise of oil prices from lows around $30 to $50. The sukuk market, however, will not be the same and most of the issuance will probably be local currency ijara deals because the recent AAOIFI ruling (Feb. 2008) cast doubt on the Shari'ah-compliance of many mudaraba and musharaka sukuk.

Islamic banks are not necessarily immune from the spill-over effects of the credit crisis into an economic crisis, especially those with high exposure to real estate as the property markets in the Gulf have tumbled. This article also cites a Nomura study of Islamic banks in Turkey during the crisis in 2001 and find no significant advantage. Further, the 'profit equalization reserves' set aside by Islamic banks may not be sufficient to offset losses and could cause Islamic bank deposits to 'break the buck'. I highlighted this potential problem several months bank in Business Islamica and it is a serious problem that may require government intervention if property markets continue to deteriorate.

Two other articles discuss Islamic finance in Asia and the West. One talks of the goal of Malaysia to become an Asian hub for Islamic finance, the other focuses on France and the US as potential challengers to the UK's lead in accommodating Islamic finance following the delay in a UK sovereign sukuk.

The special report concludes with a column by HSBC Amanah's chief executive Mukhtar Hussain.

Tamweel, Amlak and liquidity issues in Islamic finance

Tamweel reported profits for 2008, although it had a loss in the fourth quarter due to "a sharp rise in funding costs, significantly lower business origination levels which affected fee income, substantially lower income from property sales [...[ and higher prudential provisioning on the home finance portfolio". It also excludes a significant amount which was off balance sheet following securitization. The results demonstrate the difficulties caused by the economic crisis and property market crash that affects Islamic and conventional financial institutions alike. Amlak Finance, the Islamic mortgage company in Dubai that will be likely merged with Tamweel is also seeing a rise in delinquencies. The first-hand crisis in subprime mortgages and derivatives has led to a liquidity crunch hitting parts of the Islamic finance industry as a whole.

Other News

• The New York Times has two articles about Islamic finance in the last few days. One includes an analysis of Christianity, Judaism and Islam in terms of their approach to finance and in particular their attitudes towards debt. The other focuses on a few Muslims in New York City who have received home financing from Guidance Residential, a Virginia-based Islamic finance company.
  
• Amid the difficulties facing the Islamic finance industry from the economic crisis caused by the global financial meltdown last year, Kuwait Finance House continues its expansion into China and Saudi Arabia to make it an even more global firm.
  
• American fund manager Franklin Templeton may be eyeing expansion in the Gulf and into the Islamic finance industry through its option to acquire up to 40% of Algebra Capital.
  
• Jordan has provided $10 million in financing to the Islamic Development bank to support microfinance programs.
  
• The International Islamic Financial Market (IIFM) held its 20th annual meeting and discussed, among other issues, its work on creating standardized contracts for several frequently used Islamic finance products.
  
• South Korea continues its efforts to make inroads into the Islamic finance industry at the IFSB meeting as a way to attract capital from the Islamic world.
  
• UBS's plan to increase its staff in the Gulf region and make inroads into Islamic finance appear to be on hold due to the company's problems arising from the credit crisis.
  
• Azerbaijan is considering legislation to allow Islamic financial institutions to begin offering products in the country.
  

Podcast interview with Rushdi Siddiqui, head of Islamic finance for Thomson Reuters

Rushdi Siddiqui, the recently appointed global head of Islamic finance for Thomson Reuters, is interviewed by a radio station in Dubai (mp3). He provides his very interesting and relevant opinions on the growth in data about Islamic finance, the controversy about the size of the industry (it depends on which person is the keynote speaker at a given conference, but somewhere between $500 billion and $1 trillion), and increasing the appeal of the industry beyond Muslims to attract new sukuk issuers not motivated by the religious proscription, but viewing sukuk as an attractive alternative to raise money. The interview is highly recommended.

Reuters reports that one of South Korea's largest oil refiners was going to be the first to issue a sukuk with a Malaysian Ringgit-denominated sukuk has been denied by the company. GS Caltex says "We are not considering (an islamic bond). It's just one of many options available".

Standard & Poor's may downgrade several Dubai government linked enterprises if there is no plan created to deal with the maturing of Nakheel's $3.5 billion sukuk due in December. Without putting too much stock in the movement of prices of sukuk in illiquid secondary market, the Nakheel sukuk traded down over 16% in the past week closing at 73. The sukuk is an ijara sale, lease-back with repurchase upon maturity that is based on land and buildings on Dubai's coastline which were given an estimated value of $4.22 billion when the sukuk was issued in December 2006 according to the offering circular.

Terry Lacey argues that the recent Indonesian dollar-denominated sukuk was a success.

A lot of news about the sukuk market

Sukuk

Some analysts believe that greater regulation of the sukuk market is needed to attract foreign issuers like Malaysia has. The greater availability of daily prices of sukuk would also help to make the asset class more transparent and appealing to both issuers and investors.

Bahrain is planning a $500 million government sukuk issue to cover the deficits caused by the steep fall in oil prices in 2008. The Central Bank of Bahrain, which issues short-term Al-Salam and Al-Ijara sukuk is planning to issue five year sukuk of unspecified size and coupon.

GS Caltex Corp, a South Korean oil refiner, will become the first Korean issuer of sukuk when it completes its RM1 billion ($278 million) raise in Malaysia.

The London Review of Books has an article on Islamic finance that is generally interesting although not everything in it squares with reality.

The Turkish government sold Lira 737.8 million ($461.1 million) in "revenue-indexed bonds" which links the coupon payments to the government's share of revenue generated by state companies. The government planned on selling up to Lira 1.854 billion in the Islamic bonds that resemble musharaka. Although the maximum issue amount was not met, the proportion of the maximum that was issued was greater than the country's first issue in January 2009 where one-quarter of the planned issue of Lira 1.89 billion was purchased.

Malayia's Securities Commission chairman believes that only $10 billion in sukuk will be issued globally in 2009. This would be significantly below the level in 2008 which was well short of the total issued in 2007. The first quarter was weak but if credit markets in general and sukuk markets in particular unfreeze, there is a large pipeline of sukuk waiting to come to market. Islamic banks are more optimistic, expecting to see between $4 and $7 billion in sukuk from Southeast Asia alone.

Other News

The Dow Jones Islamic Market Index commentary for April is available.

Amlak and Tamweel, two Islamic mortgage lenders in Dubai, will begin lending as separate entities before the final plan that is likely to lead to a merger is announced. Prices in the property markets in Dubai fell over 40% in the first quarter of 2009 according to the Colliers International Housing Price Index.

AAOIFI will initiate a study about how the Islamic finance industry "adheres to its benchmarks with a view to standardizing products". They will seek to determine the degree of Shari'ah-compliance with the institution's 40 standards.

Standard & Poor's and Moody's came out with reports on the GCC and Asian sukuk markets, respectively and the general message was that the market conditions in global credit markets had hampered new issuance, but that the industry was well positioned to grow.

Moody's said: "Sovereign sukuk issuance has already brought significant vitality to the Asian market in 2009. In the medium term this could allow activity to fully rebound,"

S&P said: "We believe that the underperformance in sukuk issuance is due in large part to the effects of the global economic downturn, specifically its influence on capital market issuance in GCC states. We are of the view, however, that notwithstanding the current state of the financial markets, the GCC will be the focus of most infrastructure and project finance sukuk activity in the short to medium term. This is because sukuk funding structures provide an alternative to the traditional bank financing that shows no immediate signs of return in the currently dislocated financial markets."

New funds, backlogged sukuk, Hong Kong almost ready with tax changes for Islamic financial products

HSBC Amanah plans to make its equity funds available in the UK. The description of the funds are "active quant" funds. Quant funds typically aim to capitalize of small, short-term arbitrage opportunities using complicated computer models. It is unclear how this type of investment strategy was approved by Shari'ah scholars because it is in some ways highly speculative (probably would raise questions of whether it resembles maysir, or gambling). There are probably ways that this can be explained away, but whether or not they are satisfactory for many investors is unclear.

Other News

• A lecture at Wesleyan University focused on Islamic finance and was given by the Muslim chaplains from Harvard University.
  
• Malaysia and the UAE were the top sources of sukuk issuers in 2008.
  
• Indonesia's retail sukuk raised Rp 5.6 trillion ($467 million).
  
• Hong Kong's government is in the last stages of finalizing tax law changes to encourage Islamic finance by placing it on equal footing with conventional financial products.
  
• Asian Finance Bank, the Malaysian-based Islamic bank sees an opportunity to facilitate South Korean companies' fund raises in the GCC.
  
• There are an estimated 100 sukuk in the pipeline worth up to $38 billion that have not come to market because of the global credit crisis. It is unclear whether the lack of availability of access to capital markets will force some of these companies into bankruptcy or to eliminate expansion plans these sukuk were envisioned to fund.
  

The Saudi Arabia-based Islamic Development Bank and the Malaysia-based Islamic Financial Services Board are working together to discuss liquidity management issues in the Islamic financial institutions. The liquidity management problems are frequently mentioned, but there is an additional opportunity for the industry with the IDB and IFSB cooperation is that it is one more example of cooperation between industry bodies in the GCC and Malaysia. The different standards in the two regions have created some difficulty with compatibility of products.

Emirates NBD, the UAE-based Islamic financial institution, is launching a sukuk fund to purchase sukuk with depressed prices in the current economic environment. I wrote a blog post at Zawya a few days ago about the secondary market for sukuk and came to the conclusion that the lack of liquidity in the market had caused the steep drop in some prices using the JAFZ sukuk as an example.

South Korea is planning to change laws and regulations to attract Islamic finance, assuming that the industrial base provides an underlying asset to be used in structuring Islamic financial products.

Renewable energy sukuk, expectations for 2009, new Zawya.com blog

Singaporean renewable energy company Agni Inc plans on issuing a ringgit-denominated ijara sukuk to test the sukuk market.

South Korea Financial Supervisory Service governor says the country should explore using Islamic finance to attract capital.

Although 2008 was an extremely rough year in the financial markets, including Islamic finance, 2009 should see some recovery although other reports, like the one from Standard & Poor's, predicts the sukuk market will only recover towards the end of 2009.

The Associated Press has an article about the University Islamic Financial Corp. in Ann Arbor, Michigan, which is one of a few Islamic financial institutions in the U.S., and the only one with a Shari'ah-compliant deposit product. An interesting part of the article is that two banks have communicated with the UIFC about helping expand its availability across the U.S. Only one bank, Comerica, is named.

Deutsche Bank launched a new platform they claim will enable Shari'ah-compliant money markets, as well as other securitized products. I have not done enough review of the product, but I would hope to be able to study it a little more and post on my new blog at Zawya.com. This will still be a more frequently updated blog, but topics I think deserve more substance will appear there.