Islamic funds going cross border with UCITs (Undertakings for Collective Investment in Transferable Securities)

Kuala Lumpur-based CIMB-Principal Islamic Asset Management (CIMB-Principal Islamic), a joint venture between the CIMB Group and Principal Global Investors (PGI), has set the stage for other Islamic fund managers in their bids to penetrate the overseas markets.

Its three UCITS-compliant Islamic equity funds – which it launched early this year and which invest in global emerging markets, the Asia-Pacific ex Japan and the Asean region, respectively – are designed for cross-border distribution within Asia.  

Demonstrating UCITS’ potential

They came after the Central Bank of Ireland, via a memorandum of understanding between itself and the Securities Commission Malaysia on November 4 2011, approved the establishment of the Dublin-based CIMB-Principal Islamic Asset Management (Ireland) Public Limited, a joint venture specifically designed to distribute Islamic UCITS funds globally. 

While the UCITS platform has been used to market Islamic funds to European investors, this is the first time it is being done in Europe. In a way, CIMB-Principal Islamic is paving the way for other fund managers to use this platform to market Islamic funds globally.

“We have opened the door for other Malaysia-based fund managers to establish a UCITS platform in Ireland,” says Datuk Noripah Kamso, chief executive of CIMB-Principal Islamic. “The UCITS funds were established to develop a visible performance track record and make it easier for global investors to place their money with CIMB-Principal Islamic. These funds are recognized beyond Europe and meet the needs of institutional and retail investors from many jurisdictions. This is an important step in the development of Malaysia as a centre for Islamic fund management.”

Targeting private banking clients

CIMB-Principal Islamic has been building their overseas networks for marketing Islamic funds.

It has launched marketing activities to Muslim investors in Germany where, Noripah says, there are 4.1 million Muslims, the bulk of them of Turkish descent.

Noripah shares that CIMB-Principal Islamic is dynamically marketing Shariah funds to private-banking clients based in Geneva as an alternative investment for diversification and risk management.

“The private bankers in Geneva that are serving Middle-Eastern investors have shown a keen interest. Following the Arab spring, they are pushed to understand what is being offered as an underlying in the whole story of Islamic investments, because there has been a flight to safety from GCC countries to Geneva and London,” Noripah says.

With the launch of its UCITS platform, CIMB-Principal Islamic is expected to strongly market its Islamic funds to European markets. Noripah explains that CIMB-Principal Islamic has crafted a business model for each different target market for building its Islamic funds business.

First, the institutional business – direct mandates from pension funds, sovereign wealth funds, takaful and central banks. Second, the high net worth business – targeting individual investors in GCC countries and family offices and, third, a part of the mass market.

“For that third market segment, we have to come out with a global fund platform – which is why we have launched the Islamic UCITS – but we cannot sell the funds all by ourselves, we have appointed other banks and fund distributors to reach farther,” Noripah says.

If the funds are authorized in one European Union (EU) member state, it can be distributed in any other EU member state without the need for any additional authorization. UCITS-compliant funds are distributed in a large number of countries, not just in Europe, but also the Americas, the Asia-Pacific, the Middle East and Africa.

The funds will eventually be registered and distributed in seven jurisdictions: the UK, Switzerland, Germany, Saudi Arabia, the United Arab Emirates, Bahrain, and Singapore.

Having the funds on this platform means that institutional and retail investors globally will be able to see CIMB-Principal Islamic’s asset management track record. If the funds do well, not only will this attract investment into those funds but institutional investors may also appoint CIMB-Principal Islamic to manage their discretionary mandates as well.  

(The Asset / 28 August 2012)

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Malaysia reforms could aid Islamic banks in rural areas

KUALA LUMPUR/DUBAI, Aug 24 (Reuters) - Financial reforms in Malaysia could spur the growth of the country's Islamic banks by giving them more opportunity to tap into rural areas, which have a greater proportion of Muslims than urban centres. But concerns about profitability may slow the expansion.

The central bank issued new agent banking guidelines this month that expand a pilot programme allowing lenders to offer basic financial services through non-bank retail outlets.

"It will be a cost-effective channel for financial institutions to reach out to the underserved parts of the population, particularly those in rural areas," said central bank governor Zeti Akhtar Aziz.

The guidelines list 474 rural districts, or mukims, which can be serviced through the initiative; some of them have the highest proportions of Muslims in the country, and also the lowest average household incomes. This could give Islamic banking an important role in the government's efforts to expand financial services to the poorest sections of the population.

The populations of the Malaysian states of Kedah, Kelantan, Perlis and Terengganu are on average 89.3 percent Muslim, much higher than 46.4 percent for the capital Kuala Lumpur, data from the Malaysian Department of Statistics shows. Those same four states hold 40 percent of the mukims that could be reached through the new agent banking programme.

Malaysia's Islamic banks collectively held 19 percent of the country's banking assets as of June, according to central bank data.

The agent banking scheme originally started as a pilot programme in 2010 with participation from Maybank, RHB Bank and government-owned Bank Simpanan Nasional - all conventional lenders with sharia-compliant offerings. The pilot currently serves over 65 percent of the mukims identified in the guidelines, against 46 percent at the end of 2011, according to the central bank.

At present the combined network consists of 2,322 agents who have handled more than a million transactions worth over 190 million ringgit ($61 million) since the pilot began. No data is available on how many transactions were sharia-compliant.

The prospects for tapping new Muslim consumers appear healthy; RHB's Islamic business has been growing at an average rate of 20 percent compared to 8 percent for its conventional business, according to Abdul Rani Lebai Jaffar, chief executive of RHB Islamic, part of the RHB group.

PROFITABILITY

The relative poverty of some of the mukims involved in the agent banking scheme may deter banks from expanding into them aggressively, however.

Expansion will depend on whether banks choose to create separate task forces to manage larger groups of agent relationships, Jaffar said.

"We currently have a very small number of agents operating under the programme, but it has shown a positive response," he said. "For now, we are still leveraging on the bigger RHB network."

Executives at other banks said they would be cautious. "We are looking into the guidelines to see what kind of role we can play," said a senior official at Maybank, who asked not to be named under briefing rules.

"We have always striven to use all the distribution channels that are available to us, but I think we have a pretty good reach at this stage. For now it will be business as usual."

Foreign banks in Malaysia will tend to remain focused on urban areas which have proven to be more profitable, said Wasim Saifi, chief executive of Standard Chartered Saadiq, the Islamic arm of Standard Chartered Malaysia.

At present the agent scheme is outside the bank's scope of operations, but it will consider the scheme in the long term, Saifi added. "There is a lot of value in getting our distribution to reach more local areas. It would certainly be a great opportunity, and going forward it is something we will have to look at.

(Reuter / 24 August 2012)

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Malaysia leaves Singapore trailing in Islamic finance business

Singapore is struggling to make inroads into Islamic finance even as neighbouring Malaysia is on the cusp of another record-busting year.

Bankers say Singapore is hobbled by a lack of a domestic market for Islamic finance products, while Middle East investors are still US dollar-based and conservative.

The situation appeared to be improving when Malaysian sovereign wealth fund Khazanah in 2010 sold S$1.5 billion sukuks or Islamic bonds here, and Sabana, the world's largest Syariah-compliant real estate investment trust (Reit), raised S$664 million through its initial public offer.

Since then, the Islamic finance landscape here has been rather barren. The Republic appears to be missing out on one of the fastest-growing financial markets, with Islamic finance growing at an estimated 15-20 per cent per annum.

Islamic banking assets with commercial banks globally will hit US$1.1 trillion (S$1.38 trillion) in 2012, up a third from US$826 billion in 2010, according to figures from the 2011 Ernst & Young World Islamic Banking Competitiveness Report.

The government has played a role in promoting Islamic finance. In June, the Monetary Authority of Singapore (MAS) hosted the third annual World Islamic Banking Conference, Asia Summit, the third time it has done so.

MAS also set up the Islamic bond programme in 2009 and its wholly owned unit issued S$105 million sukuks and S$80 million sukuks for the financial years ended March 31, 2011 and 2012 respectively.

"MAS's main focus is to create a conducive environment for the sustainable growth of the Islamic financial services industry," said an MAS spokeswoman.

She noted developments in the capital market and fund management space in recent years, such as sukuk issuances to finance wakaf development, a corporate sukuk programme by a property developer, the world's first Syariah-compliant Data Centre Fund and Sabana Reit.

"The good response to these offerings indicates that there is demand for quality Syariah-compliant products," she said.

Bankers say Singapore needs a domestic market for Islamic finance products to kick-start demand.

Singapore may be a vibrant financial centre with over 700 financial institutions, including a growing cluster of Islamic banks from the Middle East and strong trade flows with the six-member Gulf Cooperation Council (GCC) countries, but it loses out to Malaysia's large home-grown market.

The GCC, which is Singapore's sixth-largest trading partner, consists of Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the United Arab Emirates. Last year, bilateral trade flows between Singapore and the GCC grew over 40 per cent to S$62 billion.

Rafe Haneef, chief executive of HSBC Amanah Malaysia Bhd and managing director of Global Markets Amanah, said Malaysia has a large volume of Islamic investors looking for Syariah-compliant investments like sukuk compared to the Singapore market.

"Along with Islamic investors, Malaysia has a large number of Muslim- owned companies, most of which are looking for Syariah-compliant financing and sukuk issuance. Again, there is not a high demand for such financing in the Singapore corporate environment," said Mr Haneef.

Malaysia accounts for 60 per cent of global sukuk deals.

Mr Haneef said the global sukuk market was expected to expand to US$44 billion this year. For the first half of 2012, the global sukuk market was US$20.5 billion, up from US$15 billion a year earlier.

Another problem for Singapore is that conservative Middle Eastern investors tend to invest only in familiar companies and prefer to make those investments in US dollars.

Mohd Ismail Hussein, Maybank Singapore's head of Islamic banking, said the expected demand from Middle East investors did not materialise because of economic and liquidity issues at home.

Another factor was "their preference for rated, USD debt issuance with good yields, which are scarce here", he said.

Still, this hasn't stopped bankers here from trying to venture into the business.

Sim Buck Khim, OCBC Bank's co-head of capital markets, said the challenges impeding the development of Islamic finance in Singapore are multi-faceted.

"We believe one of the key reasons is that conventional banking is more readily available and easier to tap at the moment. The additional 'cost' - in terms of time and education for Islamic products - may also be seen as another factor that hampers its appeal to issuers as well as borrowers in general," he said.

"With continual efforts by banks and other stakeholders such as central banks, rating agencies and law firms to raise awareness, market receptiveness will grow, and consequently we may see more issuance in the future."

"This year, we've had one or two non-deal roadshows," said Clifford Lee, DBS head of fixed income, on bringing investors and issuers together.

"We continue to engage GCC investors on how we can best make ourselves relevant," he added.

DBS is the market leader in the SGD bond market and handled Khazanah's S$1.5 billion sukuk deal in 2010.

(Asiaonebusiness / 21 August 2012)

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Skill shortage obstructs growth of Islamic finance

KUALA LUMPUR/JAKARTA – Southeast Asian universities are adding Islamic finance courses as Bank Negara Malaysia’s Shariah Advisory Council warns a skill shortage in the industry is hampering growth, Bloomberg reported.

Universitas Muhammadiyah in Malang, Indonesia and Kuala Lumpur-based International Centre for Education in Islamic Finance (INCEIF) said this month they plan to start new programs. Malaysia needs 40,000 more qualified people in the industry by 2020, Dzuljastri Abdul Razzaq, head of the International Islamic University Malaysia’s finance department, said. Indonesia will require 17,000 more over three to five years, according to a central bank survey.

The shortage of skilled professionals is exacerbated by a mismatch between what is taught in courses and the abilities sought by employers, according to Kuala Lumpur-based Aberdeen Islamic Asset Management Sdn.

“Many graduates are knowledgeable in the various terminologies and products but don’t know the basic tenets of fund management and how the Shariah component then fits into the whole picture,” Abdul Jalil Abdul Rasheed, who helps manage $3 billion as chief executive officer at Aberdeen Islamic, said.

Malaysia’s Shariah banking assets rose 24 percent last year, while Indonesia’s have grown by an average of 38 percent over the past five years, central bank data show. This has helped drive a 67 percent jump in global sales of Islamic bonds in 2012 to $29.1 billion. The skill shortage is slowing product development and preventing the industry from expanding at even quicker rates, according to Lee Hishammuddin Allen & Gledhill, a Kuala Lumpur-based law firm that has a Shariah practice.

“The Islamic finance sector is growing faster than the supply of talent,” Mohammad Akram Laldin, who sits on the Malaysian central bank’s Sharia Advisory Council, said in Kuala Lumpur. “The industry has to continue its efforts to bridge the gap.”

Universitas Muhammadiyah plans to start an Islamic economics degree within five years in response to requests from banks, H. Nazaruddin Malik, dean of the business and economics faculty, said. The institution currently runs short courses on Shariah-compliant accounting. 

INCEIF is in talks with colleges to start programs in Oman, Turkey, and Kenya, said chief executive officer Daud Vicary Abdullah.

“The shortage impedes growth because you don’t have the best people making the best decisions,” he said in an August 10 interview in Kuala Lumpur.

In Malaysia, about 56,000 new finance industry jobs, including non-Islamic roles, will become available in the next 10 years, particularly in areas such as wealth management, Shariah advisory and corporate finance, according to the central bank’s Financial Sector Blueprint 2011-2020 released in December.

Indonesia’s Shariah-compliant banking industry currently needs 36,933 professionals, Harisman Sidi, director at the International Centre for Development in Islamic Finance at the Indonesian Banking Development Institute in Jakarta, said, citing data from the country’s monetary authority.

Bank Indonesia is encouraging Shariah-compliant lenders to put more resources into staff training to help meet its target of expanding Sharia-compliant banking assets to 10 per cent of the total by 2020 from about 4 percent, Edy Setiadi, director of Islamic banking, said.

“Because the market share is still small, Islamic banks are still not the top destination for many graduates of the country’s best universities,” he said.

Malaysia, home to the world’s largest sukuk market, has 16 Shariah lenders, according to data from the central bank’s website. That compares with 26 commercial and 15 investment banks which do not comply with religious tenets.

“There isn’t a lack of talent, there’s just a lack of opportunities,” Raj Mohammad, the Singapore-based managing director at consulting company Five Pillars Pte, said. “There aren’t a huge number of Islamic financial institutions that are popping up everywhere.”

Shariah-compliant notes returned 6.6 percent in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets climbed 12.2 percent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.

The average yield on worldwide sukuk was little changed at 3.14 per cent, and has declined 85 basis points this year, according to the HSBC index. The difference between the average and the London interbank offered rate, or Libor, narrowed one basis point, or 0.01 percentage point, to 205 basis points, the gauge showed.

(Saudi.Gazette.Com.Sa / 21 August 2012)

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Malaysia retains lead in Islamic finance

Malaysia continues to lead in Islamic finance as Singapore strives to make inroads into the sector, according to a report in the Singapore Business Times.

HSBC Amanah (M) Bhd chief executive officer and Global Markets Amanah managing director Rafe Haneef was quoted by the daily as saying Malaysia had a large volume of Islamic investors looking for syariah-compliant investments like sukuk (Islamic bond) compared with the Singapore market.

“Along with Islamic investors, Malaysia has a large number of Muslim-owned companies, most of which are looking for syariah-compliant financing and sukuk issuance. Again, there is not a high demand for such financing in the Singapore corporate environment,” Rafe said.

Malaysia accounts for 60 percent of global sukuk deals.

Rafe said the global sukuk market was expected to expand to US$44 billion this year. For the first half of 2012, the global sukuk market was worth $20.5 billion, up from $15 billion a year earlier.

According to a statement from the Securities Commission (SC), fund-raising activities in the second quarter continued to be robust with the regulator receiving a total 56 applications for equity-related proposals and issuances of private debt securities (PDS) – three times the applications received in the first quarter.

The SC said a total 42, or 75 per cent, were PDS applications, and the balance were for equity-related proposals.

The regulator said the debt market in Malaysia remained active with the number of approved PDS applications in the second quarter increasing to 24 compared with 16 in the first quarter. The total amount of funds approved to be raised from ringgit-denominated PDS issues also increased by 4.9 per cent to 23.01 billion ($7.37 billion) versus 21.94 billion ringgit in the first quarter.

The SC said that at end-June, the total amount of bonds outstanding stood at 941 billion ringgit, reflecting the continued growth of the Malaysian bond market. The figure included $165.2 billion in sukuk outstanding, which represents two-thirds of the total sukuk outstanding globally of $243.4 billion.

In 2011, corporate bond issuances in the Malaysian capital market totalled 70 billion ringgit. In the first half of 2012, total corporate bond issuances reached 66 billion ringgit, including PLUS Bhd’s 30 billion ringgit sukuk earlier this year – the single largest corporate sukuk in the world.

Just last week, Celcom Axiata Bhd announced it had successfully priced its sukuk issuance of 5 billion ringgit in nominal value, of which 3 billion ringgit received a final book of 10 billion ringgit via bookbuilding process. Celcom said the 5 billion ringgit sukuk was the largest rated sukuk murabahah issuance based on a tawarruq arrangement in the Malaysian debt capital market to date.

The Singapore Business Times also quoted bankers as saying Singapore was hobbled by a lack of domestic market for Islamic finance products, while Middle East investors were still US dollar-based and conservative.

The situation appeared to be improving when in 2010 Khazanah sold S$1.5 billion ($1.2 billion) sukuk in Singapore, and Sabana, the world’s largest syariah-compliant real estate investment trust (Reit), raised S$664 million ($530 million) through its initial public offering.

Since then, the Islamic finance landscape there has been rather barren. It said Singapore appeared to be missing out on one of the fastest-growing financial markets, with Islamic finance growing at an estimated 15 per cent to 20 per cent a year.

Islamic banking assets with commercial banks globally will hit $1.1 trillion in 2012, up a third from $826 billion in 2010, according to figures from the 2011 Ernst & Young World Islamic Banking Competitiveness Report.

The business daily said another problem for Singapore was that conservative Middle Eastern investors tended to invest only in familiar companies and preferred to make those investments in US dollars.

Maybank Singapore’s head of Islamic banking Mohd Ismail Hussein was quoted as saying the expected demand from Middle East investors did not materialise because of economic and liquidity issues at home.

(The Jakarta Post / 22 August 2012)

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Malaysia: Celcom prices RM5bil sukuk; RM3bil issue draws strong demand

KUALA LUMPUR: Celcom Axiata Bhd has successfully priced its sukuk issuance of RM5bil in nominal value, of which RM3bil received a final book of RM10bil via bookbuilding process.

In a statement yesterday, Celcom said the RM3bil sukuk attracted strong demand from asset management companies, financial institutions, insurance companies and corporate organisations. The remaining RM2bil was privately allocated to strategic investors in eight, nine and 10-year tranches.

Celcom said the RM5bil sukuk was the largest rated sukuk murabahahissuance based on a tawarruq arrangement in the Malaysian debt capital market to date.

The sukuk was issued through its unitCelcom Transmission (M) Sdn Bhd (CTX)and has been assigned a preliminary rating of AAAIS with a stable outlook by Malaysian Rating Corp Bhd (MARC).

MARC said the rating reflected the credit strength of the overall consolidated entity, premised on the significant financial and operational links between Celcom, CTX and fellow subsidiary, Celcom Mobile Sdn Bhd (CMSB). It said the proceeds from the sukuk offering would be largely used to retire existing debt of RM4.2bil.

Celcom CEO Datuk Seri Shazalli Ramly said the demand for the sukuk was overwhelming, which coupled with the highest credit rating achievable, indicated the capital market's confidence in Celcom and its long-term business sustainability.

“Celcom's landmark sukuk issuance is testimony to Celcom and Axiata Group Bhd's support for the Government's efforts to position Malaysia as a global Islamic financing hub while reaffirming Malaysia's position as a leader in the global Islamic capital market,” he added.

Proceeds from the sukuk issuance, with tenures ranging from three to 10 years, will be utilised primarily for the refinancing of CTX's existing debt as well as to finance the company's capital expenditure and working capital requirements.

The successful refinancing is part of Axiata Group's active capital management efforts, and is estimated to save over RM350mil over the remaining tenure of the existing unrated sukuk.

Axiata Group president and group CEO Datuk Seri Jamaludin Ibrahimsaid this was the second Islamic debt programme undertaken by Axiata Group in 2012, following the US$1.5bil equivalent multi-currency sukuk programme, which was the first internationally-rated Asia Pacific multi-currency sukuk programme.

He added: “Both programmes are in line with Axiata Group's on-going group-wide initiative to optimise its balance sheet and improve its financial flexibility, while supporting the Government's vision.

(The Star Online / 16 August 2012)

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Malaysia: Affin Holdings eyes stake in Bank Muamalat Malaysia

ANALYSTS have mixed views on Affin Holdings Bhd's surprise plan to buy a stake in Bank Muamalat Malaysia Bhd, one of the country's two standalone Islamic banks.

While they note that the move could strengthen Affin's foothold in the Islamic banking sector, they also don't see much synergies being derived.

Details remain scant as negotiations with Bank Muamalat's two shareholders - DRB-HICOM Bhd and Khazanah Nasional Bhd - are at an early stage.

Two days ago, Bank Negara Malaysia (BNM) gave all parties involved its permission to start the acquisition talks, which must be completed by year-end.

Talks are expected to gain momentum after the Hari Raya festive period.

Assuming a full acquisition, Affin's total assets will widen by 36 per cent to RM77 billion while its gross loan base will increase by 30 per cent. 

However, this is not expected to change the group's market ranking. Affin is the second smallest of eight banking groups in the country in terms of assets and loans.

"We see the potential acquisition of Bank Muamalat as an expansion in size and an overlap in Islamic consumer financing. Affin's strength is in Islamic consumer financing, particularly in residential property loans and hire purchase. 

"With Bank Muamalat's relatively smaller loan size, we believe that revenue synergies will be limited. Bank Muamalat in the past had high gross impaired loan ratios," banking analyst Kelvin Ong of MIDF Research said in a report yesterday.

The ratio has improved to 4.7 per cent as of March this year from a high of 8.7 per cent in December 2008, but the acquisition may result in a rise in collective assessment charge, he noted.

Ong kept his "buy" call on Affin's stock, which rose by 7 sen, or 2 per cent, yesterday to RM3.55, suggesting a potential 15.5 per cent upside from his target price of RM4.10. 

Some one million shares changed hands, triple the previous day's volume.

Bank Muamalat's strength lies in consumer financing and while it is also involved in commercial, corporate and investment banking, growth in these areas remain unexciting.

Its revenue is domestically driven and the bulk of its loans comes from residential property - they comprise about a quarter of its smallish loan base of RM9.4 billion as at end-March - and hire purchase.

"Judging from the loan book, Bank Muamalat appears to be a complementary fit for Affin, given its focus on household lending. But there does not appear to be much benefit from the funding aspect, given that Bank Muamalat's CASA (current account, savings account) ratio is quite close to Affin's," RHB Research analyst David Chong noted.

Affin's plan to buy a stake in Bank Muamalat came as a surprise to some analysts, given that it had long indicated its intention to expand regionally rather than domestically.

As early as June, it had said it was still keen on pursuing an earlier plan to buy a controlling interest in Indonesia's PT Bank Ina Perdana, but was awaiting Indonesian authorities' long-awaited new rules on shareholding limits.

Indonesia has since said single ownership in its banks will be restricted to 40 per cent, which may have put paid to Affin's Indonesian ambitions.

Still, Bank Muamalat may be attractive for Affin, given both banks' ambitions to venture into Islamic banking in China.

Bank Muamalat had last month formed a strategic collaboration with China's Bank of Shi Zui Shan in the hopes that it will have a part in the Chinese lender's plans to set up the country's first Islamic bank in the Ningxia province - where some 30 million Muslims are concentrated - in two years.

For now, it has taken on the costs for training some of the Chinese lender's staff in Islamic banking.

"We believe that Bank Muamalat's upcoming venture into China is complementary to Affin's strategic business direction, given that Affin has recently announced that it is collaborating with Bank of East Asia Ltd (BEA), to set up Islamic banking operations in China in the latter part of this year," said Alliance Research banking analyst Cheah King Yoong, who kept a "strong buy" call on Affin with a target price of RM4.42.

BEA holds a 23.5 per cent stake in Affin.

Still, pricing will be the key as to whether a sale to Affin will go through.

Tan Sri Syed Mokhtar Al-Bukhary's DRB-HICOM, which owns 70 per cent of Bank Muamalat, had twice before attempted to pare its stake - to Bank Islam Malaysia Bhd last year and to Bahrain-based Islamic lender Al Baraka before that - but was unsuccessful. 

BNM in 2008 allowed DRB-HICOM to buy the 70 per cent stake in Bank Muamalat on condition that it would eventually sell it down to 40 per cent.

Some analysts reckon that if Affin's offer is attractive enough, DRB-HICOM may give up its entire stake as the conglomerate seeks to pare down its debt.

Affin may also end up owning the smaller lender in its entirety as Khazanah, which holds the remaining 30 per cent stake, is on a mission to divest all non-core investments.

MIDF Research is not expecting Bank Muamalat to come cheap.

"Although Bank Muamalat is not listed, we do not expect it to come cheap. We believe that the PBV ratio for the acquisition will be around 1.5 times," Ong said.

Alliance's Cheah noted that one stumbling block to a deal being done could be the low return-on-equity (ROE) of Bank Muamalat, which stood at just six per cent for the financial year ended March 2012, as compared to Affin's ROE of 9.4 per cent in its last financial year.

Meanwhile, Affin late yesterday reported a 27.7 per cent rise in net profit to RM306.9 million for the first half of the year on the back of higher lending and fee-based income.

Its chairman Tan Sri Mohd Zahidi Zainuddin said in a statement that he expects the group to maintain its earnings momentum in the second half.

Bloomberg data shows that of the eight analysts who track Affin, five have "buy" calls on the stock, two are "neutral" and one with "sell". 

Affin's shares have climbed 15.2 per cent so far this year, outdoing the benchmark index's 7.8 per cent gain.

(Business Times / 18 August 2012)

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Islamic finance body plans scholar accreditation, ethics code

* To focus on Malaysia, then expand globally

* Currently has over 60 members

* Will launch financial literacy test this year

* Accreditation will be points-based system

* Body could reprimand scholars violating code

By Bernardo Vizcaino

DUBAI, Aug 15 (Reuters) - A fledgling industry body of Islamic scholars wants to develop a global code of ethics and a professional development programme for scholars, in order to improve standards in the industry, its president told Reuters.

The plan takes aim at a weakness in Islamic finance which is slowing the industry's growth. Boards of scholars at financial institutions rule on whether instruments and activities obey religious principles, but there is no single, commonly recognised set of qualifications for the scholars.

This has fostered confusion when scholars' rulings contradict each other. And because scholars are paid by the institutions whose products they vet, the industry is open to accusations of conflicts of interest.

The Malaysian-based Association of Sharia Advisers in Islamic Finance (ASAS), set up in April last year, plans this year to launch a test for the financial literacy of scholars, and ask its members to sign up to a code of ethics; if they break the code, they may be reprimanded by ASAS.

Both initiatives will initially apply only to Malaysia but the group aims eventually to extend it around the world, said Malaysian-born ASAS president Aznan Hasan, a scholar who sits on several sharia boards across the globe.

"We want to have a programme that can have an impact on the industry," Hasan said by telephone from Kuala Lumpur.

GUIDANCE

ASAS, which currently has over 60 members, will offer guidance on issues such as how to appoint sharia boards and address potential conflicts of interest, he said.

The financial literacy test will form the basis of an accreditation programme that could start as early as the first quarter of next year, aiming to encourage the professional development of scholars through a points-based system.

This would address concerns that some scholars "may be static in terms of their knowledge", said Hasan. "If we are not careful, someone who claims to be a scholar could give wrong advice."

ASAS members will be able to earn points towards their accreditation by enrolling in training courses offered by regulatory bodies, private providers or ASAS itself.

The body plans to build its membership of scholars on a voluntary basis in the first two years, and then propose that membership becomes compulsory for all scholars in Malaysia from 2015 onwards. Although its initial focus will be Malaysia, it aims eventually to have an international footprint that could encompass all sharia scholars.

"We need to lead by example first," said Hasan, adding that it would be difficult to persuade other countries to join without proof that the system worked.

ASAS will offer a venue for discussion and be proactive in shaping the role of scholars in the industry, Hasan added.

REGULATOR

Malaysia's securities commission is also considering the possibility of developing an accreditation programme for Islamic scholars, but this is only at the exploratory stage and could take no less than three years, a source involved in the discussions told Reuters.

If ASAS's accreditation scheme spreads globally, it could help to create more uniformity and consistency among sharia boards' rulings and in standard-setting for the industry.

Currently, standards set by industry bodies such as the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions are enforced in some countries in full or in part, while others use them as a reference.

"Regulations come in many different ways; some are lenient and some are structured," said Hasan, who among other posts sits on the sharia boards of the Malaysian central bank and of Dar Al Istithmar, the firm which advised Goldman Sachs on its controversial plan, which has still not gone ahead, to issue a $2 billion sukuk.

(Reuter / 15 August 2012)

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Malaysia pushing for personal savings, Islamic banking an option

KUALA LUMPUR: The Malaysia government would like to see citizens saving more and having larger pensions. One of those new efforts being promoted by the government is the option of putting pension money in Islamic banks.

New regulations are allowing the Employees Provident Fund (EPF) to give those with pensions the option of putting portions, not all, of their pension into Islamic Sharia-compliant areas including sukuk and halal stocks.

They have a limited amount of funds to work with, some 20 percent of their full EPF can go into one single mutual fund.

Under the new, voluntary Private Retirement Scheme (PRS), which will not replace the EPF but supplement it, contributors will be able to allocate money to a wide range of products offered by private-sector fund management firms. This will allow them, if they choose, to target sharia-compliant investment – potentially increasing the amount of money going into Islamic instruments, Reuters news agency reported in detailing the new option

The scheme’s governing body which will oversee how the fund managers operate, the Private Pension Administrator (PPA), was officially launched last week.

“PRS will contribute towards the growth of Islamic fund products,” Zakie Ahmad Shariff, board member of the PPA and chief executive of the Federation of Investment Managers Malaysia, told Reuters.

The initial rollout of 30 PRS products will include 6 Islamic funds, he added.

“Early adopters will have much to gain – especially for the Islamic players,” said Mahadzir Ahmad, a wealth management consultant and an instructor at the Financial Planning Association of Malaysia.

(Bikyamars / 24 July 2012)

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Sudan wants Malaysia to establish Islamic banking

KUALA LUMPUR: The Sudan government has invited Malaysia to help set up Islamic banks in the African country in a move that officials believe will go a long way in facilitating trade and investment financing between both countries.

Last year, total trade between Malaysia and Sudan stood at $94.4 million, an increase of 5.9 percent from 2010.

Sudan’s Ambassador to Malaysia Nadir Yousif Eltayeb said the country welcomes three Islamic banks to set up branches.

Speaking at a press conference on Business Opportunities in Sudan, he said more than 50 Malaysian companies are expected to invest in the country, in selected sectors.

Among these are electrical and electronics, small medium enterprises and halal products.

“There is abundant land in Sudan, and therefore, we would like to focus on agriculture. Sudan is seeking expertise from Malaysia’s Malaysian Agricultural Research and Development Institute (MARDI) and the Federal Agriculture Marketing Authority (FAMA),” Nadir said.

Sudan has at present cultivated corn and basmati rice.

Apart from that, the country which is a major supplier of beef and lamb to Saudi Arabia, also plans to export its meat products to Malaysia, especially during the festive season.

Nadir said Malaysian investors need not worry about the country’s stability as Petronas had managed to do its business there for the past 15 years.

A Malaysia-Sudan Trade and Investment Forum will be held in Khartoum from November 4-5 to highlight business opportunities in the country.

(Bikyamars / 10 August 2012)

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Malaysia: Record ringgit sukuk sales forecast

Kuala Lumpur: Malaysia’s top sukuk arrangers are predicting domestic sales in 2012 will surpass last year’s all-time high as record-low borrowing costs and the government’s $444 billion (Dh1.63 trillion) spending programme drive issuance.

Offerings of ringgit notes reached 30.8 billion ringgit ($36.03 billion) this year, compared with 75.6 billion ringgit ($88.43 billion) in 2011. CIMB Islamic Bank Bhd., the second-biggest debt manager in the past seven months, has 15 billion ringgit ($17.55 billion) of deals in the pipeline, according to Chief Executive Officer Badlisyah Abdul Ghani. His counterpart at Maybank Investment Bank Bhd., the top arranger, says Prime Minister Najib Razak’s development plan is boosting sales from companies building roads and railways.

Yields on Malaysia’s top-rated Shariah-compliant securities due in 2022 have dropped 29 basis points since December to 4.37 per cent, below the 2011 average of 4.89 per cent and a high of 5.6 per cent in August 2006, according to a central bank index. Standard & Poor’s and Moody’s Investors Service affirmed their investment-grade credit ratings for the nation, the world’s biggest sukuk market, in the past week.

“The pipeline in Malaysia is very, very healthy,” Kuala Lumpur-based Badlisyah, whose CIMB Islamic Bank is a unit of CIMB Group Holdings Bhd., said in an interview yesterday. “Issuers are taking advantage of low borrowing costs to sell sukuk to refinance loans and for capital expansion.

Billion ringgit pipeline

Indonesia, which opened its first Islamic bank in 1992, nine years after Malaysia, is also seeing a revival in corporate sukuk sales. Issuance climbed more than fivefold in 2012 to 1.35 trillion rupiah ($142 million) as of June, compared with 200 billion rupiah for the whole of 2011, according to data from the Capital Market and Financial Institution Supervisory Agency. Offerings reached 2.3 trillion rupiah in 2008, an all-time high.

Malaysia is already having a record year for sales, with potentially about 20 billion ringgit of Shariah-compliant debt in the pipeline, according to data compiled by Bloomberg. The notes pay returns on assets to comply with Islam’s ban on interest.

Tanjung Bin Power Sdn., which owns a coal-fired plant in the southern state of Johor, is planning to sell 4.5 billion ringgit of sukuk to refinance debt, according to a July 24 e-mailed statement from RAM Rating Services Bhd. Syarikat Prasarana Negara Bhd., which operates an overhead rail network in the capital Kuala Lumpur, is looking to sell 4 billion ringgit to finance a line extension.

Shift to stocks

Some investors may start to switch out of bonds, including sukuk, and into stocks as yields are so low, according to Pankaj Kumar, chief investment officer at Kurnia Insurans (Malaysia) Bhd. based in Petaling Jaya near Kuala Lumpur.

The FTSE Bursa Malaysia KLCI Index posted its best month in July since February, rising 2 per cent. The gauge has gained almost 7 per cent this year, compared with 0.8 per cent for the whole of 2011, and reached a record high on July 19.

“There’s a shift coming from the fixed-income side, where returns are no longer justifiable and that’s why some funds are moving toward dividend-yielding stocks,” Pankaj said in an interview yesterday.

Global Islamic bonds have also rallied this year, driving yields to unprecedented levels. Average yields dropped 12 basis points, or 0.12 percentage point, this week to a record 3.16 per cent on August 2, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index.

Dollar Sukuk rally

The securities returned 6.4 per cent in 2012, according to HSBC, while debt in developing markets climbed 12.2 per cent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.

Malaysia’s dollar-denominated sovereign Islamic bonds rose for a fifth day, with the yield on the 3.928 per cent notes dropping 10 basis points this week to 1.69 per cent, according to data compiled by Bloomberg. That’s the lowest since the debt was sold in May 2010.

The difference in yields between the Dubai government’s 6.396 per cent securities due in November 2014 and Malaysia’s debt was little changed at 148 basis points today and widened four basis points from a week ago.

Growth in Malaysia’s Islamic finance industry is also providing lenders with excess cash to invest in debt, supporting demand for new issuance, according to Kuala Lumpur-based AmInvestment Bank Bhd., the third-largest sukuk arranger.

‘Hungry for sukuk’

Shariah-compliant banking assets grew 24 per cent to $137 billion last year, or 22.4 per cent of the total, the central bank said in its annual report providing the latest figures.

Malaysia’s SME Bank, a state-owned financial institution, sold 500 million ringgit of Islamic bonds on August 2 that attracted 2.5 billion ringgit in orders, Managing Director Mohd Radzif Mohd Yunus, said in an interview in Kuala Lumpur.

“The strong demand shows that investors are still hungry for sukuk,” Mohd Radzif said yesterday.

Fitch Ratings reaffirmed the Southeast Asian nation’s rating at A-, the fourth-lowest investment grade and the same level as S&P, on Aug. 1 citing the country’s “track record of macroeconomic stability.”

Bank Negara Malaysia projects economic growth of 4 percent to 5 per cent this year, its annual report shows. Gross domestic product increased an average 5 percent in the four quarters ended March, data compiled by Bloomberg show. The ringgit is the fourth-best performing currency against the dollar this year among Asia’s 11 most active, strengthening 1 per cent.

“Sukuk sales can break the 2011 record if all the planned offerings in the pipeline come to market,” Mohd Effendi Abdullah, head of Islamic markets at AmInvestment Bank, said in an interview yesterday. “Corporates are likely to continue to tap the Malaysian market because borrowing costs are low and there’s still a lot of liquidity in the market.

(Gulfnews.Com / 06 August 2012)

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