Sukuk & Capital Market - Islamic Finance News

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feature Short-term Sukuk could serve as money market instruments for liquidity management purposes. Malaysia and Bahrain are the only Muslim countries that have developed an active interbank market. Since 2001, the Central Bank of Bahrain has issued short-term Sukuk of either three- or six-month maturities (in addition to medium- and long-term notes). In the GCC, 20% over-subscription for these Sukuk indicates the substantial demand for a Shariah compliant interbank market. In Malaysia, similar considerations apply to Government Investment Issues (GII) and Bank Negara Malaysia Negotiable Notes (BNNN). Alternatively, banks can resort to asset securitization in order to transform the proceeds from Islamic contracts into customized capital market securities with variable maturities. One such transaction was completed in July 2005 by Cagamas, the National Mortgage Corporation of Malaysia, when it issued the first Islamic mortgage-based securities as Mudarabah bonds with varying returns and maturities, ranging from three to 20 years.” A silver lining to have emerged this year is the increased utilization of Sukuk for the funding of project finance and infrastructure development in Asia and the Arab world. Issuers are also beginning to look into new, previously untapped markets to access Islamic liquidity and plug the demand gap for more Shariah compliant paper linked to the real economy. An industry player based in Dubai revealed that at present, there is simply not enough Shariah compliant paper in the market to fulfil investor appetite, and that issuances from highly-rated issuers and sovereigns are still few and far between. “The outcome of this is that Islamic investors are unable to purchase enough Sukuk, and this supply and demand imbalance has caused Sukuk-holders to feel unwilling to trade out of a position for fear of not finding another Sukuk of similar credentials to invest in,” he said. A difference in opinion amongst scholars with regards to the Shariah compliance of Islamic paper and their acceptability has also been a reason for the lack of cross-border trading across jurisdictions, causing a lack of diversity amongst investors and creating a homogenous and largely domestic trading environment. Dominic Harvey, project finance partner at Vinson & Elkins, and Barry Cosgrave, finance associate at the same firm wrote in a paper: “Barriers to secondary market trading are not the result of a lack of effective valuation alone; there are also other considerations relating to differences of opinion among scholars as to the acceptability or not of certain structures. It is possible that certain investors shy away from secondary market trading because of a lack of clarity as to the acceptability or not of the transaction structure employed. Were a scholar to rule against a particular structure, and a secondary market trade to be sought to be unwound, it would cause huge complications both on a practical level and from the point of view of market reaction.” A lack of mark to market (MTM) valuations for Sukuk, which became apparent over the last few years as a result of the restructuring activities in the Middle East has also impacted the Islamic secondary market. Harvey and Cosgrave wrote: “As balance sheets became distressed over the past few years and options to restructure were being explored, one of the factors that caught a number of restructuring advisors from conventional markets off guard was this lack of MTM valuation. This led to difficult conversations with certain creditors when ‘hair cuts’ were being discussed. A lack of MTM valuation also impacts secondary markets as it does not establish any sort of profit-making opportunity for traders. Without effective valuation of Sukuk there is no way to establish a market and as a result trading does not happen.” The growth of the Islamic secondary market requires a collective effort amongst all the stakeholders of the Islamic finance industry; from central banks propagating high-quality short-term paper and encouraging the growth of the inter-bank money market, bourses working to encourage trading through Shariah compliant trading platforms, standardization and agreement amongst scholars to create universally accepted papers to increase investor diversity on a global scale, and the creation of effective risk management tools to engage the consulting www.IslamicFinanceConsulting.com www.IslamicFinanceEvents.com otherwise risk-averse Islamic investor. www.IslamicFinanceNews.com www.IslamicFinanceTraining.com www.MIFmonthly.com www.MIFtraining.com 16 www.REDmoneyBooks.com November 2012 www.MIFforum.com
IFN FORUMS 2013 The most recognized brand in the Islamic finance events sector, the IFN Forum, returns in 2013 with an extended agenda. In addition to the 8 th IFN Asia, the 3 rd IFN Europe, the 2 nd IFN Indonesia, and the 2 nd IFN Saudi Arabia – in 2013 we will host the inaugural IFN Africa Forum. • IFN Indonesia Forum 15 th & 16 th April • IFN Europe Forum 21 st & 22 nd May • IFN Africa Forum 27 th & 28 th June • IFN Asia Forum 21 st & 22 nd October • IFN Saudi Arabia Forum 18 th & 19 th November The renowned ‘Issuers & Investors’ format will again feature at all IFN Forums ensuring both buy-side and sell-side are fully incorporated in these two day events. With complimentary delegate passes for all issuers, investors, regulators and other senior and relevant key practitioners, the IFN Forum series provides you with opportunities no other events can. Through a series of exclusive regulatory and country presentations, practitioner-led roundtable discussions, non-debatable power presentations, original case studies and sector focused side sessions; the IFN Forums in 2013 will again be the key, must-attend industry events for issuers, investors, regulators and all financial intermediaries involved in the Islamic financial markets with any interest in tapping the Islamic markets. www.REDmoneyevents.com
Page 1: November 2012 Sukuk & Capital Marke
Page 4: contents feature COVER STORY 4 Suku
Page 7 and 8: Cover story From a foreign issuer
Page 9 and 10: ASEAN RAtiNg ScAlE UNlEAShEd: locAl
Page 11 and 12: interview What the market needs, Af
Page 13 and 14: feature Islamic Private Equity and
Page 15 and 16: chapter A Bright Path Ahead The out
Page 17: feature Secondary Markets Stalemate
Page 21 and 22: chapter Global Sukuk makes a high q
Page 23 and 24: chapter Profile CIMB-Principal Isla
Page 25: chapter In a bid to create an effec
Page 28 and 29: feature Investment preferences amon
Page 30 and 31: chapter of the companies involved w

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