Hong Kong government reiterates support for Islamic finance (By IFN)

Hong Kong government reiterates support for Islamic finance

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HONG KONG: Secretary for Financial Services and the Treasury, Professor K C Chan has reiterated the government’s support for the upcoming bill allowing for Sukuk in the country. The second reading in the Legislative Council of the bill to give tax and stamp duty relief for Sukuk has been moved, following the proposed tax rules by the Financial Services Branch of the Financial Services and the Treasury Bureau of Hong Kong which was released on the 31st October 2012. The amendments, which were documented in a paper entitled: “Proposed Amendments to the Inland Revenue Ordinance (Cap.112) and the Stamp Duty Ordinance (Cap.117) to Facilitate Development of an Islamic Bond Market in Hong Kong” will allow for tax and stamp duty changes as well as tax and bond income to allow a level playing field for profit and coupon payments for Sukuk. Chan stressed that the proposed legislation will ensure that Sukuk, classified under ‘Alternative Bonds’ (ABS) will be economically equivalent to a typical conventional bond structure and eligible for the proposed tax treatments, and also to ensure that reasonable safeguards are put in place to minimize tax avoidance. The bill also provides for certainty of the tax position of relevant bond and investment arrangements under an ABS. The bill will also allow for the facilitation of Hong Kong-based assets in a Sukuk issuance.

Malaysia: In search of broader tourist base (By Oxford Business Group)

Malaysia: In search of broader tourist base

A focus to attract more tourists from growing regional markets will spearhead Malaysia’s efforts to boost visitor numbers in 2013. However, efforts to increase arrivals from certain key segments may not be enough to drive visitor figures up across the board.
Despite ranking as one of the world’s top 10 tourist destinations, the market base remains narrow, with more than half the visitors coming from … Read more.

Islamic finance windows to cease operations by the 1st February 2013 (By IFN)

Islamic finance windows to cease operations by the 1st February 2013

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QATAR: The rules prohibiting operations of Islamic windows by conventional banks in Qatar will take effect on the 1st February 2013, according to an announcement by the Qatar Financial Center Regulatory Authority (QFCRA). The change, which has been imminent since the end of 2011, is not expected to have a glaring impact on the Qatari banking sector as conventional banks have had ample time to adjust to the new changes. Since the announcement, the Qatari banking sector has also seen a flourishing of new Islamic banks looking to capitalize on the separate rules and regulations. The amendments, dubbed the Islamic Finance Amendments Rules 2012, will see the closing of all Islamic window operations by conventional firms with the exception of Takaful which is conducted under the Insurance Business Rules 2006. Analysts at Beltone Financial also said: “The impact of this rule change will be minimal given the low level of activity conducted through Islamic windows.” The new laws include prohibitions on Islamic financial institutions from conducting other forms of financial businesses, and state: “An Islamic financial institution must not hold itself out as conducting financial business other than Islamic financial business; and must not carry on any regulated activity otherwise than in accordance with Shariah.” A recent report by Fitch Ratings also noted that the Qatari banking space will see increased competition between Islamic and conventional lenders with the implementation of the new laws. It added: “Asset quality (of Qatari banks) should continue to improve, with government spending flowing freely, mainly into the real estate and construction sectors. Asset quality ratios are perhaps flattered by rapid loan while interest rate caps will also make retail lending less attractive to the banks. As loans loss coverage is very high and NPLs (Non Performing Loans) have probably peaked, pressures on earnings from impairment charges are likely to be low.”

MARC has affirmed the rating on Gas Malaysia Berhad's (Gas Malaysia) RM500 million Al-Murabahah Medium Term Notes (MTN) Programme at AAAID with a stable outlook

MARC has affirmed the rating on Gas Malaysia Berhad's (Gas Malaysia) RM500 million Al-Murabahah Medium Term Notes (MTN) Programme at AAAID with a stable outlook. Currently, there are no outstanding notes issued under the programme. The affirmed rating reflects Gas Malaysia's strong credit profile underpinned by its strong market position as the sole natural gas distributor in Peninsular Malaysia to a diversified customer base comprising industries, commercial businesses and households, zero debt burden and high liquidity levels. These credit strengths mitigate lower year-on-year pre-tax profit for the first nine months of 2012 (9M2012).

Gas Malaysia currently operates about 1,800km of gas pipelines in Peninsular Malaysia and  is the only company licensed under the Gas Supply Act, 1993 by the Energy Commission to supply and sell reticulated natural gas in Peninsular Malaysia for a period of 30 years until September 1, 2028, strengthening its market position in the supply of natural gas. It also sells liquefied petroleum gas (LPG) under a second licence which expires on December 15, 2020. The company was listed on the main board of Bursa Malaysia in June 2012 and its major shareholders are the MMC Corporation Berhad-Shapadu Corporation Sdn Bhd consortium (40.7%), the Tokyo Gas Co. Ltd-Mitsui & Co Ltd consortium (18.5%) and PETRONAS Gas Bhd (14.8%), while Petroliam Nasional Berhad (PETRONAS) holds one special rights redeemable preference share.

Gas Malaysia operates in a highly regulated industry with significant government involvement in the pricing and supply of gas. This gives the company limited flexibility in managing its growth potential and financial performance. The signing of a new gas supply agreement with PETRONAS in February 2012 saw higher supply of gas from 382 million standard cubic feet per day (mmscfd) to 492 mmscfd on a step-up basis. This bodes well for Gas Malaysia amid continued demand for natural gas by the industrial sector. In addition, the company has allocated about RM140 million for expansion of its pipelines to increase market penetration.

The last price revision in June 2011 increased the buying price of natural gas by 27% to RM14.05/million British thermal units (mmbtu). However, the relatively lower incremental average selling price of natural gas of 7% to RM16.07/mmbtu resulted in Gas Malaysia's profit spread declining to RM2.02/mmbtu from RM3.95/mmbtu. Based on the published pricing structure by the Ministry of Energy, Green Technology and Water, Gas Malaysia's profit spread will be fixed between RM2.00/mmbtu and RM2.25/mmbtu going forward. Notwithstanding the published pricing structure, the government has delayed the selling price revisions since December 2011, which continues to pressure Gas Malaysia's profit spread. In addition, MARC notes that the additional gas supply under the new gas supply agreement has a second tier pricing which is based on market prices and the proportion of the market-priced gas supply will increase gradually as the government reduces the gas subsidies.

For 9M2012, revenue increased by 7.1% y-o-y to RM1.6 billion (9M2011: RM1.5 billion) due to higher sales volume for natural gas. On the other hand, pre-tax profit declined by 30.3% y-o-y to RM154.5 million (9M2011: RM221.8 million) as margins were compressed by the narrow spread between the buying and selling price of natural gas; the operating profit margin was lower at 9.4% (2011: 14.3%). Operating cash flow also declined to RM168.1 million (9M2011: RM229.1 million) attributable to lower pre-tax profit. Free cash flow remains negative at RM22.8 million (9M2011: -RM184.5 million) mainly due to payment of dividends; the company proposes a dividend payout ratio of 100% for 2012. Going forward, Gas Malaysia intends to adopt a dividend payout ratio of 75% or more, which MARC views positively in the context of internal capital generation. Gas Malaysia has consistently maintained its debt-free position over the past few years. There are no expectations of major capital expenditures (capex) in the near term and capital commitments stood at RM139.3 million as at September 30, 2012, mainly for expansion of pipelines.

The stable outlook reflects MARC's expectations that Gas Malaysia's overall credit metrics will remain supportive of its ratings over the next 12 to 18 months, underpinned by its defensible competitive position, satisfactory earnings generation and no major capex commitments.

Contacts: Se Tho Mun Yi, +603-2082 2263 / munyi@marc.com.my; Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.

January 21, 2013

Dubai looks to reclaim title of Islamic finance hub (By IFN)

Dubai looks to reclaim title of Islamic finance hub

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UAE: The emirate on the 9th January announced plans to launch a drive specifically tailored to the further development of its Islamic banking sector, stating that the government will promote Islamic banking, inclusive of Takaful, Islamic financial products, arbitration of Islamic contracts and the setting of quality standards for halal food. The drive is the brainchild of Sheikh Mohammed Rashid Al Maktoum, vice president of the UAE and ruler of Dubai. Azhar Nazim, partner at Global Islamic Banking Centre of Excellence at Ernst & Young was quoted as saying that the move now needs to be backed by a solid roadmap and set of actions. “Following the announcement, implementation will be key. Discussions with management and boards of leading Islamic banks suggest that major transformation is happening around Regulations, Risk and Retail Banking. This is to ensure efficient capital planning, risk modeling, mitigating Shariah risk and building customer centric organizations.” The move is also part of the government’s effort to increase inward foreign direct investments to boost economic growth. Dubai has experienced a slump since the dip in its real estate market in 2008, and has only started picking up momentum last year. Perhaps the drive is in line with growing competition in the region between emerging markets such as Qatar and Oman which since last year have been boosting their Islamic banking sectors with high-profile hires and major investment initiatives.