Garuda Airlines Sukuk: First unrated US dollar Sukuk from an Asia Pacific issuer

Wednesday, 17th June 2015

S&P 500 Shariah Dow Jones Islamic World FTSE Shariah All World Russell - IdealRatings Islamic Global 1,836.05 2,951.53 2,066.51 1,920.85 ▲ 11.69 ( 0.64%) ▲ 15.08 ( 0.51%) ▲ 7.07 ( 0.34%) ▼ -7.02 ( -0.36%)

HIGHLIGHTS: Jordan potentially issuing sovereign Sukuk in the coming weeks – Toyota’s financing arm proposes Islamic debt program – Indonesian megabank likely to come to market next year – Saudi and Malaysian operators plan new Takaful products

This week's poll question: In regards to asset management, there are computer programs that can enact portfolio calculations in real time. Once the criteria and tolerance levels are set and approved, do these funds really need an ongoing Shariah board?

Uncertainties cast a shadow on Malaysian Sukuk and bond market Daily Cover MALAYSIA: Intensifying uncertainties weighing on market sentiments this year has led RAM Ratings to downward revise their previous forecast for Malaysian gross private debt securities (PDS) issuance (Islamic and conventional) from RM85-95 billion (US$22.65-25.32 billion) to RM75-85 billion (US$19.99-22.65 billion) – reflecting a weaker investment atmosphere. A major driving force for the more conservative figures is the lingering uncertainty surrounding the US Federal Reserve’s quantitative easing tapering plan which continues to squeeze global liquidity. Kristina Fong, the head of research at RAM, explained to IFN that this – coupled with capricious international oil prices – resulted in a significant withdrawal of foreign investors from the Malaysian market since the beginning of the year. “With no clear direction from the Fed – as to how much and when they’d be implementing the plan – both investors and issuers are playing it safe and assuming a wait and see approach,” added Fong. Year-to-date PDS issuance tumbled 14.2% year-on-year to RM32.1 billion (US$8.55 billion) despite a pickup in sales to RM9.5 billion (US$2.53 billion) in May as compared to RM7.8 billion (US$2.08 billion) the month before. According to data from Bond Pricing Agency Malaysia, gross Islamic PDS offerings in May 2015 dropped to RM14.7 billion (US$3.92 billion) from RM20.3 billion (US$5.41 billion) registered in May 2014. This declining trend also emerged within the Islamic paper-dominated quasi-sovereign space which fell 22.6% year-on-year (on a year-to-date basis). Government securities issuance, however, fared better: as at the end of May, sovereign issuances were up 10.4% to RM52.2 billion (US$13.91 billion), with the majority (58.9%) of long-term facilities being Shariah compliant. For 2015 (as at the 31st May), the ratio of Islamic and conventional government securities tendered is 56:44. While RAM believes that market players for the next six months would be more circumspect in terms of timing of potential debt issues and investing as their decisions are likely to be overshadowed by downside domestic and external risks, the rating agency notes that local investors and monetary conditions should remain supportive of the debt capital market. “The expected volatility of the equity market may compel investors to switch to safer assets such as fixed income securities,” opined the agency. New Zealand: An IFN Correspondent Report Removal of the government KiwiSaver NZ$1,000 (US$697.58) contribution The KiwiSaver scheme is a New Zealand voluntary long-term and work-based savings initiative which came into operation in July 2007 and comes with a range of membership benefits. The main purpose of the KiwiSaver fund is for retirement savings, but younger participants can also use it to save a deposit for their first home. The NZ$1,000 (US$697.58) kick-start payment was a tax-free government contribution made to all KiwiSaver members who joined when the scheme was introduced. At the time, the kick-start payment was the planned big incentive to join. Case Study Garuda Airlines Sukuk: First unrated US dollar Sukuk from an Asia Pacific issuer Garuda Indonesia on the 27th May 2015 successfully priced a US$500 million five-year Sukuk offering. On the back of positive response from investors, Garuda launched the transaction at a price guidance of 6.25%. The orderbooks quickly built to US$1.9 billion allowing tightening of the guidance and final coupon at 5.95%. Speaking to Lim Say Cheong, the executive vice-president of Al Hilal Bank’s investment banking group, one of the lead managers and bookrunners for the deal, NABILAH ANNUAR provides a detailed account of the transaction. Today's IFN Alerts JORDAN: Jordanian government to launch sovereign Sukuk soon MALAYSIA: Toyota Capital Malaysia seeking to tap Islamic debt capital markets again; proposing mixed program worth RM2.5 billion (US$666.21 million) BAHRAIN: Central Bank of Bahrain issues its regular short-term Sukuk Ijarah worth BHD26 million (US$68.49 million) INDONESIA: Islamic megabank in Indonesia may materialize next year GLOBAL: Al Baraka to open Islamic bank in Morocco in 2016; plans expansion into East Africa UAE: Gulf Finance Corporation launches new brand logo MALAYSIA: Prudential BSN Takaful and Bank Simpanan Nasional roll out new investment-linked Family Takaful plan MALAYSIA: Amanah Mutual launches new Shariah compliant retail fund BAHRAIN: Bahrain Bourse approves trading guidelines on real estate investment trusts SAUDI ARABIA: Alinma obtains SAMA’s final conditional approval for protection and savings products UAE: National Bank of Abu Dhabi declares 2.22% dividend for Sukuk Income Fund MALAYSIA: Tanjung Bin Power’s Sukuk Ijarah program maintains ‘AA2/Stable’ rating due to strong business profile 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)