Tuesday, July 31, 2012

RAM Ratings reaffirms AAA(s) rating of Muhibbah’s Islamic Bonds

Published on 31 July 2012

RAM Ratings has reaffirmed the AAA(s) rating of Muhibbah Engineering (M) Bhd’s (Muhibbah or the Group) RM130 million Islamic Bonds; the enhanced long-term rating has a stable outlook.

The AAA(s) rating is supported by the irrevocable and unconditional guarantee from AAA-rated Malayan Banking Berhad (Maybank), to honour Muhibbah’s irrevocable and unconditional undertaking to purchase and cancel all the Islamic Bonds at the exercise price upon the declaration of an event of default (Purchase Undertaking). The trustee, on behalf of the bondholders, will be able to call on the bank guarantee to honour Muhibbah’s Purchase Undertaking. The guarantee from Maybank enhances the credit profile of the Islamic Bonds beyond Muhibbah’s inherent or stand-alone credit standing.

Muhibbah is chiefly involved in construction, crane manufacturing and shipbuilding. The Group also has associate stakes in a Malaysian road-maintenance concessionaire, and an operator as well as concession holder for 3 international airports in Cambodia.

Excluding the bank guarantee, Muhibbah’s credit profile is underpinned by its established track record within the construction industry, specialising in oil-and-gas (O&G) related jobs, as well as marine-engineering and civil-engineering works. Muhibbah’s outstanding order book of RM3.1 billion as at 2 July 2012 should sustain it through the next 2 years. Looking ahead, the Group is deemed well poised to secure sizeable jobs amid the brighter prospects of the local construction sector, as the industry witnesses the rollout of the major projects under the Economic Transformation Programme, Budget 2011, and the Tenth Malaysia Plan. Muhibbah also derives earnings diversity from its involvement in the crane-manufacturing and shipyard sectors, and enjoys recurring dividend income from its associates.

Nevertheless, Muhibbah’s credit profile has been affected by its stretched balance sheet. Notably, the Group’s gearing ratio has been gradually rising in recent years due to increasingly high borrowings to fund its working capital. Furthermore, Muhibbah’s balance sheet is also threatened by its seemingly dim prospects of recovery for the substantial receivable arising from the petroleum-hub project in Johor. Going forward, although Muhibbah stands to benefit from the bright outlook of the O&G sector given its niche expertise, the competitive operating environment for the construction sector will continue to exert a downward pressure on Muhibbah’s profit margins for future jobs. The Group is also exposed to the cyclical nature of the construction and O&G sectors, and foreign-exchange risk from its overseas operations.

Media contact
Yean Ni Ven
(603) 7628 1172

RAM Ratings reaffirms AA1 rating of Anjung Bahasa’s debt issue, with stable outlook

Published on 31 July 2012

RAM Ratings has reaffirmed the AA1 long-term rating of Anjung Bahasa Sdn Bhd’s (“Anjung” or “the Company”) RM110 million Junior Notes, with a stable outlook.

Anjung is a concession company that has the exclusive right to collect monthly payments as well as maintenance and management (“M&M”) fees from the Government of Malaysia (“GoM”) - via Dewan Bahasa dan Pustaka (“DBP”) - for the construction and operation of Menara Dewan Bahasa dan Pustaka. During the period under review, payments to Anjung from the GoM and DBP had been prompt and in accordance with the Privatisation Agreement (“PA”). In addition, Anjung had managed and maintained the building without any major problems.

The rating reflects the assured and stable monthly payments and M&M fees as stipulated under the PA, and low operational risk given the straightforward scope of work; operating costs are minimal and largely fixed under the maintenance agreement. Other supporting factors include the tight transaction structure and restrictive covenants that mitigate cashflow leakage. Moving forward, Anjung’s debt-servicing ability is expected to remain strong; its debt service coverage ratio (with cash balances, post-distribution) is likely to hover around 2.30 to 2.78 times throughout the remaining tenure of the Junior Notes.

Nevertheless, the risk of early PA termination due to default on the part of Anjung cannot be fully eliminated. Given the Company’s minimal performance obligations under the PA, however, the probability of such an event is deemed remote.

Media contact
Ben Inn
(603) 7628 1024

News Alert - July 31, 2012

. KLCI reverses losses, crosses 1,630-level
. KLIFD renamed as TRX
. Matrade urges M'sian firms to capitalise on opportunities in Middle East
. Maybank signs five-year partnership with Legoland for retail banking services
. Permanis launches RM40m bottling line
. AirAsia's Jakarta move a business decision, says Rafidah
. Panetta: Syria strikes putting 'nail in Assad's own coffin'
. GE: London Olympics bring in US$100m in sales

Monday, July 30, 2012

RAM Ratings upgrades UOB Malaysia’s financial institution rating to AAA

Published on 30 July 2012
RAM Ratings has upgraded United Overseas Bank (Malaysia) Bhd’s (“UOBM” or “the Bank”) long-term financial institution rating, from AA1 to AAA; the short-term rating has been reaffirmed at P1. Concurrently, we have also upgraded the rating of the Bank’s RM500 million Subordinated Bonds (2010/2020), from AA2 to AA1. The outlook on both long-term ratings has been revised from positive to stable. The 1-notch differential between UOBM’s AAA long-term financial institution rating and the AA1 rating of its Subordinated Bonds reflects the subordination of the debt facility to the Bank’s senior unsecured obligations.
UOBM is wholly owned by United Overseas Bank Limited (“UOBL”), Singapore’s third-largest bank. Among UOBL’s regional subsidiaries, UOBM is the largest by assets and profit contribution – underscoring our view that the Bank is key to its parent’s strategy of becoming a strong regional bank. Mirroring UOBL’s business position, the Bank has established its franchise in retail property mortgages and also small- and medium-sized enterprises in Malaysia.
The rating upgrade takes note of UOBM’s loan-quality indicators that have been consistently well placed among AAA-rated banks, as well as the sustained improvement in the Bank’s profit performance. Notably, UOBM’s gross impaired-loan ratio of 1.8% as at end-March 2012 is better than the banking system’s average of 2.5%. In addition, its credit-cost ratio had improved to 0.4% as at end-December 2011 (end-December 2010: 0.7%). The Bank’s credit fundamentals are envisaged to hold up even though the default rates for its property loans are expected to inch up as its portfolios season, following the rapid growth in the last 2 years.
In tandem with its stronger loan growth, UOBM’s pre-tax profit jumped from RM0.8 billion in fiscal 2010 to RM1.0 billion in fiscal 2011; this resulted in a healthy return on assets of 1.7% and a return on equity of 23.5%. For the first quarter of fiscal 2012, the Bank registered a pre-tax profit of RM258.8 million. Meanwhile, UOBM possesses a stable funding profile. Its tier-1 and overall risk-weighted capital-adequacy ratios of a respective 11.6% and 13.8% as at end-March 2012 underline its healthy capitalisation levels, which act as a buffer against potential credit losses.
Media contact
Peter Kong
(603) 7628 1029

RAM Ratings assigns AA1 rating to OCBC Malaysia’s proposed redeemable subordinated bonds of up to RM600 million

Published on 27 July 2012
RAM Ratings has assigned a long-term rating of AA1 to OCBC Bank (Malaysia) Berhad’s (“OCBC” or “the Bank”) proposed Redeemable Subordinated Bonds of up to RM600 million. At the same time, OCBC’s respective long- and short-term financial institution ratings have been reaffirmed at AAA and P1. The Bank’s existing issue ratings have also been reaffirmed (refer to Table 1 below). All the long-term ratings have a stable outlook.
Rating action
RM400 million Preference Shares Issue
RM200 million Islamic Subordinated Bonds (2006/2021)
RM400 million Subordinated Bonds (2007/2017)
RM400 million Innovative Tier-1 Capital Securities (2009/2039)
RM500 million Redeemable Subordinated Bonds (2010/2020)
Proposed Redeemable Subordinated Bonds of up to RM600 million
Note: A 1-notch differential between OCBC’s long-term financial institution rating and its issue rating reflects the subordination of the debt facility to the Bank’s senior unsecured obligations.
A 2-notch rating differential reflects the deeply subordinated nature and embedded interest-deferral feature of the rated instrument.
OCBC is wholly owned by Oversea-Chinese Banking Corporation Limited (“OCBC Ltd”), South-east Asia’s second-largest banking group. Given that Malaysia represents OCBC Ltd’s biggest asset and profit contributor outside of Singapore, we believe that parental support will be readily extended, if needed.
As at end-March 2012, OCBC’s lending portfolio had expanded to RM43 billion (end-December 2010: RM36 billion). Despite the larger base, the Bank’s gross impaired-loan ratio edged up to 3.0% as at the same date (end-December 2010: 2.8%), a result of 2 lumpy exposures that had turned impaired. Nonetheless, both of these impaired loans had collateral coverage of more than 1 time and no provision had been required, thereby keeping the Bank’s credit-cost ratio at a healthy 0.33% in fiscal 2011 (fiscal 2010: 0.35%). Further, one of these impaired loans had been reclassified as performing as at end-June 2012. Excluding the 2 above mentioned large accounts, the credit quality of the Bank’s remaining portfolio has broadly improved.
As at end-March 2012, OCBC’s loans-to-deposits ratio had eased to 77% (end-December 2010: 81%), thanks to a strong inflow of deposits in the first quarter of the year. Moving ahead, this ratio is likely to be kept within 80%–90%, which falls within the norms of its domestic peers. In terms of financial performance, the Bank’s pre-tax profit was lifted 5% year-on-year to RM1.0 billion in fiscal 2011 (fiscal 2010: RM0.95 billion), on the back of strong loan growth. OCBC remained well capitalised with respective tier-1 and overall risk-weighted capital-adequacy ratios of 12.4% and 14.8% as at end-March 2012.
Media contact
Lim Yu Cheng
(603) 7628 1188

Friday, July 27, 2012

International Bank of Azerbaijan expects to set up Islamic unit in Qatar in 2013 (By IFN)

GLOBAL: International Bank of Azerbaijan (IBA) has disclosed that it is looking to establish an Islamic banking unit in Qatar.

In a report, Behnam Gurbanzada, its director of Islamic banking, said that the bank will tie up with a local entity, following which it will launch in Qatar in the first quarter of 2013.
The bank, which is a conventional bank, provides Shariah compliant services through a window in its home market, mainly catering to small and medium-sized enterprises. However, the sluggish development of Islamic finance in Azerbaijan has likely contributed to IBA’s push to look abroad in its provision of Shariah compliant banking services.

In an earlier contribution to Islamic Finance news, Behnam noted that: “Islamic finance and banking has existed in the Azerbaijani market since 1991, but due to an absence of appropriate legislation and regulation; stemming from a lack of support from the regulatory authorities, much of the Islamic activity in the country has been imperceptible, only silently countenanced by regulatory bodies.”

However, he added that since 2010, the industry had become increasingly sanctioned by officials. Nonetheless, he said that: “The existing banking law does not prohibit the use of certain Islamic banking tools, although at the same time it does not regulate the fundamental requirements of Islamic banking.”

In spite of a limited legal framework for Islamic banking in Azerbaijan, IBA has participated in several Shariah compliant deals in the country. In 2011, it financed three projects amounting to US$9.7 million; booking US$40 million-worth of assets in its Islamic finance portfolio.

The bank’s Qatari venture will follow the establishment of its Dubai representative office in 2008. It also has subsidiaries in Georgia and Russia.
According to Behnam, the bank’s services in Qatar will include deal arranging, extension of credit as well as custody and advisory services.

See: http://redmoney.newsweaver.co.uk/1003pe6ra7fh38rwoni3wx?email=true&a=6&p=26200115&t=21733475


MARC has affirmed the rating of Special Port Vehicle Berhad’s (SPVB) RM1,310.0 million nominal amount asset-backed serial bonds facility at AAA with a negative outlook. The affirmed rating takes into account the satisfactory payment history of the Port Klang Authority (PKA) to date in respect of its deferred payment obligations for the land purchase and development costs of Port Klang Free Zone (PKFZ). The tangible financial support provided by the federal government to meet its deferred payment obligations has facilitated the full and timely repayment of debt issued by two other special purpose entities (SPEs) established by Kuala Dimensi Sdn Bhd (KDSB) to fund the PKFZ project. Meanwhile, the debt reserves of a third SPE are fully funded for the purpose of meeting its final debt maturities in November 2012. The negative outlook on SPVB’s debt rating reflects vulnerability to the government’s willingness to provide continued support for the rated debt amid the negative public sentiment surrounding the perceived bail-out of the PKFZ project and the ongoing legal suits by PKA against KDSB.

The serial bonds issued by SPVB are backed by the deferred payments from PKA amounting to RM1,699.63 million based on the sale and purchase agreement (SPA) of a 999.5 acre piece of leasehold land on Pulau Indah.

On June 29, 2012, PKA met its deferred payment obligation amounting to RM150 million which will be applied towards SPVB’s July 2012 bond repayment. MARC considers the payment as evidence of the government’s commitment to abide by the letters of support issued by the Ministry of Transport in respect of the rated debt. SPVB’s bonds remain susceptible to downside risks posed by the ongoing legal proceedings and the continuing controversy over the validity and the enforceability of the letters of support for the deferred payment receivables from PKA. Any changes in MARC’s support assumption may lead to a steep downgrade of SPVB’s rating.

Ahmad Tajuddin, +603-2082 2256/ tajuddin@marc.com.my;
Jason Kok Ching Wui, +603-2082 2258/ jason@marc.com.my;
David Lee, +603-2082 2247/ david@marc.com.my.


Jul 27, 2012 -

MARC has affirmed its ratings on Transshipment Megahub Berhad’s (TMB) RM1,095.0 million fixed rate serial bonds (FRSB) and up to RM360.0 million Commercial Papers/Medium Term Notes (CP/MTN) programme at AAA and MARC-1/AAA respectively. The rating outlook is revised from negative to stable to reflect the fully funded status of the debt service reserves with respect to the final principal repayments on the FRSB and CP/MTN due in November 2012.

TMB’s bonds and notes are backed by deferred payments from the Port Klang Authority (PKA). On June 29, 2012, PKA made its final deferred payment of RM599.66 million into TMB’s trustee-controlled collection account due in respect of the development of office blocks, transshipment facilities, light and medium industry facilities and warehouses in Pulau Indah by turnkey developer of the transshipment hub, Kuala Dimensi Sdn Bhd. TMB’s final principal repayments of FRSB and MTN amounting to RM230 million and RM340 million respectively are due on November 12, 2012. MARC will withdraw TMB’s ratings following the full redemption of the bonds and notes.

Ahmad Tajuddin, +603-2082 2256/ tajuddin@marc.com.my;
Jason Kok Ching Wui, +603-2082 2258/ jason@marc.com.my;
David Lee, +603-2082 2247/ david@marc.com.my.

News Alert - July 27, 2012

. KLCI falls below 1,630-level, blue chips weigh
. Rubber glove makers say ready for the minimum wage policy, removal of natural gas subsidies
. Tasek Corp 2Q net profit down 4.1% to RM23.13m, declares interim dividend 30 sen
. IHH Healthcare to replace MMC Corp on KLCI from Aug 1
. Citi sees 90% chance of Greece leaving the euro
. Chambers to bid for Penang Port
. Integrax poised to seal 25-year TNB coal contract
. Parkson moves into Sri Lanka with Odel buy
. IHH: Resilient business with good growth prospects

Thursday, July 26, 2012

Egyptian Financial Supervisory Authority blocks EFG Hermes-QInvest joint venture (By IFN)

GLOBAL: The Egyptian Financial Supervisory Authority (EFSA) has put a spanner in the works of a planned joint venture between EFG Hermes and QInvest, after the deal received approval from EFG Hermes’s shareholders.

According to Ashraf El-Sharkawy, the head of the EFSA, who announced the regulators' decision to suspend the transaction in a report by Egypt’s state news agency, EFG Hermes failed to clarify to its shareholders a number of points with regard to the deal; including the fate of minority shareholders.

The authority has now ordered EFG Hermes to reconvene a shareholders’ meeting, providing the required information, in order to complete the transaction. The investment bank’s shareholders approved the deal at a meeting on the 2nd June 2012.

EFG Hermes's planned venture with QInvest will see the creation of EFG Hermes Qatar, in which the parties will own 40% and 60%, respectively. EFG Hermes will also transfer ownership of its brokerage, research, asset management, investment and infrastructure fund subsidiaries to the new entity. The Egypt-based bank will also transfer 60% of the seed capital held in its asset management business to QInvest.

This is not the first disruption the two parties have seen in their bid for a tie-up. Shortly following the announcement of the deal, Planet IB, a firm made of up Egyptian and Gulf investors, approached EFG Hermes with a takeover offer. However, the bank rejected the offer, despite receiving an offer worth around US$1.1 billion.

See: http://redmoney.newsweaver.co.uk/1smhlg39quqh38rwoni3wx?email=true&a=6&p=26158235&t=21723385

News Alert - July 26, 2012

. KLCI snaps losing streak, IHH makes impressive debut
. Cepatwawasan 2Q net profit falls 61% to RM.5.82m
. MAS expects OneWorld Alliance to boost interlining revenue by 40% annually
. S'pore sets up S$20b facility to back up depositors
. ADB: Private sector reforms can boost development in Pacific region
. MAS revisits JV plan with Qantas
. IHH make strong debut on Bursa, SGX
. Bursa mulling bigger IPO retail tranche
. TH Plantations ripe for re-rating

Wednesday, July 25, 2012

Southeast Asia’s regulators help boost the Islamic funds industry (By IFN)

GLOBAL: Southeast Asia’s regulators are making moves that are set to play a hand in boosting activity of the region’s Islamic funds.

In Indonesia, the government announced plans to reinvest underutilized Hajj funds from the finance ministry into issuances of project-based Sukuk in a bid to raise infrastructure development financing.

The government, which regularly auctions project-based Sukuk and Shariah compliant treasury bills, sees the investment of the pilgrim funds into Sukuk as a more efficient way for the funds to generate revenue, said Anggito Abimanyu, the director general of Hajj pilgrimage management at the ministry of religious affairs, in a report.

Islamic funds are also set to take center stage in Malaysia, following the government-led implementation of voluntary private retirement schemes (PRS). The private pension funds are seen as a supplementary option to the mandatory Employees Provident Fund (EPF) retirement scheme; and are expected to boost growth momentum for Shariah compliant funds.

Zakie Ahmad Shariff, a board member of the PRS’ governing body, the Private Pension Administrator, is quoted as saying that six Islamic funds will be included in the launch of the first 30 PRS products.

In a bid to entice the public into the new scheme, the Malaysian government is offering benefits such as personal tax relief, tax deductions for employers on their contributions to the scheme and tax exemption on income received by PRS fund management firms.

All eight of the approved PRS fund management firms, which include AmInvestment, CIMB-Principal and Public Mutual, already have existing Shariah compliant funds, while it was also reported that AmInvestment and another approved PRS manager, Hwang Investment Management, will introduce Islamic PRSs following the launch of their conventional schemes.

See: http://redmoney.newsweaver.co.uk/1ixbxrwr4q8h38rwoni3wx?email=true&a=6&p=26082964&t=21707164

News Alert - July 25, 2012

. KLCI pares losses at closing, regional markets mixed
. China bids for chunk of UK's oil, world price influence
. RHB Bank names Vince Au Yoong as director of retail banking
. Globetronics 2Q net profit up 29.29% to RM9.71m
. GTP Roadmap 2.0 sets bold targets in fighting crime, corruption
. Asia tops spam list

Tuesday, July 24, 2012

Lessons learnt from Sukuk sales (See IFN)

GLOBAL: With the Sukuk market expected to take a breather in tandem with Ramadan, which this year also coincides with the summer vacation period, perhaps it would be useful to look back on what this year’s record level of issuances has shown us so far.

The first point to note is that issuers shouldn’t be afraid to go big in terms of issuance size, as the financial system is flush with liquidity and investors are ripe for the picking. This was clearly seen from Qatar’s US$4 billion sovereign Sukuk sale on the 11th July; which received US$24 billion-worth of subscriptions.

In further testament of robust demand for Sukuk, Emaar Properties, which sold a US$500 million Sukuk just a day after Qatar’s issuance, attracted US$4.65 billion-worth of orders for its offering.

In addition, as noted by Nick Stadtmiller, the head of fixed-income research at Emirates NBD, in a Bloomberg report, the maturity and repayments of large Sukuk such as Jebel Ali Free Zone’s AED7.5 billion (US$2.04 billion) facility, DIFC Investments’ US$1.25 billion obligation and Dar al-Arkan Real Estate Company’s US$1 billion Sukuk have resulted in excess cash for Sukukholders, who are now looking to redeploy their funds into the Sukuk market.

Another notable point is that conventional investors, especially those from Europe, are increasingly buying into Shariah compliant debt, signaling that Sukuk issuers are now able to tap into a more diversified investor base.

Emaar, which held investor meetings for its Sukuk only in London, saw 38% of its offering taken up by European investors; while Emirates Islamic Bank, which priced a US$500 million Sukuk on the 4th July, attracting a US$5 billion orderbook, saw 28% of its papers bought by European investors; 17% of which were from the UK.

A final lesson to be learnt from this year’s Sukuk season is that issuers should stick to the basics, as demonstrated by Tamweel’s aborted US$235 million asset-backed securitization; a transaction that would have been a rare showing of a securitization in the Gulf. The Shariah compliant mortgage firm announced a postponement of the deal, expected in July 2012, following market feedback.

In comparison, the firm successfully sold a US$300 million plain vanilla Sukuk just at the start of 2012; proving that investors are keen on the Tamweel credit story; but not of offerings that are too sophisticated.

See: http://redmoney.newsweaver.co.uk/s2nijxqxi4fh38rwoni3wx?email=true&a=6&p=26047074&t=21700754

News Alert - July 24, 2012

. KLCI extends loss for third day as Asian markets fall
. Public Bank 1H2012 net profit up 2.99% to RM1.89b, declares dividend 20 sen
. MTD ACPI lands contract worth RM303.2 million
. MATRADE urges Malaysian investors to take advantage of Brazil's new economic measures
. Ovum: Telecoms IT spending to grow modestly to US$56b by 2016
. SEMI: N. American semicon equipment manufacturers post June book-to-bill ratio of 0.94

Monday, July 23, 2012

Sustainable Capital Luxembourg to launch Shariah compliant forestry fund (By IFN)

AUSTRALIA: Islamic finance has been slow to pick up pace in the country, but investment advisory Sustainable Capital Luxembourg is planning to launch a Shariah compliant forestry fund on the 23rd July 2012.

The firm is reportedly looking to raise US$100 million for the fund, which will invest in the agricultural, biomass and forestry sectors. Michael Young, the investment advisor for the fund, is quoted as saying that Sustainable Capital aims to leverage strategic partnerships to access markets in Asia, Europe and the Gulf; while seeking at least two distributors in the Gulf.

The growth of Islamic finance has lagged in Australia; with MCCA Group making up the only local fully-fledged Shariah compliant institution providing financial services. This year, news also emerged that National Australia Bank is considering issuing the country’s first Sukuk.

Nonetheless, hurdles remain; particularly for firms such as Sustainable Capital aiming to develop the country’s Shariah compliant investment market.

In Volume 9, Issue 28 of Islamic Finance news, Gerhard Bakker, our IFN Correspondent who is a director at Madina Village, wrote that: “With a large appetite for capital, Australia is an ideal destination for Islamic finance investment funds. However, tax laws are proving an impediment. The additional costs and potential legal challenges of a taxation system that does not recognize Islamic finance principles are impeding transactions.”

He also noted that there is no federal taxation recognition of Islamic finance principles; although laws do recognize Murabahah contracts.

As noted by Young in a news report, Sustainable Capital’s forestry fund may take anything from three months to three years to reach its US$100 million targeted fund size. With plans for the fund to ultimately raise US$250 million, the firm may have another long wait ahead of it to see its new fund taking off.

See: http://redmoney.newsweaver.co.uk/u8v8vp18o17h38rwoni3wx?email=true&a=6&p=25963544&t=21681404

News Alert - July 23, 2012

1. MMC eyeing JV with PAAB
2. Foreign players eye local power assets
3. YTL Corp mulling dividend yield play

Sunday, July 22, 2012

Outlook for UAE banks still hazy on Dubai restructurings (By IFN)

UAE: The IMF has released optimistic forecasts for economic growth in the MENA region this year, but in the UAE, the domestic banking sector remains weighed down by corporate restructurings related to Dubai Inc.

Furthermore, it has emerged that the banks’ accounting treatment of their exposure to restructurings differs; creating a hazy picture as to the actual financial performance of the banks.

In a report, Moody’s, which believes that corporate restructurings continue to be credit negative for the emirates’ banking system, noted that there are three different approaches in the banks’ accounting treatment of their exposure to Dubai debt; affecting their reporting of non-performing loans and financing and profitability metrics.

“At US$25 billion, the distressed debt restructuring completed by Dubai World Group in June 2011 was the largest ever seen in the GCC. The impact of the restructuring was particularly pronounced for Dubai-based banks, triggering a sharp deterioration in their asset quality, which led to the downgrade of numerous banks and changes in the outlook for most rated Dubai-based banks to negative.

“Following the Dubai World restructuring, we have a divergence in the accounting treatment of these sizable exposures across banks in the UAE,” said Moody’s.

These approaches comprise: maintaining the restructured financing as impaired at the original balance; and holding provisions equivalent to the net present value (NPV) loss, recording the financing as performing at a reduced balance and recognizing an NPV loss; or recording it as performing at the original balance and releasing associated provisions at their discretion.

“Where non-commercial restructurings have bullet repayment profiles, as is the case with the Dubai World restructuring, we believe that a declassification of these restructurings to the ‘performing’ category leads to loss of information and transparency, at least until there is strong and objective evidence of improvements in borrowers’ repayment capacity,” it said.
It also noted that many banks in the UAE do not include restructured financing in their financial reporting, reducing transparency and diminishing the ability to track the exposure and judge the banks’ asset quality.

“We believe that corporate restructurings will affect the UAE local banking landscape for the foreseeable future. Accordingly, regardless of reporting variations of restructured exposures, our analysis will focus on asset quality substance over reported form, with the additional aim of maintaining accuracy and consistency across the rated universe in the UAE and globally,” it said.

According to the ratings agency, seven of the 12 banks it rates do not report restructured financings. Of these Dubai Islamic Bank is the only fully-fledged Islamic bank; while others which do not report restructured financings include Emirates NBD, Abu Dhabi Commercial Bank and Mashreq Bank.

Meanwhile, according to Moody’s, some restructurings still in progress include Amlak’s, whose debt under restructuring amounts to US$3.8 billion.

See: http://redmoney.newsweaver.co.uk/xpj4jvobt3hh38rwoni3wx?email=true&a=6&p=25930794&t=21672734

Saturday, July 21, 2012

Gulf Finance House inks another restructuring deal (By IFN)

BAHRAIN: Gulf Finance House (GFH) announced a restructuring of its remaining debt from a Wakalah facility amounting to US$100 million; having already paid US$55 million of the total amount.

Under the new restructuring terms, the Shariah compliant investment bank will repay the remaining debt over six years, until a final maturity in September 2018. The restructuring period includes a two-year grace period; while the amortization of the principal amount will start from April 2014.

Banks involved in the syndication include Bahrain Islamic Bank, Emirates Islamic Bank, Liquidity Management Center (LMC) and Liquidity Management House.

The deal follows GFH’s restructuring of US$110 million-worth of Sukuk outstanding carried out in May 2012, in a transaction that saw the bank extend its repayment of the debt; also over the next six years. The US$200 million Sukuk was sold in July 2007.

Hisham Alrayes, the acting CEO of GFH, said that: “The restructuring of the Wakalah facility is another positive development for the bank which will facilitate greater financial flexibility as the bank continues to accelerate and get back to long-term profitable growth.

“This agreement follows the approval on the GFH Sukuk restructuring which was secured recently. By retaining our key assets and extending the debt maturities, GFH has managed to enhance its balance sheet significantly and bolster its liquidity position moving forward.”
The bank’s latest restructuring was led by LMC, which also advised on the restructuring of its Sukuk.

See: http://redmoney.newsweaver.co.uk/14b016uhrzph38rwoni3wx?email=true&a=6&p=25892264&t=21665274

Friday, July 20, 2012

SME Bank launches Sukuk program (By IFN)

MALAYSIA: State-owned SME Bank established a RM3 billion (US$950.61 million) government-guaranteed Islamic medium-term notes (IMTN) program, with a tenor of up to 20 years.
The first tranche is expected to be issued in the fourth week of July 2012, comprising a RM500 million (US$158.59 million) tranche with tenors ranging from seven to 10 years.
The Wakalah-structured program was tailored with the GCC in mind, as the bank is hopeful that it will be able to entice GCC-based investors with the offering.

The program, which forms part of the government’s SME masterplan aimed at developing the country’s SME sector, also marks SME Bank’s maiden foray into the Malaysian Islamic capital market.

“The establishment of the IMTN program represents a significant growth for SME Bank towards its mission to be a development financial institution that nurtures the small and medium-sized enterprises which form the backbone of the nation’s economy,” said Mohd Mohd Radzif Mohd Yunus, its managing director.

The proceeds will be used towards SME Bank’s working capital requirements.
AmInvestment Bank, Kuwait Finance House (Malaysia) and Maybank Investment Bank are the joint lead managers for the transaction. KFH Malaysia is also lead Shariah advisor for the deal.

See: http://redmoney.newsweaver.co.uk/ctkzw4w7blzh38rwoni3wx?email=true&a=6&p=26003894&t=21690384

RAM Ratings withdraws ratings on CCM

Published on 20 July 2012

RAM Ratings has received confirmation that Chemical Company of Malaysia Berhad (CCM) has cancelled its RM500 million Musharakah Commercial Papers/Medium-Term Notes Programme (2008/2023) (MCP/MMTN) on 18 July 2012. As such, RAM Ratings no longer has any rating obligation on the debt instrument, which had been rated AA3/P1, with a negative outlook on the long-term rating. CCM had fully redeemed all outstanding Notes under the MCP/MMTN on 29 November 2011.

Media contact
Low Su Lin
(603) 7628 1071

Dubai Group forgoes BankMuscat’s rights issue (By IFN)

GLOBAL: Dubai Inc may have made significant headway in reducing its debt burden, but challenges remain for some of the emirate’s firms, such as with Dubai Group, which has opted out of a rights issue offered by its 14.7%-owned unit, BankMuscat.

The Omani bank’s rights issue, on offer from the 9th-23rd July, seeks to raise OMR96.7 million (US$251.23 million) via the offer of 226.5 million shares at 0.43 baisa (US$1.12) a share to fund its expansion into Islamic finance, finance credit growth and enhance its capital adequacy ratio.

Dubai Group, which is in the midst of restructuring talks for US$10 billion-worth of debt, reportedly sold its rights to acquire an additional 33.39 million shares of BankMuscat for between 0.03-0.04 baisa (8-10 US cents) in two separate over-the-counter transactions. The rights shares were valued at around 0.06 baisa (16 US cents).

The Dubai conglomerate’s debt burden has created a hurdle for it to invest in its holdings, noted Khalid Howladar, a vice-president and senior credit officer at Moody’s.

This is not the first time the group chose to refrain from its commitments as a shareholder – In 2010, Dubai Financial Group, a Dubai Group company, did not take up an offer to buy into an issuance of preference shares by Bank Islam Malaysia; resulting in a reduction of its stake to 30.5% to 40%.

With Dubai Group’s talks on the repayment of its hefty obligations now hitting a roadblock as a result of a walk-out of its major creditors, its investments, which also include Dubai Bank and Bahrain’s Taib Bank, may need to avoid relying on it for any capital-raising efforts; as the group is more likely to cash out amid its current woes.

See: http://redmoney.newsweaver.co.uk/u1l9ksgfwvlh38rwoni3wx?email=true&a=6&p=25856354&t=21655164

News Alert - July 20, 2012

. Mild profit taking weighs down KLCI
. Central bankers eyeing whether Libor needs scrapping
. Top Glove to spend RM3b to set up 30 factories in 15 years
. Ovum: Early adopters of cloud services to be admired for leadership embracing new technology
. ADB: Strong cooperation between Asian countries needed to overcome the risks of integration
. Prasarana fends off LRT criticisms
. TNB gets govt assurance on gas price impact
. Indonesia cap positive for Malaysian banks
. Stronger derivatives, stable income and cost management offset lower securities revenue

Thursday, July 19, 2012

Asian bond market integration urged (By IFN)

GLOBAL: With global Sukuk sales poised to lock in another record-breaking year this year, industry players are now calling for measures to help further develop the flourishing market.
In Asia, Ranjit Ajit Singh, the chairman of Securities Commission Malaysia, has urged for further efforts in developing the regional fixed income market; highlighting moves such as the establishment of the Asian Bond Fund, the set-up of the Asian Bond Market Initiative; aimed at developing more accessible and well-functioning bond markets within the ASEAN+3 (China, Japan and South Korea) region.

However, he said that the outcomes of the regional initiatives have not reflected the need for such measures, noting that: “It is time for policymakers, regulators and leading private sector players, who have made in-roads in creating a regional presence, to take an acute and concerted assessment on the key measures needed to fulfill the vision of having a vibrant and sustainable Asian bond market.”

Data from HSBC shows that new Asian bond issuances amounted to around US$56 billion as at the end of May this year. According to Ranjit, east Asia’s local currency bond markets grew to US$5.7 trillion from US$948 billion between 2001-2011, in contrast to a 150% increase in foreign currency issuances in the region to US$603 billion during the same period.

He also stressed on Malaysia’s role in developing the region’s bond market, due in part to its strong Sukuk market, which makes up for 63% of total corporate bonds outstanding. Nonetheless, he noted that the country must continue to scale up its market for Islamic products, “using our expertise to further expand offshore and work with both regional partners and the private sector, to create a bigger and more integrated Sukuk market.”

The development of a regional bond market should also be bolstered by widening the issuer base and instilling investor awareness on bond market products, risks and rewards.

“Underpinning the development of an Asian bond market is a framework that facilitates cross-border bond transactions. In this regard, there needs to be a greater push among policymakers and regulators to increase efforts in creating a facilitative framework that includes more harmonized rules and regulations, standardized bond offering documents, as well as a set of common disclosure standards for bond issuances,” he said.

See: http://redmoney.newsweaver.co.uk/1rcrt6nc105h38rwoni3wx?email=true&a=6&p=25811654&t=21640154

Qatar’s US$4 billion sovereign Sukuk sets new benchmark (See IFN)

QATAR: The country achieved what no other sovereign has with its US$4 billion Sukuk sale; offering a record low profit rate of 2.1% for a five-year tranche and 3.24% for a 10-year tranche.

The sale is also the largest US dollar-denominated Sukuk issuance to-date. The tranches were each US$2 billion in size, with the five-year portion yielding 115 basis points (bps) over midswaps and the 10-year tranche priced at 155 bps over midswaps. In comparison, the average yield of the 12 constituents of the HSBC/Nasdaq Dubai Sovereign US Dollar Sukuk Index is 3.56%.

Immense demand for investment-grade debt from the Gulf saw Qatar’s sale book US$24 billion-worth of orders; as investors scramble for safe haven assets amid the ongoing global financial crisis.

Pricing on the Sukuk is also cheaper than that of Qatar’s last debt sale; comprising a US$5 billion conventional bond sold in November 2011. The transaction yielded 3.18% for papers maturing in January 2017 and 5.83% for a tranche due in January 2042.
It is also worth noting that Qatar’s five-year Sukuk tranche was priced over 100 bps lower than Malaysia’s 3.93% sovereign Sukuk.

Barwa Bank, Deutsche Bank, HSBC, Standard Chartered and QInvest were mandated arrangers for the transaction, proceeds of which will be used towards funding state-owned development projects.

Qatar’s is the latest sovereign to come forward with a Sukuk this year, as issuers race to take advantage of borrowing costs that are nearing record lows; pushing global Sukuk market sales to US$21.5 billion in the year-to-date.

See: http://redmoney.newsweaver.co.uk/o74jwlculjth38rwoni3wx?email=true&a=6&p=25776434&t=21632634

Malaysia's June inflation rate falls to 1.6pc (By NST)

KUALA LUMPUR: The Consumer Price Index (CPI) in Malaysia fell further to 1.6 per cent in June from 1.7 per cent in May.

The growth, in keeping with market expectations, is expected to pick up with the coming Ramadan festivities, say economists.

According to the Statistics Department, the CPI for the six months rose by two per cent to 104.6 compared with 102.5 in the same period last year. Compared with May, it increased by 0.1 per cent.

Bank of America Merrill Lynch economist Dr Chua Hak Bin said the higher month-on-month increases in food (0.6 per cent) were offset by falls in transport (-0.3 per cent), clothing/footwear (-0.2 per cent), communication (-0.1 per cent) and education (-0.1 per cent).

"Food prices might continue to creep higher in anticipation of the upcoming fasting month, which starts in late July," he said.

The research house has lowered the CPI forecast to two per cent (from 2.6 per cent) in 2012 and 2.5 per cent (from three per cent) in 2013, given the tame inflation readings.

Inflation has been sliding lower since the start of the year, while holding subsidised fuel prices constant has sheltered transport costs from volatile global oil prices.

Housing, utilities and fuels, which account for 22.6 per cent weight in the CPI basket, has also been contained, helped in part by price controls.

Chua expects Bank Negara Malaysia to maintain its benchmark policy interest rate at three per cent at the next monetary policy meeting on September 6 and for the rest of the year.

"Inflation remains tame while growth is well supported by resilient domestic demand," he said.

Read more: Malaysia's June inflation rate falls to 1.6pc http://www.btimes.com.my/articles/rup182/Article/#ixzz211amFI9G

Prime Minister Datuk Seri Najib Tun Razak today launched the establishment of private retirement schemes (See NST)

Kuala Lumpur: Prime Minister Datuk Seri Najib Tun Razak today launched the establishment of private retirement schemes, a highly significant move as it provides employees and the self-employed with an additional avenue to save for their retirement.

The first set of schemes comprising 24 funds by several private retirement scheme providers was approved by the Securities Commission and will be available for offer to the public from September onwards.

A private retirement scheme (PRS) is a voluntary retirement savings scheme structured by private sector fund providers which are licensed and approved by the Securities Commission.

"PRS offers opportunities for the rakyat. In the case of the individual, the PRS can provide an environment for individuals to build retirement funds for career mobility, while for employers, PRS may be utilised as a tool for retaining and attracting talent," Najib, who is also Finance Minister, said during the launch of the scheme here.

"I would urge employers to consider using the PRS to offer a more attractive remuneration packages in the form of higher contributions to their workers’ retirement benefits, whilst giving their workers the freedom to decide on the type of scheme they wish to participate in," he added.

Najib said the development of the private pension industry has the potential to change the face of the retirement landscape in Malaysia by increasing and supplementing coverage on a voluntary basis to all sectors of the labour market, including the self-employed and enabling Malaysians to secure an additional and adequate nest egg when they retire. -- Bernama

Read more: Najib launches private retirement schemes - Latest - New Straits Times http://www.nst.com.my/latest/najib-launches-private-retirement-schemes-1.109361#ixzz211aGRCpZ

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