Greek prime minister warns of March default

(bbc bEWS): Greek Prime Minister Lucas Papademos has said Greece may default on its debts in March unless unions accept further cuts to salaries.

Mr Papademos said more cuts were needed to avoid exiting the eurozone.

Analysts say the warning is to prepare Greece for more austerity measures.

European Commission, International Monetary Fund and European Central Bank inspectors, known as the troika, arrive to assess Greece's progress in cutting its deficit on 15 January.

They will decide whether to provide further bailout funds to the country.

SEE BBC NEWS: http://www.bbc.co.uk/news/business-16418523

US web portal Yahoo has named Scott Thompson, the president of online payments firm Paypal, as its new head

(See BBC News): US web portal Yahoo has named Scott Thompson, the president of online payments firm Paypal, as its new head.

He will fill the vacancy left by Carol Bartz, who was dismissed as chief executive in September after failing to turn around the company's fortunes.

Mr Thompson has headed Paypal, the payments division of eBay, since 2008, during which time its userbase doubled.

Yahoo is currently undergoing a strategic review as it has failed to keep up with rivals such as Google.

SEE BBC NEWS: http://www.bbc.co.uk/news/business-16414704

EU member states have agreed in principle to ban imports of Iranian crude oil

(See BBC News): EU member states have agreed in principle to ban imports of Iranian crude oil to put pressure on the country over its nuclear programme.

The move is expected to be announced formally at an EU foreign ministers' meeting at the end of January.

The US, which recently imposed fresh sanctions on Iran, welcomed the news.

Iran has dismissed the threat of new sanctions and denies Western claims that it is trying to develop a nuclear weapons programme.

Iran has also denied that a record low of its currency this week was linked to punitive US measures against its banks.

Oil prices on international markets rose on news of the EU agreement.

"We have an [EU] foreign ministers' meeting on January 30, and on this occasion I hope we will be able to take the decision on the embargo of oil and petrol from Iran", said French Foreign Minister Alain Juppe.

"We have to reassure some of our European partners who purchase Iranian oil. We have to provide them with alternative solutions", he added.

On Tuesday France had called for "stricter sanctions" on Iran.

However, even if sanctions are adopted at the end of the month, it may be several months before they are implemented.

SEE BBC NEWS: http://www.bbc.co.uk/news/world-middle-east-16418589

PR from IFN: Can EIB Sukuk beat global credit gloom?

(See IFN): Emirates Islamic Bank (EIB), a unit of Emirates NBD (ENBD), has reportedly mandated six banks for the potential sale of a benchmark-sized, US dollar-denominated Sukuk.
This follows news in December 2011 that ENBD decided to shelve its own plans for a five-year Sukuk; with an Islamic bond sale being looked at by EIB instead.

According to reports, EIB has hired HSBC Holdings; Standard Chartered; Citigroup; The Royal Bank of Scotland; Emirates NBD Capital and the National Bank of Abu Dhabi to manage the possible issuance.

PR from IFN: The best in Islamic finance

(See IFN): With the turbulence in the global markets this year and the political and financial volatility making any transaction a risky business, the Islamic finance industry has sailed through stormy waters in 2011 to emerge battered but not broken at the end of what has been a challenging twelve months for all participants in the market.

But what doesn’t kill you makes you stronger, as the saying goes, and we have not only grown and strengthened, but had the opportunity to learn valuable lessons from the challenges of the past year. The Sukuk market has bounced back to record levels, with a strong performance right up to the end of the year: including the US$1 billion Indonesian sovereign issuance on the 14th November and the US$750 million issuance by the Kingdom of Bahrain on the 16th November, and the US$500 million issuance by Abu Dhabi Commercial Bank on the same day.

The global economy is still extremely shaky, however, and we must shore up our foundations and look to consolidation and commitment to strong ethical and operational principles in order to prosper in 2012. The EU is still undergoing severe political and financial problems, especially in the PIGS countries of Portugal, Ireland (and Italy), Greece and Spain, and Eurozone funding pressures are expected to continue into the new year with the euro falling to a 10-year low against the yen and losing more than 3% against the dollar. The US is still struggling with high unemployment and unsustainable debt levels, and although the Dow Jones ended the year with a 5.5% gain, 2012 looks to be another turbulent year in the run-up to the November elections. The Middle East experienced extreme disruption in 2011 with the Arab Spring sweeping across north Africa and the Gulf region, and despite financial markets settling down somewhat towards the end of the year, oil prices still ended 2011 up 13% due to supply concerns, including Iran’s recent threat to shut the Strait of Hormuz, a vital oil shipping point.

However, Islamic finance has carved itself a strong niche in the global financial industry, and can look forward to a positive new year. Asia is performing strongly, and countries such as China and India have made big strides in entering the Islamic finance industry, offering new and exciting areas for development. France, the UK, Luxembourg, Japan and Australia have also entered the market and taken some positive steps towards encouraging their domestic industries, while in South Asia Pakistan, Bangladesh, Sri Lanka and the Maldives have all also been industriously encouraging development. In more established regions, Malaysia also consolidated its position as the global hub for Islamic finance, accounting for 68% of Sukuk issuances in 2011.

So it is with brave faces and high hopes that we face the next twelve months, and in anticipation of what 2012 will bring, Islamic Finance news kicks off the new year by celebrating the best of 2011 with this special awards issue, revealing the winners of the sixth annual Islamic Finance news Awards, including our industry-leading Deals of the Year awards and the results of our groundbreaking Best Banks Poll. In a break from tradition and to add to the excitement, however, please note that the results for four awards categories (Most Innovative Islamic Bank, Best Overall Islamic Bank, Most Innovative Deal, and Deal of the Year) will be announced on the night of the awards ceremony itself and are not included in this issue. The KL awards ceremony will take place on the 15th February 2012 while the Dubai ceremony will be on the 29th February.

So in this issue, let us celebrate the achievements of 2011 and look forward to an even better 2012. We wish all of our readers a prosperous and successful new year!

Oxford Business Group Review of Indonesia

(See: www.oxfordbusinessgroup.com): Plans are in place to develop Indonesia’s nuclear power capacity to overcome the country’s shortage of electricity and ease its dependence on hydrocarbons. However, some concerns remain as to the safety of atomic energy in a quake-prone region so soon after the disaster in Japan, with opponents to the scheme pushing alternative energy as the answer to Indonesia’s power needs.

In late November, state enterprise minister Dahlan Iskan announced that the government had given initial approval for the construction of a 200-KW nuclear power station and for a second plant with a planned output of 2 MW, as part of the state’s programme to boost electricity generation capacity.

Addressing a seminar on energy policy in parliament, the minister said that evolving technology meant that new power stations would be far safer and better able to withstand disasters than the station at Fukushima, which was badly damaged in the quake and subsequent tsunami that devastated parts of Japan in March.

Oxford Business Group Review of Malaysia

(See: www.oxfordbusinessgroup.com): With many sectors of the economy having performed solidly over the past 12 months, Malaysia is hoping for more of the same in 2012. Indeed, foreign direct investment (FDI) is up, inflation well contained, and the financial sector steady. However, at least some impact from the European debt crisis is expected, with demand for exports widely predicted to ease in 2012.

Though final figures have yet to be issued, it is expected that the Malaysian economy will have expanded by more than 5% in 2011. At the end of November, the Organisation for Economic and Cooperative Development (OECD) forecast that this solid rate of growth would continue for at least the next five years, predicting Malaysia’s GDP would expand by 5.3% in each of the next few years and hit 5.6% by 2016.

MARC DOWNGRADES THE RATING OF MNRB HOLDINGS BERHAD'S RM200 MILLION ISLAMIC MEDIUM TERM NOTES TO A+IS from AA-IS.; OUTLOOK STABLE

Dec 30, 2011 -

MARC has downgraded its rating on MNRB Holdings Berhad’s (MNRB) RM200 million Islamic Medium Term Notes (IMTNs) to A+IS from AA-IS. The outlook is stable. The rating action reflects weakened holding company level financial metrics following two consecutive years of losses for the financial years ending March 31, 2010 (FY2010) and FY2011, and thin cash flow coverage measures. The lowered rating also incorporates MNRB’s reliance on externally provided liquidity to address the forthcoming December 2012 notes maturity. The losses, due largely to lower dividends upstreamed to the holding company by principal reinsurance subsidiary Malaysian Reinsurance Berhad (Malaysian Re), had reduced MNRB’s shareholders’ funds, exerting upward pressure on the holding company’s double leverage ratio. The ability of MNRB’s operating subsidiaries to upstream higher dividends, meanwhile, continues to be inhibited by the need for Malaysian Re to maintain a larger capital buffer under a risk-based capital (RBC) regime as well as the still modest profits generated by MNRB’s operating subsidiaries relative to Malaysian Re.

The stable outlook on the rating reflects adequate mitigation of refinancing risk associated with the notes which are due in their entirety on December 10, 2012 and acknowledges the flexibility which MNRB has with regard to selling down of its stake in Takaful IKHLAS Sdn Bhd (Takaful IKHLAS) to pare down debt.

As in previous years, Malaysian Re continues to dominate the group both in terms of assets and earnings. Malaysian Re remains the main contributor of the group’s earnings, accounting for 85% of the group’s total revenue in FY2011. It contributed RM180.0 million of the reinsurance segment’s operating profit in FY2011, higher than the group’s RM158.1 million consolidated operating profit before incorporating its share of associate’s results. The reinsurer continues to maintain a leadership position in the domestic reinsurance market with a market share of over 50% of net reinsurance premiums. Malaysian Re continues to derive over 70% of its premium volume from its home market, of which voluntary cessions continue to be a key component, while growing its presence in the overseas reinsurance market. The reinsurer continues to maintain a solid financial profile that is characterised by strong risk- adjusted capitalisation, conservative investment risk tolerance and, favourable underwriting and operating profitability despite the inherent earnings volatility in certain business lines with high exposure to natural catastrophes.

MNRB’s other operating subsidiaries include Takaful IKHLAS, an eight-year-old takaful operator which has seen fairly strong growth in its family takaful business since its inception. The growth and expansion of the takaful business has necessitated significant capital support from MNRB and increased debt leverage at the holding company as a consequence. The takaful operator does not contribute enough profitability as yet to offset the capital support-related pressure on the holding company’s financial profile. During the six months to September 30, 2011 (1HFY2012), MNRB had injected RM100 million of new equity capital into Takaful IKHLAS in preparation for the upcoming implementation of the takaful RBC framework in 2012. MNRB has the option to sell down its equity holdings in the takaful operator to a strategic business partner, although the timing remains uncertain. MARC believes that the sell-down strategy could hold the key to securing a more immediate improvement in the holding company’s credit profile and adapting to a more challenging competitive landscape ahead for takaful operators.

The group recorded lower net earned premiums of RM482.1 million for 1HFY2012 compared to RM505.8 million for the preceding year’s corresponding period mostly on account of a higher amount of premiums ceded to reinsurers. The high number of weather-related natural catastrophes in Asia during the calendar year 2011 and a corresponding sharp increase in insurance claims are expected to lower full year profitability for FY2012. The group posted a net loss of RM5.9 million for the three months to September 30, 2011 (2QFY2012) on account of higher claims incurred at Malaysian Re; its cumulative net profit for the 1HFY2012 of RM37.0 million was 21.9% lower compared to the preceding year’s corresponding period.

Notwithstanding the observed volatility in year-to-year underwriting profitability, MARC expects Malaysian Re to continue to sustain a satisfactory underwriting performance by maintaining its disciplined approach to underwriting and an adequate retrocession programme. The rating agency acknowledges that in the short term, slower global and domestic economic growth and excess reinsurance capacity could weigh on the reinsurer’s earnings.

At company level, MNRB posted a smaller net loss of RM14.8 million in FY2011 (FY2010: RM59.6 million) and registered a 49.5% increase in its revenue as a result of higher dividend received of RM15.1 million (FY2010: RM10.2 million) and higher management fees charged to its operating subsidiaries. The dividend income was sufficient to fund profit payment on the holding company’s IMTNs. MNRB had modest cash and bank balance of RM75,000 as at end-March 2011. MNRB’s double leverage ratio remained elevated at 129% (FY2010:127%). With regard to the forthcoming December 2012 notes maturity, MARC derives comfort from the holding company’s favourable access to bank financing. The holding company has indicated that it will be refinancing the IMTNs with new term financing and is currently evaluating the refinancing offers obtained from several financial institutions.

The stable outlook reflects expectations that the maturing notes will be refinanced in an orderly manner and that MNRB will manage growth of its operating subsidiaries in the next 12 months such that additional pressure on holding company leverage is mitigated.

Contacts:
Lim Mei Ching, +603-2082 2267/ meiching@marc.com.my;
Milly Leong, +603-2082 2275/ milly@marc.com.my.

RAM Ratings reaffirms AAA(s) rating of LKPP's Islamic debt securities

Published on 30 December 2011

RAM Ratings has reaffirmed the AAA(s) rating of Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang’s (“LKPP” or “the Group”) RM300 million Bai’ Bithaman Ajil Islamic Debt Securities (2005/2015) (“BaIDS”); the long-term rating has a stable outlook. The enhanced rating reflects the unconditional and irrevocable guarantee extended by the State Government of Pahang (“the State”), with approval from the Federal Government of Malaysia. The guarantee enhances the credit profile of the BaIDS beyond LKPP’s inherent or stand-alone credit risk.

LKPP is a state-owned entity; its operations can be broadly divided into 2 segments, social and commercial. Under the commercial division, its main focus is on the development of the agricultural sector in Pahang. The Group is mainly involved in oil-palm plantations, accounting for 96% of its revenue. The Group held 42,438 hectares of oil-palm plantations as at end-June 2011. Under the social division, LKPP is responsible for improving the living standards of the rural community by providing good infrastructure for the development of agricultural activities, and the implementation of various programmes for the development of entrepreneurs in rural areas.

“Excluding the guarantee, LKPP’s fundamentals are supported by its healthy tree-maturity profile which underpins the production of fresh fruit bunches (approximately 68% of its palm trees are in the high-yielding ”prime” and ”young” brackets), strong balance sheet position and healthy debt protection measures,” notes Shahina Azura Halip, RAM Ratings’ Head of Real Estate and Construction Ratings. The Group reported a net-cash position as at end-December 2010 while its funds from operations debt coverage ratio came up to 1.01 times.

On the other hand, LKPP’s credit fundamentals are moderated by its need to balance its social obligations with its commercial agenda, by fostering the development of rural settlers. The Group’s cost structure also remains rather steep compared to its peers. In addition, LKPP’s financials hinge on the performance of crude palm oil, which is characterised by volatile price swings as a result of industry cyclicality and speculative elements.

Media contact
Yong Keck Phin
(603) 7628 1183
keckphin@ram.com.my

WEEKLY ECONOMIC COMMENTARY, 02 JANUARY 2012 (BY DIFC)

(By DIFC): Global Stock markets ended the year on a low note - posting their first annual loss since 2008, with emerging markets also closing lower: MSCI’s Asia Pacific Index declined almost 18% in 2011, after closing on a slightly positive note in the last week. Regional markets were hit by lower volumes and liquidity towards the end of the year, with little to cheer given the still ongoing regional turmoil. The euro hit a historic 10-year low against the yen and recorded a 15-month low against the dollar, also closing as the worst performing currency in the year 2011, while the Renminbi was the best performing currency.