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GLOBAL: Over
the last two weeks, a number of major banks have come to the market stating
their intentions to issue Sukuk for capital raising purposes. The banks,
spread over various markets including Turkey, Europe and the Middle East, are
continuing a trend from last year which saw significant issuances from Abu
Dhabi Islamic Bank, with its US$1 billion Tier-1 perpetual Sukuk, Qatar
Islamic Bank which issued US$750 million in Sukuk and Saudi Hollandi Bank
with its US$373 million domestically-placed Sukuk.
The most recent announcement this week came from Abu Dhabi-based
Al Hilal Bank which intends to sell US$500 million-worth of Sukuk as part of
its US$2.5 billion bond program. Other banks which have made similar
announcements include Albaraka Turk Katilim Bankasi which is looking to issue
Sukuk worth at least US$200 million before the end of this year or early next
year, and Bank Asya with a TRY125 million (US$61.78 million) issuance in the
fourth quarter. Qatar Central Bank also closed two Sukuk issuances this week
with maturities of five years, totaling to QAR1 billion (US$274.46 million);
while the most interesting deal to be announced so far is perhaps the
upcoming Sukuk by one of the Eurozone’s largest banking entities, Societe
Generale, which will launch a RM1 billion (US$302.69 million) Sukuk by the
end of this year — making it the first French bank to issue in Malaysia.
It is evident, from the spate of banks coming to the Islamic
capital market that capital raising exercises are ramping up as part of the agenda
to fulfill Basel III requirements. However, it also begs the question of why
would banks choose to issue Sukuk over other usual funding sources such as
Commodity Murabahah or using the bank’s own assets or financing portfolio as
a means of raising capital. Speaking to Islamic Finance news, a
Malaysia-based lawyer familiar with structuring Sukuk for banks looking to
increase their capital, said: “The main reason banks issue Sukuk for capital
raising is to gain a certain profile; and they are usually looking to signal
something to the market such as the ability to obtain liquidity from that
specific market. Banks such as Societe Generale for example, has chosen
Malaysia as the jurisdiction to issue because the Malaysian market is
generally more active in terms of trading compared to the Middle East markets
in which investors usually hold the paper to maturity.”
“The assets have to satisfy certain capital requirements and are
usually meant for Tier-2 capital. Based on the upcoming Basel III
requirements, banks are only allowed to derive funds from certain sources,
and have to fulfill requirements such as being low risk, guarantee a certain
level of returns, and pay out certain forms of redemption over a certain
period. This however depends on central banks across different jurisdictions.
In Malaysia for instance, Basel III is already embedded in the capital
requirements for banks in Malaysia,” he added.
Other banks that have
announced their intentions to issue Sukuk this year but have not revealed a
definitive timeline or amount as yet include Barwa Bank in Qatar,
Russia-based VTB Bank, Qatar Islamic Bank and Al Baraka Islamic Bank.
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Daily Cover
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SAUDI ARABIA: In a
filing to the Bahrain Bourse, Shariah compliant Al Salam Bank announced its
acquisition of an equity stake in Riyadh-based Education Experts Company
(EEC), one of the fastest-growing education institutions in the kingdom, as
part of an increased focus by the Bahrain-based Islamic lender on the Saudi
Arabian market.
Commenting on the transaction, Talal Al Mulla, the bank’s chief
investment officer, noted that the acquisition is the first of its kind.
Expressing his confidence in the acquisition, he said: “The bank’s
partnership with EEC would result in consummating many opportunities in the
region with acceptable risk-adjusted returns to Al Salam and its investor
base.” Yousif Abdulla Taqi, the director and CEO of Al Salam, further stated
that the Saudi government has demonstrated its support towards education over
the last five decades, having allocated a substantial amount of the kingdom’s
annual budget for the sector.
There are currently a total of 34,749 schools, 24 universities
and 508 affiliated education institutions in Saudi Arabia. The Education
Ministry placed in motion a 10-year strategic plan in 2004, with SAR204
billion (US$54.38 billion) currently put towards the sector; an increase from
SAR105 billion (US$27.99 billion) in 2008.
Established in 2011, EEC is a national company with several
subsidiaries that provide educational training, research and counseling for
individuals and institutions. The company also manages training facilities as
well as organizes conferences and seminars for educational purposes.
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