Sukuk market set to heat up in 2012 with potential sovereign issue

SAUDI ARABIA: The country's Sukuk market is set to heat up next year with a potential issuance of a sovereign riyal-denominated Islamic bond.

According to reports, the kingdom's central bank, the Saudi Arabian Monetary Agency (SAMA), is in talks with several local and international banks on the details of a sale which could come to market as early as the first quarter of 2012.

The news emerged just a day after its General Authority of Civil Aviation announced that it will issue a Sukuk by February next year to finance the construction of its new airport in Jedah; a project that will cost US$7.2 billion.

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MARC AFFIRMS ITS RATING ON IJN CAPITAL SDN BHD'S RM209 MILLION SUKUK MUSYARAKAH PROGRAMME

Nov 30, 2011 -
MARC has affirmed its AAAIS rating on the outstanding RM55 million of the Series 1 RM100 million sukuk issued under IJN Capital Sdn Bhd’s (IJN Capital) RM209 million Sukuk Musyarakah Programme. The AA+ rating on the unissued Series 2 RM109 million sukuk has been withdrawn following the expiry of the facility’s drawdown period. The outlook is stable. IJN Capital is a wholly-owned special-purpose company of IJN Holdings Sdn Bhd (IJN Holdings).

The AAAIS initial issue rating on the RM100 million Series 1 sukuk was based in part on the structural protection afforded by the requirement for the main operating entity of the group, Institut Jantung Negara Sdn Bhd (IJN), to deposit 20% of payments received from the government into a trustee-controlled revenue reserve account. MARC notes that sukukholders’ approval was obtained during the current year to waive the aforementioned requirement on the basis that the reserve account had sufficient funds to cover sukuk principal repayments and profit payments until the redemption of the issued sukuk in March 2013. MARC sees no rating impact arising from the aforementioned waiver given the fully funded status of the reserve account. The stable outlook on the rating is underscored by the fully funded reserve account which effectively insulates sukukholders from changes in the credit profile of IJN.

Since MARC’s last rating action in November 2010, IJN has continued to maintain its favourable competitive position as a leading cardiovascular and thoracic centre in the country. The increased capacity from the hospital’s new wing has resulted in inpatients and outpatients increasing by 15.7% (FY2009: 0.1%) and 11.7% (FY2009: 6.9%) to 14,708 and 194,721 patients respectively. Additional operating theatres have also significantly reduced the waiting period for surgery. The construction of the new wing, which comprises 24 outpatient clinics, additional wards with a total of 134 beds and two operating theatres, had been funded by sukuk proceeds. MARC also takes note of IJN’s earnings stability and low receivables collection risk arising from its highly concentrated patient base of government employees and their dependants and pensioners.

IJN Holdings’ financial performance has improved with the increase in the number of patients. Its revenue and operating profit rose significantly by 21.5% and more than 100% to record RM370.7 million (FY2009: RM305.1 million) and RM8.3 million (FY2009: -RM31.2 million) respectively. The group posted a pre-tax profit of RM35.7 million for FY2010 compared to a pre-tax loss of RM18.7 million in FY2009 due in part to one-off gains of RM18.1 million in relation to compensation for delays in the construction of the new wing by the contractor. IJN Holdings’ cash and cash equivalents of RM168.2 million provide ample liquidity to cover its short-term obligations of RM96.6 million as at June 30, 2011. It also has a conservative financial profile with limited debt leverage, which affords the group considerable financial flexibility. The group’s overall financial flexibility is further enhanced by its 99.9% ownership by the Ministry of Finance.

Contacts:
Nisha Fernandez, +603-2082 2269/ nisha@marc.com.my;
Rajan Paramesran, +603-2082 2233/ rajan@marc.com.my.

Dubai's state-linked firms in solidarity over debt repayments

UAE: Markets in the UAE went into a tailspin in the second week of December after talk emerged on the potential restructuring of Dubai debt; and as ratings agency Moody's issued a report that the emirate's state-linked firms could need further financial support to repay obligations due next year.

However, perhaps in an unofficial show of solidarity, the firms and even Ahmed Saeed Al Maktoum, the chairman of Dubai's supreme fiscal committee, have reaffirmed their commitment to repaying the debt, around US$10 billion of which, according to Moody's estimates, are due next year.

Nakheel has emerged as the latest of the emirate's state-linked companies to report a paying down of its debt, announcing on the 8th December that it has paid nearly US$2 billion-worth of overdue payments to its trade creditors, marking "significant progress" in its recapitalization plan. The plan included the issuance AED4.8 billion (US$1.3 billion) in Sukuk, of which the first tranche amounting to AED3.8 billion (US$1.03 billion), was issued in August this year.

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Fitch: Malaysian banks’ outlook stable

SINGAPORE: Fitch Ratings says in a new report that the outlooks of its rated Malaysian banks are expected to remain stable, even if a fresh economic slowdown were to emerge from the mounting global uncertainty.

Downward rating risks could arise should such a downturn, particularly if sharp and protracted, lead to significant capital impairment risks for the local banks.

However, the agency views this likelihood as fairly low, due to their satisfactory loss-absorption qualities and risk management, as well as a prudent regulatory environment.

Read more: Fitch: Malaysian banks’ outlook stable http://www.btimes.com.my/Current_News/BTIMES/articles/20111212113458/Article/index_html#ixzz1gHwe4p9i

MARC AFFIRMS SHORT-TERM AND UPGRADES LONG-TERM RATINGS ON BOON KOON GROUP BERHAD'S ISLAMIC DEBT PROGRAMME

MARC has affirmed the short-term and upgraded the long-term ratings of Boon Koon Group Bhd's (BKGB) RM100 million Islamic Commercial Papers/Islamic Medium Term Notes (ICP/IMTN) programme to MARC-3ID/BBBID from MARC-3ID/BBB-ID respectively. The rating outlook is stable. The rating action affects RM45 million of outstanding notes issued under the programme. The upgrade in the long-term rating reflects the improvement in the group's business and financial risk profile after restructuring efforts in 2009 and 2010 and improved business conditions in the domestic rebuilt commercial vehicle segment. Nonetheless, the group's high debt leverage and long cash conversion cycle continues to weigh on its financial risk. BKGB's short-term rating remains unchanged due to its sizeable upcoming debt maturities in 2012 and its modest free cash flow generation in the three months to June 30, 2011 (1QFY2012).

BKGB is an investment holding company listed on Bursa Malaysia. The group's principal activities include the manufacturing and distribution of rebuilt commercial vehicles and bodyworks; trading of commercial vehicle accessories, parts and components; and resale of value-added chassis cabs and equipment. The group is a pioneer and market leader in the domestic rebuilt commercial vehicle market. The group's head office and principal manufacturing plant are located in Nibong Tebal, Penang.

As market leading player in the domestic rebuilt commercial vehicles segment, the group has benefited from the consolidation of a fragmented industry to 18 players from 33 players previously. The industry consolidation was brought about by the introduction of the approved permit (AP) licensing system by regulatory authorities in early 2009. MARC notes that BKGB has improved its competitive standing as evidenced by the increasing share of approval APs gained by BKGB since the inception of the new system.

Since incurring substantial losses for the 15 months ended March 31, 2009, the group implemented a comprehensive restructuring of its business which involved shutting down loss-making entities, disposing non-core assets, and streamlining of operations. The group has achieved a reduction in costs; profit before tax improved from a modest RM0.1 million in FY2010 to RM2.6 million in FY2011 on the back of a marginal 3.0% growth in revenues. Consequently, operating profit margins recovered to 7.79% based on 1QFY2012 results, from 5.45% in FY2011. Cash flow from operations (CFO) for the year moderated to RM31.6 million (FY2010: RM41.5 million) as benefits from rationalisation efforts and lower taxes tapered off (net tax refund of RM4.2 million in FY2010 compared to net tax paid of RM0.7 million in FY2011). Gearing as measured by the debt-to-equity (DE) ratio has come down to 2.22 times (x) as at end 1QFY2012, compared to 3.08x in FY2009. The group has sufficient liquidity on hand to meet its upcoming bond repayment of RM10.0 million due in February 2012. Its final note maturities of RM35.0 million in December 2012 would be exposed to some measure of refinancing risk particularly as cash generation appears to be slowing. Recently, the group announced plans to sell a majority stake in its leasing business to Hitachi Capital Corporation for RM9.0 million, the proceeds of which would be mostly used to fund its repayment of the outstanding notes.

The stable rating outlook reflects MARC's expectation that the group will continue to manage its liquidity and refinancing needs in a proactive manner.

Contacts: Sabesh Parameswaran, +603-2082 2260/ sabesh@marc.com.my; Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.

Emirates NBD shelves plans for Sukuk sale

UAE: Emirates NBD (ENBD) has reportedly shelved plans to issue a five-year Sukuk, which had originally been expected to come to market as early as the third week of December. The bank had been in talks with several banks to manage the transaction, although it had yet to mandate any. It has since emerged that the bank will not proceed with any plans for the issuance, with its subsidiary, Emirates Islamic Bank (EIB), now said to be looking at issuing the Islamic bonds.

EIB is reportedly eyeing a roadshow for a Sukuk next year depending on market conditions, with a sale hinging on investor appetite. Rick Pudner, the CEO of ENBD, earlier said that the bank was considering issuing a five-year US dollar-denominated Sukuk, with the final decision on its funding options to be made within the first two weeks of December.

Although the emergence of its decision is consistent with this timeframe, it also coincides with weak investor sentiment for the bank's shares, which are listed on the Dubai Financial Market, following a report from Goldman Sachs that the bank may need to book up to AED8 billion (US$2.1 billion)-worth of provisions for bad debt by the end of 2013. The report calculated a provisioning of between AED6 billion (US$1.6 billion) and AED8 billion between the fourth quarter of this year and the fourth quarter of 2013.

The bank, already one of the largest creditors to Dubai World, took over the troubled Dubai Bank in October this year, shortly after the Islamic bank was bailed out by the Dubai government.

Plagued with poor asset quality and weak investor sentiment, ENBD's decision to call off its Sukuk issuance may just have circumvented possible poor demand for its papers.

See IFN: http://eblast.redmoneygroup.com/link.php?M=3397194&N=3077&L=7380&F=H

S&P puts Eurozone banks on watch for downgrade

Standard & Poor's on Wednesday put a number of large European banks on review for a possible downgrade after earlier this week putting the credit ratings of eurozone states on notice.

Among those listed for possible downgrade were French banks BNP Paribas and Societe Generale, Deutsche Bank and Commerzbank of Germany, and Italy's UniCredit.

S&P said further banks would be put on notice for possible downgrade.

S&P Puts 15 Euro Nations on Watch for Downgrade Amid Sovereign-Debt Crisis

Standard and Poor's on Monday placed Germany, France and 13 other eurozone members on a negative credit watch, warning that they could be hit with downgrades.
The warning threatened the AAA ratings of Germany, France, the Netherlands, Finland, Luxembourg and Austria.

"Systemic stresses in the eurozone have risen in recent weeks to the extent that they now put downward pressure on the credit standing of the eurozone as a whole," the ratings agency said in a statement.

RAM Ratings reaffirms Pasdec's AAA(s) debt rating

Published on 25 November 2011
RAM Ratings has reaffirmed the enhanced AAA(s) rating of Pasdec Holdings Berhad’s (“Pasdec” or “the Group”) RM150 million Rainbow Exchangeable Bonds (2006/2013) (“REBs”); the long-term rating has a stable outlook. The enhanced rating is based on the irrevocable and unconditional Put Option Agreement (“Put Option”) granted by the State Government of Pahang (“the State”) to the Security Trustee, for the benefit of the REB holders, with approval from the Federal Government. This Put Option enhances the credit profile of the REBs beyond Pasdec’s inherent or stand-alone credit strength.

The REBs are secured by and exchangeable into a pool of option shares (i.e. IJM Corporation Berhad and YTL Cement Berhad shares). The Put Option requires the State to purchase the option shares from the Security Trustee at the option price during the option period, upon the occurrence of a trigger event or event of default. The option price reflects the aggregate of the nominal amount of the REBs, their redemption premium and coupon payments, and all other outstanding amounts. The option price is not determined by the market price of the respective shares.

Proceeds from the purchase of the option shares will subsequently be used to redeem the REBs. As at end-October 2011, RM133 million of REBs had been exchanged for the option shares and the same amount had been cancelled. The outstanding REBs, including the redemption premium, amounted to RM25 million as at the same date.

Pasdec is the main property-development arm of Perbadanan Kemajuan Negeri Pahang (“PKNP”), which effectively owns 52% of the Group. PKNP is a statutory body established as an economic-development agency under the Pahang State Legislature under Enactment Act 12, 1965. Notably, Pasdec is one of the largest property developers in Pahang, with a 16-year operating track record. Its main objective is to supply affordable housing in the state, although it has also gradually moved into the development of medium-to-high-end residential and commercial properties. Meanwhile, Pasdec’s recent foray into manufacturing operations in South Africa may heighten its business risk given that it is a new venture in an unfamiliar operating environment.

Media contact
Anne Yap
(603) 7628 1038
anne@ram.com.my

Governors of OIC Central Banks Recommend Role of Islamic Finance in Promoting Growth and a Diversified Financial Sector

The Meeting of Central Banks and Monetary Authorities of the Organisation of Islamic Cooperation (OIC) Member Countries was held at Sasana Kijang in Kuala Lumpur on 16 November 2011. The meeting, which was organised and hosted by Bank Negara Malaysia in collaboration with the Statistical, Economic and Social Research and Training Centre for Islamic Countries (SESRIC) agreed that it was important to build a diversified, progressive and inclusive financial sector including exploring the role of Islamic Finance in achieving these objectives.

Delegates were officially welcomed by the host, Dr. Zeti Akhtar Aziz, Governor of Bank Negara Malaysia (BNM). The proceedings included an opening address by Dr. Savas Alpay, Director General of SESRIC; a keynote address by Mr. Shaukat Aziz, former Prime Minister of Pakistan, who spoke on 'Accelerating Financial Sector Development for Economic Growth: Distilling Global Lessons for OIC Member Countries'; and a panel discussion moderated by Professor Rifaat Abdel Karim, former Secretary General of the Islamic Financial Services Board (IFSB).

Dr. Martin Redrado, former Governor of the Central bank of Argentina, delivered a luncheon keynote on 'Central Banking in the 21st Century: Implications of Economic and Financial Globalisation'.

The governors emphasised in their final communiqué that emerging economies were expected to continue to contribute towards driving global economic recovery and growth, and that the potential role of Islamic finance in supporting this endeavour should be given special attention.

The governors agreed that the global financial crisis has highlighted that weaknesses in the financial sector and fiscal policies could have destabilising effects and negative consequences on the real economy. This has reinforced the importance of an effective functioning financial sector in supporting sound and sustainable economic development.

There was consensus that the financial sector has an essential role to efficiently intermediate funds towards productive economic activities and generating sustainable and balanced growth. A well developed financial sector can improve standards of living, create high value employment, and drive the economic transformation process.

The governors stressed on the importance of building strong financial institutions to serve the economy, and having the necessary financial infrastructure supported and balanced by a strong regulatory and supervisory framework, including macro and micro-prudential framework, to safeguard financial stability. The need to create an inclusive financial sector towards achieving balanced economic growth and greater shared prosperity, was also recognised.

It was acknowledged that the role of central banks in collaboration with the relevant government agencies, was crucial in facilitating a nation's developmental agenda towards achieving sustainable and non-inflationary economic growth. The governors concurred that it was imperative for central banks to continuously undertake transformation and modernisation in enhancing organisational capacity and governance to effectively perform their mandate. Towards this end, the governors reaffirmed their commitment to strengthen collaboration by leveraging on their individual strengths and cooperating in building their capacities.

The 2012 Meeting of Central Banks and Monetary Authorities of the OIC Member Countries will be hosted by the Central Bank of the Republic of Turkey, and the Saudi Arabian Monetary Agency and Bank Indonesia will be the hosts in 2013 and 2014, respectively.