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has added a new journalKhazanah Sells $750 Million of Exchangeable Bonds
By David Yong and Chan Tien Hin
Sept. 28 (Bloomberg) -- Khazanah Nasional Bhd. raised $750 million selling Southeast Asia's biggest Islamic convertible bond, allowing holders to exchange them into shares of Telekom Malaysia Bhd., the nation's No. 1 telephone company.
Khazanah, Malaysia's state investment arm, sold an additional $250 million, after initially offering to sell $500 million of the five-year convertible bonds, Khazanah said in an e-mailed statement today. The sale is for working capital at Khazanah, which owns about 40 percent of Telekom.
``We have set a new benchmark as the largest exchangeable instrument to be issued out of Asia ex-Japan in the year to date and the largest ever out of Malaysia,'' Khazanah Managing Director Azman Mokhtar said. The sale is also part of a plan to ``divest progressively stakes in our core holdings to increase market liquidity in an orderly fashion,'' he said.
The sale is Malaysia's first dollar-denominated equity- linked transaction that complies with Shariah law, the Islamic legal code that bans payment of interest and prohibits investment in tobacco, alcohol and gambling businesses. Khazanah last sold $414.5 million of five-year conventional bonds in December 2004, convertible into shares of PLUS Expressways Bhd., the country's biggest toll-road operator.
Malaysia, where about 60 percent of the 27 million people are Muslim, is positioning itself as an Islamic financial center to attract investors from the Middle East. The country is the world's biggest issuer of Islamic debt ahead of Bahrain. A record $8.8 billion of Islamic bonds have been sold worldwide so far this year, surpassing the $7.6 billion in 2005, according to data compiled by Bloomberg.
`Overwhelming Response'
Khazanah's bond sale attracted six times the amount initially offered, reflecting investors' ``overwhelming response,'' the statement said.
Companies in the Middle East have sold convertible Islamic bonds, including Abu Dhabi, United Arab Emirates-based Aabar Petroleum Investment Co.'s sale of $460 million of debt in June.
The new bonds, which will pay investors a coupon rate of 1.25 percent annually and yield 5.07 percent if held to maturity, will be convertible into shares of Telekom currently held by Khazanah at a 19 percent premium over the one-day volume weighted average price of Telekom shares on Sept. 27.
CIMB Bhd., HSBC Holdings Plc and UBS AG arranged the sale, following presentation to investors in the Middle East, including Kuwait and Saudi Arabia, on Sept. 19 and 20.
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur at [email protected] ; David Yong in Kuala Lumpur at [email protected] ; Shanthy Nambiar in Bangkok at
Ahara
Dear Mr.Chan Tien Hin, I would like to know whether possible to arrange a Loan from you. I am from Maldives, My mail ID is:
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has added a new journalAmid rapid growth, Sharia-compliant banks are looking to expand beyond their traditional markets
After more than three decades of modern Islamic finance, the industry's build-up continues at a rapid pace. Double-digit growth rates for assets compliant with Sharia?Islamic law based on the Koran?over the past decade, have naturally driven Islamic financiers to look beyond historical boundaries to explore new territories, both within and outside the Arab world.
In response to the increasing competitive pressure stemming from the entrance of new players into the market, existing Islamic banks have started to leverage their natural competitive advantages, which include customer loyalty, sensitivity to religious practices, and a stable base of cheap deposits.
Potential Market
Even conventional banks have moved to open Islamic branches, create Sharia-compliant subsidiaries, or undergo complete conversions to become fully Sharia compliant. The retail market, the key profit driver of banking in the Gulf, is attracted by what Islamic banking can offer.
The size of global Sharia-compliant assets is estimated today at up to $400 billion, whereas Standard & Poor's Ratings Services believes the potential market for Islamic financial services to be closer to $4 trillion, meaning that Islamic finance currently has only a 10% market share among the Muslim community globally and still has a long way to go.
Islamic banks in the Gulf have displayed, and should continue to show, strong profitability, so long as oil revenues pour into the Gulf economies, maintaining economic momentum through a powerful multiplier effect. It is important, however, that the Islamic banking industry does not become complacent.
Growth in Compliant Notes
A number of issues must be tackled, among which size and concentration risks are two of the most important. And the realization of a common conceptual framework that unites the approaches of the two historical centers of Islamic banking?the Gulf and Southeast Asia?would go a long way to enabling the Islamic banking industry to expand and diversify.
The market for Sharia-compliant notes, also known as sukuks, is set to expand rapidly. Standard & Poor's currently rates more than $5 billion of the $10 billion market for listed sukuk, which is expected to grow to more than $20 billion by the end of the decade. In the Gulf, investing in sukuk has become part of mainstream asset allocation and diversification, with Islamic banks in particular seeing these instruments as an important tool in managing their assets and liabilities, and recycling liquidity.
Islamic finance is currently being expanded beyond its historical borders of the Gulf region, where it began to emerge domestically in the 1970s as a result of the oil boom. Other Arab and non-Arab Muslim countries, particularly in Asia, are increasingly attracted by the principles of Islamic finance.
New Horizons
For the first time in the industry's history, several Islamic banks headquartered in the Gulf have recently set up business operations in Malaysia, while making clear that on their radar screens are Indonesia and China?large and deep markets only a short hop away from the Malaysian platform.
New horizons are also emerging for Islamic finance within the Arab universe: Lebanon, Syria, Egypt, Turkey, and, to a lesser extent, North Africa, have been identified as potential engines for unlocking franchise value.
Beyond the natural borders of the Muslim world, the advanced markets of both Europe and the U.S. promise niche segments in which Islamic finance can profitably gain momentum, as shown by the financial community's bullish welcoming of both the Islamic Bank of Britain and its investment banking counterpart, the European Islamic Investment Bank. This is internationalization, but not yet globalization, to which some challenges remain.
Business Model Shake-Up
The current market positions of existing Islamic banks are subject to significant competitive pressure. Although "historical" Islamic financial institutions?such as Al Rajhi Bank (S& P credit rating, A), Kuwait Finance House (A-), Albaraka Banking Group (not rated), and Dubai Islamic Bank (A)?still have bright prospects within their own marketplaces, new entrants are looming.
Sharia-compliant investment banks such as Gulf Finance House (BBB-), Arcapita Bank (not rated), and Unicorn Investment Bank (not rated), are shaking the old rules of Islamic finance with more aggressive (and so far, very successful) business models.
Plus, new heavyweight contenders are making their debuts, pushed by the proactive ambitions of Gulf entrepreneurs and governments: Al Rayyan Bank, Al Masref, Boubyan Bank, and Bank Albilad are examples of institutions that could reshape the entire industry, given the relatively large size of their capital bases, by regional standards, and very focused strategies.
The Radical Approach
Even deeply entrenched conventional financial institutions have found it relevant, if not necessary, to make inroads into the promising territory of Islamic finance, although strategic approaches vary. Some have opted for the route of opening Islamic branches (particularly in Saudi Arabia and Qatar), some for creating fully fledged Sharia-compliant subsidiaries (like Emirates Bank International (A) and Mashreqbank (BBBpi), and others) for complete conversion to Sharia compliancy.
This last alternative?taken up by Sharjah Islamic Bank (BBB), Kuwait Real Estate Bank (not rated), Emirates Islamic Bank (not rated), and Dubai Bank (not rated)?is the most radical, and has so far been the strategy of choice for smaller entities that have found themselves with their backs against the wall and faced with the alternatives of merge, specialize, or disappear. While the first option is obviously difficult, the second, specialization, is a challenging opportunity.
The Islamic identity tends to provide a bank with an immediate and true element of differentiation, which helps in building barriers to entry at a time when domestic, regional, and foreign competition in the Gulf is becoming more intense by the day.
Long Journey Ahead
It is difficult for a conventional competitor to replicate the natural reputation an Islamic financial institution has with retail clients, who are far more sensitive to religious considerations than are corporations, which care more about service and price. This intangible but powerful asset bodes extremely well, as the key profit driver of Gulf banking today is the retail market, which displays the most attractive risk-return trade-off.
Islamic banks should not rest on their laurels, however, as they still have a long journey ahead to build stronger recognition, longer track records, and greater scale. Otherwise, they run the risk of being ghettoized amid increasingly globalized financial markets, at the expense of 30 years of progress. To keep on track, they must tackle certain issues.
Size is a serious a matter as are concentration risks. Even the largest Islamic banks remain small by international standards, and their portfolios continue to focus on a limited number of asset classes and market segments.
Improvement with Interaction
Consolidation within the Islamic finance industry does not seem to be on the horizon, while the two historical centers of Islamic banking?the Gulf and Southeast Asia?have just started actively talking to each other. Intellectual competition and differing interpretations of the fundamental rules of Islamic finance have so far kept these two universes apart.
Greater interaction between them could eventually contribute to the emergence of a common conceptual framework for Islamic finance. This in turn could translate into improved accounting, governance, transparency, and management practices at Islamic banks?the sine qua non for their global aspirations.
Institutions such as the Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI), the Islamic Financial Services Board (IFSB), and the Islamic Development Bank (IDB; AAA/Stable/A-1+) would certainly be instrumental in achieving these goals. Ultimately, however, the marketplace itself, including all stakeholders of the Islamic banking community, should take responsibility for the sustainability of a business model that is about to come of age.
Standard & Poor's ratings analysts Anouar Hassoune and Emmanuel Volland contributed to this report
www.businessweek.com
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has added a new journalBy JOSHUA FREED, AP Business Writer Thu Oct 12, 4:43 PM ET
MINNEAPOLIS - When Caribou Coffee went public last year, sharp-eyed investors noticed some unusual promises in its prospectus. Caribou, the nation's second-largest coffeehouse chain, said it would never sell pork or porn. It wouldn't charge or receive interest, either.
By following financial rules that are part of the Islamic code called Shariah, Caribou is among a small but growing list of Western businesses looking to make themselves as attractive as possible to Muslim investors. Some, like Caribou, are motivated by principle, while others see Muslim investors as an attractive new source of money.
Middle Eastern investors flush with oil profits are looking for new places to invest, and American Muslims are looking to invest in a way that doesn't conflict with their faith.
"There's a bunch of Islamic investors who are prohibited from a lot of regular investments, so a lot of money is sitting in cash not earning anything at all," said Khalid Howladar, a vice president for Middle Eastern and Islamic Structured Finance with Moody's Investors Service in London.
Companies and governments who need to raise money are saying, "'There's a bunch of people out there with money they can't spend ? how about I create something for them?'" he added.
Dow Jones has created an Islamic investing index. A Texas company issued almost $166 million in Shariah-compliant bonds to finance natural gas operations in the Gulf of Mexico. And the German state of Saxony-Anhalt issued a floating-rate 100-million euro note ? managed by Citigroup ? that followed Shariah rules.
Assets invested at two Shariah-compliant funds run by Saturna Capital in Bellingham, Wash. have swelled nearly 10-fold, since 2002 from $34 million in 2002 to $331 million now ? though that's still tiny by mutual fund standards. The funds invest only in companies that are Shariah-compliant.
Islamic financial rules come from passages in the Quran that prohibit "riba" ? making money from money. Generally, that means not paying or collecting interest, though some scholars say only abusively high interest rates are prohibited. Other prohibitions are more moral than financial, such as a ban on selling pork.
While many Muslims have invested conventionally in the West for years, some did so because they had few alternatives.
Moazzam Ahmed, a software engineer from Carrollton, Texas, has no car loans. Credit-card charges go on a zero-percent card or get paid off at the end of every month. And he's got a home mortgage that is a lease-buyback arrangement, rather than an interest-bearing loan, a frequent arrangement among Muslims looking to buy homes while obeying Shariah.
But he fretted about his conventional retirement investments until four years ago, when he discovered the Saturna funds.
"As soon as I found out about it I switched everything to it," he said. "I would have loved to do it from Day One, but it wasn't available, or at least I didn't know about it," he said. He said his returns have been as good as, or better than, more conventional investments he could have made.
Estimates of the number of Muslims in the United States vary from two million to six million.
Eric Meyer, who runs a Connecticut-based hedge fund called Shariah Capital, says Western banks and financial institutions need to have Shariah-compliant products or risk losing market share.
"There is a younger generation of Muslims who grew up during the last 20 to 30 years that have a reawakened sense of nationalism and religious pride that motivates them to invest according to their faith," he said.
But in Western finance, it takes some creativity to avoid earning or paying interest.
To borrow money, Shariah-compliant companies often pledge the lender a share of the profits from an asset instead of interest. Investors who need to earn a shorter-term return can contract to buy, say, $100 of copper today, and simultaneously pledge to sell copper in 90 days for, say, $103.
Caribou Coffee Company Inc., for instance, has a revolving line of credit. But instead of paying interest, it sells assets and then pays to lease them back.
"It's fair to say we do things a little differently," said Charles Ogburn, Global Head of Corporate Investment at the firm that controls a majority of Caribou stock, Bahrain-based Arcapita Bank B.S.C.
Ogburn said when he joined Arcapita five years ago, there were perhaps two or three U.S. banks who had done those kinds of loans. Now it's more like 25 or 30.
Many companies follow Shariah without even trying.
To build its index, Dow Jones in 1999 hired six Shariah scholars to set standards to screen companies. Out of 5,000, Dow Jones found 1,800 that met its standards, including drugmakers Merck & Co. and Pfizer Inc., BP PLC, Microsoft Corp., Hewlett-Packard Co., and IBM Corp.
"I don't think that many of them know about Shariah-compliant investing, frankly speaking," said Rushdi Siddiqui, Dow Jones' director of Islamic market indexes.
Dow Jones now has over 60 Islamic indexes that track Shariah-compliant stocks and bonds. Siddiqui said about 30 firms have licensed the indexes, and about $5.5 billion in investments are managed in line with the indexes.
The indexes are not as strict as some might prefer. The Dow Jones indexes include companies with debt that's as much as one-third of their market capitalization, and allows companies that generate some interest.
In fact, the wide range of what counts as Shariah-compliant can be frustrating for businesses that want to raise money that way. Investment firms retain councils of Islamic scholars who determine whether a transaction complies with their interpretation of the rules, adding an extra layer of complexity to already complicated deals.
But some investors appreciate companies willing to do so.
Shirin Elkoshairi, who works for a technology company and lives in Ashland, Va., said he is getting ready to switch his investments over to a Shariah-compliant mutual fund. He already has a Shariah-compliant mortgage.
"At the end of the day, you know you're living in a house and you can actually put your head down at night and not feel bad for going against Islamic shariah," he said.
___
On the Net:
Arcapita Bank B.S.C.: www.arcapita.com
Liquidity Management Centre: www.lmcbahrain.com
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has added a new journalIslamic Finance & Banking Terms
Deposit Banking
Al-Wadiah Yad Dhamanah
It refers to guarantee safe custody where the repayment of the whole amount of deposits, or any part thereof, upon your request for your deposits under the Wadiah concept.
Current Account
Savings Account
Investment Account
Al-Mudharabah Contract
It refers to Trustee Profit Sharing between two parties, a capital provider and entreprenuer, to undertake investment activities for profitable returns. The profit-sharing ratio is agreed upon before hand. Any capital losses shall be borne solely by the capital provider.
General Investment Account
Corporate Finance
Bai Bithaman Ajil Contract
It refers to deferred payment sales where the goods is sold on a deferred payment basis. The sale price includes profit margin as agreed to by both the buyer and seller.
Term Financing
Cash Line
Equipment Financing
Ijarah Contract
It refers to lease agreement where the Bank lease fixed assets to customers.
Leasing
Al-Ijarah Thumma Al Bai Contract
It means hire or lease and to be followed by sale contract. There are two contracts to be undertaken, ie. Al-Ijarah (hire) contract and Al-Bai (Sale) contract.
Industrial Hire Purchase
Corporate Financing under Bai Al-Istina & Ijarah Muntahiah Bi-Tamlik
Bai Al-Istina and Ijarah Muntahiah Bi Tamlik are some of the contracts used by our corporate financing in offering financing to customers. The former refers the sale by order whereby Bank will finance customers who wish to acquire assets being constructed and to defer payment for the asset for a specific period, or to pay by instalments. The later refers to the Bank purchasing the asset as required by the customer and subsequently leased the asset to the customer on terms and conditions as agreed by booth parties. At the end of the lease period the customer will purchase the asset from Bank at its residual.
Syndicated Financing & Corporate Financing
Bai Murabaha (Cost Plus Sale)
It refers to cost plus sale whereby the Bank finance the goods selected by the customer by purchases the goods from the manufacturer and sell to the customer on deferred terms by adding the Bank's cost and margin.
Accepted Bills
Wakalah (Agency)
It refers to guarantee payment to the beneficiary in the event of customer's non-performance of contract with beneficiary
Letter Credit
Kafalah (Commission)
It refers to agency whereby the bank provides services to customer by assisting customers in import/export trade settlements.
Bank Guarantee & Shipping Guarantee
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has added a new journalMalaysia encourages Islamic finance growth
By Farhan Bokhari in Kuala Lumpur
Published: September 14 2006 22:00 | Last updated: September 14 2006 22:00
The Malaysian central bank wants foreign institutions to significantly boost their presence in the country?s Islamic finance industry after the release of incentives it claims are a big step forward for the industry.
Bank Negara Malaysia, the central bank, invited foreign and Malaysian financial institutions to seek licences for new Islamic commercial and investment banks and is offering tax breaks to encourage developments in banking, insurance and fund management.
Western bankers said the announcement yesterday could have far reaching consequences for turning round Malaysia?s Islamic finance sector from catering primarily to pious muslims at home, to attracting overseas customers.
Western bankers also said that the moves were partly aimed at oil wealth in the Middle East searching for investment opportunities.
New Islamic banks with international dealings based in the country were granted a 10-year tax holiday in Malaysia?s budget this year, this has been extended to fund managers.
A senior BNM official said the central bank was determined to make the Islamic banking and financial sector more competitive in the global market.
The concept of Islamic banking and finance is driven by tenets of shariah law, which ban interest payments and refuse exposure to businesses considered vices in Islam such as pork, gambling and alcohol.
Malaysia is widely acknowledged as having the most developed Islamic banking and finance products such as Islamic insurance, known as takaful, and equity investments.
But since 1983, when the concept began to take root, Islamic banks with assets of M$117bn ($32bn) have secured only a 12 per cent share of the country?s banking industry.
?The gap now is the international part of the business. Our Islamic banks are too domestic,? Dato? Mohammad Razik Abd Kadir, deputy governor of BNM, told the Financial Times yesterday.
He said the new incentives for foreign investors were a ?ground breaking initiative to raise this to international levels?.
& #9632;This week, a leading derivatives industry association signed an agreement with a leading Islamic finance body to develop standards for shariah-compliant derivatives.
The International Swaps and Derivatives Association and the International Islamic Financial Market want their agreement to be accepted by shariah advisers and to become a standard document used for shariah compliant privately negotiated derivatives in Gulf Cooperative Council member states and beyond.