Basel III Tier 1 Sukuk regaining momentum

Thursday, 2nd July 2015

S&P 500 Shariah Dow Jones Islamic World FTSE Shariah All World Russell - IdealRatings Islamic Global 1,814.77 2,922.50 2,044.07 1,904.66 ▲ 9.81 (0.48%)

HIGHLIGHTS: Central Bank of Oman inaugurates Islamic Banking Department – National Australia Bank funds real estate deal with new Wakalah instrument – Bank Dhofar and Bank Sohar move ahead with merger proposal

This week's poll question: Which segment of the industry is the main contributor to the increase in global Islamic finance assets?

Basel III Tier 1 Sukuk regaining momentum Daily Cover GLOBAL: The market is seeing a rise in Basel III-compliant Tier 1 Sukuk offerings after a slew of Tier 2 issuances, and this trend is expected to gain momentum as the global Islamic banking community seeks to diversify its funding pool to meet capital adequacy needs. While the first few Basel III-compliant Sukuk issued (by UAE entities) were to boost Tier 1 capital, the direction quickly shifted towards Tier 2 capital as banks in Saudi Arabia and Malaysia came to market with their Basel III-compliant Tier 2 instruments. Saudi Arabia recently, however, witnessed a landmark transaction as the Kingdom’s largest bank by assets, National Commercial Bank (NCB), in June issued the country’s first Tier 1 Sukuk to the tune of SAR1 billion (US$266.45 million) in compliance with the framework. The bank’s latest offering follows its Tier 2 Islamic issuance last year. “The closing of the NCB transaction represents a real milestone for Saudi Arabia’s regulatory capital markets and, in the context of recent Saudi stock exchange reforms, comes at an interesting time for the Saudi capital markets,” commented Jonathan Fried, who leads the capital markets practice for Linklaters (Dubai), advisor to the deal. Neighboring Qatar followed suit as Qatar Islamic Bank this week debuted a Basel III-compliant Tier 1 Sukuk – the first for the State. Raising QAR2 billion (US$548.54 million), the paper was structured as a perpetual Mudarabah facility, as with NCB’s issuance. With more stringent capital adequacy and liquidity requirements, it is anticipated for Islamic banks to tap the capital markets with more innovative structures to boost capital. “We have seen Basel III-compliant capital issuances throughout the region, including Qatar and the UAE, as banks continue to diversify their capital and funding sources. We expect this trend to continue,” said Fried. South Africa: An IFN Correspondent Report South Africa looking to tap global markets once again With increasing pressure to stabilize the South African electricity grid and to ease electricity cuts, Eskom, the country’s electricity public utility firm, is now looking to source funding using Sukuk. Today's IFN Alerts QATAR: Qatar Islamic Bank issues Qatar’s first Basel III-compliant Tier 1 Sukuk MALAYSIA: Malaysia to issue Islamic treasury bills AUSTRALIA: Crescent Wealth concludes Shariah compliant real estate deal part-funded by National Australia Bank’s new Wakalah product OMAN: Central Bank of Oman establishes Islamic Banking Department GLOBAL: ISFIN partners with International Financial Services to tap Islamic investment opportunities in Mauritius OMAN: Bank Sohar and Bank Dhofar plan due diligence on proposed merger UK: Islamic Finance Advisory & Assurance Services launches CSR program to improve environment through Islamic finance MALAYSIA: Affin Hwang Asset Management unveils Affin Hwang Aiiman PRS Shariah Moderate Fund as demand grows for Shariah compliant products MALAYSIA: Public Mutual declares over RM178 million (US$47.39 million) in distributions for 13 funds including five Islamic funds GLOBAL: Moody’s assigns counterparty risk assessments to 16 UAE banks MALAYSIA: Infrastructure Sukuk for Sarawak by Aquasar Capital maintain ‘AAA(s)/Stable’ rating UAE: Commercial Bank International appoints new head of Islamic banking BAHRAIN: Mohammed Al Ardhi succeeds Nemir Kirdar as the executive chairman while the latter assumes chairmanship of the board of directors of Investcorp GLOBAL: IFN Asia Forum breaks 1,000-delegate mark yet again – dates for next year confirmed SAUDI ARABIA: Islamic Corporation for the Development of the Private Sector chief to deliver keynote address at the IFN Saudi Arabia Forum MALAYSIA: Industry leaders address Islamic finance investment opportunities at IFN Asia Investors Day Forum 2015 SAUDI ARABIA: Saudi British Bank supports IFN Saudi Forum 2015 as lead partner

IFN Issuers Forum 2015 13th September 2015 (Dubai) IFN Kuwait Forum 2015 5th October 2015 (Kuwait City) IFN Egypt Forum 2015 27th October 2015 (Cairo) IFN Turkey Forum 2015 17th November 2015 (Istanbul) IFN Saudi Arabia Forum 2015 30th November 2015 (Jeddah) Funds Transfer Pricing 6th - 8th July 2015 (Hong Kong) Managing Counterparty Credit Risk, Basel III and Recent Regulatory Issues 9th - 10th July 2015 (Hong Kong) Understanding Islamic Contracts: Structuring & Legal Issues 17th - 19th August 2015 (Dubai) Islamic Financial Services Act (IFSA) 2013 & Islamic Banking Products 18th & 25th August 2015 (Kuala Lumpur) Shariah Audit & Governance for Islamic Banking 20th - 21st August 2015 (Kuala Lumpur) Islamic Finance Qualification 23rd - 25th August 2015 (Dubai) Advanced Sukuk & Islamic Securitization 24th - 26th August 2015 (Istanbul) Undertaking Effective Litigation & Recovery in Islamic Finance Facilities 7th - 8th September 2015 (Kuala Lumpur) Sharia’a Compliance & Audit for Islamic Banks 8th - 9th September 2015 (Dubai) Funds Transfer Pricing 5th - 7th October 2015 (Kuala Lumpur) Trading Book Market Risk Management for Financial Institutions 8th - 9th October 2015 (Kuala Lumpur)