CEO of Malaysia’s Great Eastern Takaful steps down amid structural changes (By IFN)

Wednesday 26^th September 2012

MALAYSIA: Islamic Finance news has learnt that Mohamad Salihuddin Ahmad resigned from his position as CEO of Great Eastern Takaful (GE Takaful) on the 21st September 2012, in response to structural changes instituted by the Great Eastern group. Under the changes, Mohamad Salihuddin was to report to Koh Yaw Hui, CEO and a director of Great Eastern Life Assurance (Malaysia), the conventional Life insurance arm of the Great Eastern group, owned by Singapore’s Great Eastern Holdings. Mohamad Salihuddin and Koh also both sit on GE Takaful’s board of directors. Following Mohamad Salihuddin’s resignation, Zafri Abdul Halim, previously the chief financial officer of GE Takaful, has been appointed acting CEO of the firm. It is understood that Mohamad Salihuddin had issued an ultimatum regarding the changes, proposing to resign if the new structure was not revoked. The firm’s Takaful agents are also said to have expressed their discontent over the new measures, organizing a small protest outside the Great Eastern offices recently. Just this month, speculation emerged that Mohamad Salihuddin would be leaving his post by the end of month. In addition to being credited with helping to set up the Takaful operator in 2010, it is also said that he was especially selected by Great Eastern Holdings to head the group’s Takaful venture in Malaysia prior to the firm receiving its Takaful license. While it remains unclear why GE Takaful’s operations were to be placed under direct watch of the group’s conventional arm, it is also speculated that the Takaful unit has seen dwindling shareholder support for its business. This is despite Mohamad Salihuddin’s plans to expand the firm’s operations to Indonesia and clinch a new bancaTakaful deal with Al Rajhi Bank Malaysia by the end of the third quarter of this year, as GE Takaful looked to sign into five new bancaTakaful partnerships by 2015. GE Takaful was set up as a joint venture between I Great Capital Holdings and Koperasi Angkatan Tentera Malaysia. I Great Capital is a subsidiary of Great Eastern Holdings. As at the 30th June 2012, GE Takaful reported a net profit of RM318,000 (US$103,303), against a net loss of RM3.94 million (US$1.28 million) a year earlier.

 

RAM Ratings puts Pendidikan Industri YS’s AA1(s) rating on Rating Watch, with negative outlook

Published on 28 September 2012

RAM Ratings has placed the AA1(s) rating of Pendidikan Industri YS Sdn Bhd’s (“PIYSB” or “the Group”) RM150 million Bai’ Bithaman Ajil Islamic Debt Securities (2008/2022) (“BaIDS”) on Rating Watch, with a negative outlook. The Rating Watch is premised on the protracted delay in the receipt of information from PIYSB’s management, despite repeated requests from RAM Ratings since June 2012. This has impeded our ongoing surveillance of the aforementioned debt securities. PIYSB is fully owned by Menteri Besar Selangor (Pemerbadanan) and provides educational services via Universiti Selangor (“Unisel”) and Inpens International College (“Inpens”) – both institutions of higher-learning established under the Private Higher Educational Institutions Act, 1996.

Meanwhile, RAM Ratings expects to resolve the Rating Watch within 3 months of this announcement, ideally through the successful completion of our review exercise. Nonetheless, if this avenue remains unavailable due to (but not limited to) the issuer’s inability to provide the requisite information, there may be downward pressure on the rating of PIYSB’s BaIDS or the rating could be suspended. For further details, please refer to our paper, Policy and FAQs on the Suspension or Withdrawal of Ratings by RAM Ratings, published in November 2009 and accessible via www.ram.com.my.

RAM Ratings' Rating Watch highlights a possible change in an issuer's existing debt rating. It focuses on identifiable events such as mergers, acquisitions, regulatory changes and operational developments that place a rated debt under special surveillance by RAM Ratings. In a broader sense, it covers any event that may result in changes in the risk factors relating to the repayment of principal and interest.

Issues will appear on RAM Ratings' Rating Watch when some of the above events are expected to or have occurred. Appearance on RAM Ratings' Rating Watch, however, does not inevitably mean that the existing rating will be changed. It only means that a rating is under evaluation by RAM and a final affirmation is expected to be announced. A "positive" outlook indicates that a rating may be raised while a "negative" outlook indicates that a rating may be lowered. A “developing” outlook refers to those unusual situations in which future events are so unclear that the rating may potentially be raised or lowered.

Media contact

Woon Tien Ern

(603) 7628 1040

tienern@ram.com.my

First Irish Sukuk in the pipeline? (By IFN)

Tuesday 25^th September 2012

IRELAND: The Irish republic may be one step closer to establishing itself as a European hub for Islamic finance, having already emerged as a favorite domicile for Shariah compliant funds. Reports are now circulating that Irish utility, the Electricity Supply Board (ESB), is planning a fundraising exercise via the sale of a Sukuk in Malaysia, for which it has reportedly hired Amanie Advisors to advise on. According to market talk, the utility has also applied to the Malaysian central bank and Securities Commission Malaysia to issue a Sukuk in the country. The potential issuance would mark a milestone for the development of Islamic finance, not just in Ireland, but also in Europe; where issuers have been slow to tap Islamic markets as a source of funding. Although the ESB is reportedly eyeing the Malaysian market for its possible Sukuk sale, Ireland has in fact already put in place legislation for Islamic finance transactions. In January 2010, the Finance Bill 2010 was implemented, with rules covering tax issues for Islamic finance transactions in the republic. The Irish Stock Exchange has also attracted Sukuk listings from the likes of the UAE’s Tamweel and Jebel Ali Free Zone, while Goldman Sachs also applied for a listing on the exchange for its controversial Sukuk, which has yet to come to market. By far however, Ireland’s success in Islamic finance has been its emergence as a domicile of choice for Shariah compliant funds, including the Oasis Crescent Global Low Equity Balanced Fund and the CIMB Global Islamic Equity Fund, with Malaysia’s CIMB-Principal Islamic Asset Management already setting up a presence in the republic. Meanwhile, the Irish government has also expressed interest in issuing a sovereign Sukuk as it seeks to build the republic into a hub for Islamic finance. With appropriate legislation in place and political will on its side, a Sukuk offering by an Irish issuer may just be what the republic needs to further catalyze the growth of its Islamic finance industry.

 

RAM Ratings reaffirms AAA rating of Sabah State Government’s bonds

Published on 28 September 2012

RAM Ratings has reaffirmed the AAA rating of the State Government of Sabah’s (“Sabah” or “the State”) RM544 million Bonds (2009/2014); the long-term rating has a stable outlook. The rating reflects Sabah’s rich natural wealth that remains key to spurring its economic growth, the State Government’s strong revenue-adjustment capacity, its healthy fiscal position, and its supportive relationship with the Federal Government. These strengths balance the challenge of unlocking Sabah’s long-term development potential.

The Bonds had been raised and issued with the approval of the Federal Government, in accordance with the requirements of the Constitution of Malaysia. Although we do not consider this approval as being tantamount to a direct guarantee by the Federal Government, we believe that support will be extended to the State Government, if required.

Sabah is endowed with a wealth of minerals, agricultural land, biodiversity and cultural heritage – which form the backbone of its economy. The primary sector (agriculture and mining) is the mainstay of the State’s economic output – contributing approximately 40% of its gross domestic product in 2010. Notably, Sabah has Malaysia’s largest area in terms of planted oil palms, accounting for 1.4 million hectares or 29% of the country’s total planted area. Furthermore, the State is an important cog of the Malaysian economy by virtue of its crude-oil production. Demand for both these primary commodities is seen to be relatively sustainable, thus providing a certain degree of resilience to Sabah’s economy. However, the State’s significant exposure to these commodities makes it somewhat vulnerable to volatile price movements. Aside from the primary sector, the services sector – which represents half of the State’s economy – is an important growth driver. The services sector, while largely tourism-driven, also caters to the increasing size and income of the State’s population.

Sabah has a long track record of budgetary discipline, as evidenced by several years of fiscal surpluses, relatively large cash reserves and its consistent ability to make interest payments as they fall due. Furthermore, the Sabah Government enjoys a stronger fiscal-adjustment capacity than its counterparts in Peninsular Malaysia. Under the Constitution, the State is accorded additional revenue sources, including import and excise duties on petroleum products, export duties on timber-related products, fees and dues from ports and harbours, and State Sales Tax. Sabah is also entitled to yearly cash payments from national oil giant Petroliam Nasional Berhad, amounting to 5% of the value of petroleum derived from Sabah.

Meanwhile, the State Government continues to enjoy a supportive relationship with the ruling Barisan Nasional coalition. From a political viewpoint, both the East Malaysian states of Sabah and Sarawak are strategically important to any party attempting to form the Federal Government, as they account for 25% of the seats in the Dewan Rakyat (or House of Representatives).

Media contact

Jason Fong

(603) 7628 1103

jason@ram.com.my

DRB-Hicom sees establishment of Islamic megabank via Bank Muamalat Malaysia-Affin Holdings merger (By IFN)

Friday 21^st September 2012

MALAYSIA: Conglomerate DRB-Hicom, which owns a 70% stake in Bank Muamalat Malaysia, has thrown its hat in the ring for the establishment of an Islamic megabank, following a potential merger between Bank Muamalat and Affin Holdings. Mohd Khamil Jamil, the group managing director of DRB-Hicom, also disclosed that the group is looking to sell 30% of its stake in Bank Muamalat to Affin. The exercise would allow for a merger of Bank Muamalat’s assets with those of Affin Holdings, which owns Affin Islamic Bank. The enlarged entity is then seen to have the capability of expanding abroad, with Mohd Khamil noting that the Malaysian Islamic financial market has reached its saturation point. He also revealed that the Malaysian central bank has instructed DRB-Hicom to seek opportunities for Bank Muamalat to expand beyond Malaysia, with its potential merger with Affin providing an avenue for the Bank Muamalat to expand its capacity and capabilities. He also highlighted Bank Muamalat’s agreement with China’s Bank of Shi Zui Shan aimed at setting up an Islamic bank in the Chinese province of Ningxia by 2014, showing that opportunities for the Malaysian bank to expand abroad do exist. A proposal for the merger between Bank Muamalat and Affin is expected to be sent to the Malaysian central bank by the end of this year, with a final decision on the matter seen by the end of January 2013, Mohd Khamil said.