NEWHORIZON

NEWHORIZON April to June 2013
SUKUK UPDATE
IILM Close to Issuing First Sukuk
After falling at the final hurdle twice the
International Islamic Liquidity Management
Corporation (IILM) is very close to issuing
its first sukuk according to the governor of
Malaysia’s central bank, Zeti Akhtar Aziz. The
problems in the past have been making sure
that any sukuk complies with the laws of all 12
member countries. In mid March she said that an
announcement would be forthcoming ‘in the near
term’. It has been suggested the sukuk will be
worth between $300million and $500 million.
The IILM face a tricky task in getting the terms
of the sukuk right. To fulfil their aim of boosting
short-term liquidity in the Islamic finance industry
the offer needs to be sufficiently attractive to
encourage investors, but at the same time not so
attractive that these investors buy to hold.
Dubai Sees Strong Sukuk Activity
The UAE’s Emirates airline $1 billion sukuk was
three times oversubscribed when it listed in mid-
March on the Nasdaq Dubai exchange. Investors
were mainly from the MENA region (85%) with
7% from Europe, 5% from South East Asia and
3% from the US. This followed another $1 billion
sukuk from the Dubai Electricity and Water
Authority (DEWA) in early March. A further $1
billion sukuk expected to list in Dubai in the near
future is from the Dubai Islamic Bank, with sukuk
of the same size expected from the Etisalat Sukuk
Company and Al Hilal Bank later this year. This
activity will no doubt please Nasdaq Dubai, which
has stated its intention to become the largest
exchange in the world for sukuk by listed value.
Qatar to Issue Regular Sukuk
In March Qatar’s central bank announced that it
would be be selling quarterly bonds and sukuk.
The three and five year instruments will have a
value of QR4 billion ($1.1 billion). The division
between bonds and suluk will be QR3 billion of
the former and QR1 billion of the latter. The
sale is designed to help banks meet Basel III
capital requirements. It is also hoped that it will
help Qatar develop a yield curve to allow Qatari
companies to borrow at a lower cost.
Second Project Finance Sukuk in Saudi
Arabia
The Sadara Chemical Company (a joint venture
between Saudi Aramco and Dow Chemicals) has
raised 7.5 billion riyals from the sale of
16 - year sukuk to fund the construction of a
major petrochemical facility at Jubail. The original
target of 5.25 billion riyals was increased due to
very strong demand from Saudi investors. The
amount raised was double the 3.75 billion riyals
raised by Saudi Arabia’s first project finance sukuk
in late 2011.
Morocco and Tunisia Contemplate Sukuk
Issuance
Both Morocco and Tunisia have said that they may
issue sukuk in mid 2013 to address budget deficits.
Morocco has not yet decided whether they will
raise money through a conventional bond or a
sukuk. A decision is expected in July. Tunisia’s
plans appear to be more definite. They say they
will issue a sovereign sukuk to raise $700 million
dollars in July.
Sharjah Islamic Bank’s Sukuk Six Times
Oversubscribed
Sharjah Islamic Bank’s (SIB) $500 million, five-year
sukuk was six times oversubscribed when it listed
in mid April. Investors came from the MENA
region (53%), Asia (30%) and Europe (17%). It
lifted the total value of sukuk listed on the Dubai
Exchange to $12.125 billion, the third largest total
in the world. This initial issue from SIB is part of
a $1.5 billion programme.
Insurance Policy for Sovereign Sukuk
The Islamic Corporation for Insurance of
Investment and Export Credit (ICIEC) an arm of
the Saudi-based Islamic Development Bank (IDB)
has announced the Sovereign Sukuk Insurance
Policy, which will become available later in 2013.
This instrument will provide protection to sukuk
investors in the event of a default on sovereign
sukuk issued by any IDB member country. Initially
the policy will cover ijarah sukuk and later roll out
to include other forms of sukuk. The objective
is to help promote infrastructure development,
particularly in those countries which are rated
below investment grade or have no rating, by
encouraging international banks and investors to
participate in such sukuk offerings.
QIB Launch International Sukuk Portfolio
QIB’s International Sukuk Portfolio launched in
April 2013 aims to introduce a broader range of
investors to what it describes as the long-neglected
sukuk class of investments. The portfolio will
invest in sovereign, quasi-sovereign and corporate
sukuk and will be managed by a team from QIB
UK, which has considerable experience
in asset management. (QIB UK currently
manages one of the largest sukuk funds with
$220 million in assets under management,
delivering 30% returns consistently since
it was launched in 2009.) The Fund will
concentrate on income with some capital
appreciation.
Innovative Sukuk in Turkey
International legal practice Norton Rose
has advised Türkiye Finans on their debut
sukuk issuance of US$500 million, the first
non-ijarah sukuk issued out of the country.
Alex Roussos, Of counsel, commented, ‘This
was a complex transaction as we had to fully
explore the capital markets and tax regimes
in Turkey and its implications for our client.
The sukuk involved a hybrid structure using
a pool of lease assets combined with a series
of murabaha trades. This transaction paves
the way for hybrid, innovative structures in
the Turkish marketplace, which is further
evidence of the growing sophistication of
that jurisdiction and the very vibrant and
dynamic nature of market participants there.’
The five-year sukuk was 3.8 times
oversubscribed. The majority of investors
(51%) came from the Middle East with 17%
from continental Europe, 15% from the
United Kingdom and 17% from the Far East.
Osun State Expected to Issue Nigeria’s
First Sukuk
In June Reuters reported that Nigeria’s Osun
State, a centre of cocoa production, plans to
issue Nigeria’s first sukuk, starting with 10
billion naira ($62 million) before the end of
July. The planned seven year paper is part of
a 60 billion naira debt raising programme by
Osun State and will be used to finance the
construction of educational facilities.
The ijara sukuk will be issued through a
book-building process and will pay returns
on a twice-yearly basis. It will target both
local pension funds and international
investors. In June Osun State was awaiting
approval from the Securities and Exchange
Commission (SEC) approval to start
marketing the bond. (In March, Nigeria’s
SEC approved new rules allowing firms
to issue Islamic bonds, a move aimed at
attracting Middle Eastern investors.) The
note will be listed on the Nigerian Stock
Exchange.
www.islamic-banking.com IIBI 11