Islamic Finance & Capital Market Activities 24 January 2012 Oman First Islamic Finance & Banking Conference Emad Al Monayea Vice Chairman, MD & CEO Liquidity Management House A KFH Subsidiary
Feb 25, 2016
Islamic Finance & Capital Market Activities
24 January 2012
Oman First Islamic Finance & Banking Conference
Emad Al Monayea
Vice Chairman, MD & CEOLiquidity Management HouseA KFH Subsidiary
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Agenda
1. Resilience of Islamic Finance to Crises
2. Developments of Sukuk Market and the Potential for growth
3. Credentials
Resilience of Islamic Finance to Crises
3
4
Impact of Crises
Avg. ROA Avg. ROE0%
5%
10%
15%
20%
25%
30%ConventionalIslamic
Source: IMF Working Paper 2010. Based on a study of the banking sector in the GCC (excluding Oman), Jordan, Malaysia and Turkey
Before the Crises
The Islamic Banks were relatively more profitable than their conventional peers.
Profitability Credit Assets-40%
-30%
-20%
-10%
0%
10%
20%
30%
ConventionalIslamic
Source: IMF Working Paper 2010
Initial Crises Effect
Initial crises effect on Islamic Finance was largely subdued as they were not exposed to complex instruments that were affecting conventional finance industry
Pre-Crises Levels of ROA and ROE
Change in Profits, Credit and Assets from 2007 to 2008
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Impact of Crises
Profitability Credit Assets-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
ConventionalIslamic
Source: IMF Working Paper 2010
Deepening Crises Change in Profits, Credit and Assets (average 2007- 2009)
The effect of financial crises was no longer limited to the west
Its effects were being felt across economies which had led to global economic slow down
Islamic banks average profitability decline for the period 2007-09 was only marginally higher than their conventional counterparts
However, despite this decline, Islamic Banks expanded credit and saw an increase in its assets relative to conventional banks
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What makes Islamic Finance Resilient?
Prohibition of Shariah on excessive leverage: In many cases there is a clear leverage threshold of 33% of equity defined. Islamic investors or companies who broke this rule had to suffer major losses and in some case are on verge of bankruptcies
Prohibition on Certain Sectors: By having strict definitions on the sectors that it should not invest and by having guiding moral principles that needs to be considered while investing, Islamic finance forms a good blend of socially responsible investing
Prohibition on excessive risk taking: By avoiding credit derivative instruments like CDOs, CDS, Islamic Finance has largely stayed away from the destructive effects of complex conventional financial instruments
Conventional Finance
NGOs(Non Governmental
Organizations)
Islamic Finance
Developments of Sukuk Market and the Potential for growth
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Position of the Sukuk Market
Equity
Trade finance
RE
Private equity
Islamic wealth management
CommodityMurabaha
trades
Leasing
The global Islamic landscape by asset value depicts potential growth for Islamic structured products, in particular Sukuk, to cater for huge demand from the Middle East and Asian investors
The total size of the Islamic Finance Industry is in excess of $ 1 trillion
Sukuk
Islamic structured products
Siz
e of
mar
ket a
s %
of t
otal
ass
ets
Industry demand
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Development of Sukuk Market
The year 2011 was a record year with Global Sukuk issuance jumping to USD84bn, a 61% year on year increase
The Sukuk Issuance has grown at the rate of 56% annually since 2001
The trend has now shifted to sovereigns tapping the market. Total share of sovereign in 2011 was 78% of the Sukuk issuance
A total of more than USD180bn Sukuks are outstanding
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
1 1 6 8 12
30
49
1826
52
84
Global Sukuk Issuance (USD Billion)
Effect of Financial Crises
CAGR: 56%
Source: Zawya
78%
8%
14%
SovereignQuasi-SovereignCorporate
Issuer Type (2011)
90%
10%
DomesticInternational
Market Type (2011)
Source: Zawya Source: Zawya
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Sukuk Issuance by Domicile, Currency and Structure
A number of new countries opened to the Sukuk Market, among them Saudi Arabia, Kuwait, Jordan, Iran, Gambia and Yemen
Malaysia is still dominating the Sukuk landscape with its Sovereign issues in its local currency Ringgit
Although Murabah seems to be the dominant structure, a careful analysis reveal that excluding Malaysia, Ijarah remains the preferred choice among issuers comprising 70% of the issuance
The Wakalah structure received strong attention this year, being the choice for many international issuances due to its acceptability and ability to securitize untradeable assets
79%
11%
6%4%
3%3% 2% 1% 1% Malaysia
Qatar
UAE
Indonesia
Saudi Arabia
Bahrain
Pakistan
Kuwait
Turkey
Issuance by Domicile (2011)
66%
11%
11%
3%2%2%
2% 4%
MYR
QAR
USD
IDR
SAR
PKR
BHD
Others
Issuance by Currency (2011)
45%
25%
11%
8%
5%2% 1% 1%1% Murabaha
Ijarah
Bai Bithaman Ajil
Musharaka
Wakala
Wakala-Bei-Istithmar
Mudarabah
Salam
Others
Issuance by Structure (2011)
Source: ZawyaSource: Zawya
Source: Zawya
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USD Millions Country Type Tenor (years)
Qatar Sovereign
Malaysia Sovereign
UAE Quasi-Sovereign
Indonesia Sovereign
Saudi Arabia Corporate
Pakistan Sovereign
Saudi Arabia Quasi-Sovereign
Bahrain Sovereign
UAE Corporate
Bahrain Sovereign
Notable Sukuk Issuance – 2011
Qatar Sovereign Sukuk
Malaysia Global Sukuk (T-1)
Nakheel Sukuk 4 (T-1)
Indonesia Global Sukuk II
Saudi Aramco Sukuk
Gov. of Pakistan (T-3)
Islamic Development Bank MTN (Series-7)
CBB Sukuk 3
First Gulf Bank Sukuk
Bahrian Ijarah Sukuk #17
9,062
1,200
1,035
1,000
1,000
775
750
750
650
530
Sovereign and Quasi Sovereign has dominated the top 10 issuers as well the overall global issuances. Only 2 corporate issuers in the top 10
Qatar Central Bank’s Sukuk issuance of QAR 33bn (USD 9bn) was the single largest Sukuk issuance till date This year started off with a the issuance of USD 4bn by the Civil Aviation Authority of Saudi Arabia
Source: Zawya
Series1
3
5
5
7
14
3
5
7
5
5
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Dow Jones Citigroup Sukuk Index
Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-1180.00
90.00
100.00
110.00
120.00
130.00
140.00
Jan-11 Apr-11 Jul-11 Oct-11122.00
126.00
130.00
134.00
Performance in 2011
The DJ Sukuk Index has performed consistently well post 2009
A joint product of Dow Jones Indexes and Citigroup, provides a benchmark for investors seeking exposure to Sharia-compliant fixed-income investments.
To be eligible for inclusion, bonds must comply with Sharia law, the Bahrain-based AAOIFI, and meet minimum requirements for maturity, issue size and rating.
DJ Citigroup Sukuk Index
Index Value: 132.53
2011 Change: 5.5%
Source: Bloomberg
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Potential for Growth
The Sukuk market is still dominated by Sovereigns and Quasi Sovereigns. A large number of corporate are yet to explore the primary Sukuk market for their funding requirements
Implementation of the financial master plans and government initiatives which will act as the backbone of growth throughout the coming years
The cumulative infrastructure projects and funding needs in both the GCC and Asian regions are expected to support the Sukuk market in 2012. Infrastructure spending has been one of the key drivers of economic growth in the GCC over the past decade
New emerging market players as well as new non-Islamic issuers are expected to tap the Sukuk market to tap in huge liquidity chasing the market
A significant potential exist in the western financial institutions and corporate in the US, UK, the EU and Central Europe who are likely to becoming more actively involved in this industry, and are interested to issue Sukuk to refinance existing corporate debt or to finance working capital and expansion activities, including acquisitions
Deeper secondary market activities are emerging with new players and appetites
Credentials
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Overview
Sukuk – Origination, Structuring & Trading
Structured Finance – Corporate Finance and
Project Finance
Asset Management – Investment Funds &
Portfolio Management
Investment Treasury Services
Liquidity Houses leverages on the strategic strength derived from KFH’s brand name, distribution capability, and geographic coverage while offering its products and services to its clients
• Liquidity House is a wholly owned by Kuwait Finance House K.S.C. (“KFH”) and is a result of the spin-off of its International corporate finance activities. The company’s paid up capital is KD 100 Mn (approx US$ 380 Mn)
• Liquidity House’s objective is to be a principal player in the international Sukuk market and the Sharia compliant structured finance arena. It seeks to deliver exceptional values to its clients, stakeholders and the industry through focused and shared values driven by its parent entity, KFH. Liquidity House is licensed and regulated by both the Central Bank of Kuwait and the Capital Markets Authority.
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Liquidity House Sukuk Achievements
FIC SukukKD 92 Mn
Restructuring advisor 2011
SIB SukukUS$ 400 Mn
JLM2011
KTPBUS$ 100 Mn
JLM and Bookrunner2010
GE CapitalUS$ 500 Mn
JLM and Bookrunner2009
Ras Al KhaimahUS$ 400 MnBookrunner
2009
IFCUS$ 100 Mn
JLM and Bookrunner2009
KTPBUS$ 350 Mn
JLM and Bookrunner2011
HBME SukukUS$ 500 MnCo-Manager
2011
ADIB SukukUS$ 750 MnCo-Manager
2010
Indonesia Sukuk IIUS$ 1 Bn
Co-Manager2011
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Other Achievements
Aref Investment GroupKWD 290 Mn
Restructuring advisor 2011
Burgan CompanyUS$ 125Mn
Syndicated Ijara2009
CRCUS$ 155 Mn
Syndicated Murabaha2008
ALAFCO Murabaha on behalf of KFH
US$ 10 Mn2011
Ozon Giyim Sanayi Ve Ticaret A.Ş.
Syndicated MurabahaUS$ 65Mn
Mandated Lead arranger2011
GIH restructuringKWD 49.5 Mn
Restructuring advisor 2011
MALC Aviation FundLead Sponsor
US$800 Mn2003
KFH Oceanic PortfolioUS$ 250 Mn
Sole Arranger & Lead Sponsor
2008
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Awards & Recognitions
Deal of the YearKTPB Sukuk
2010
Deal of the Year- TurkeyKTPB Sukuk
2010
Sukuk Deal of the YearKTPB Sukuk
2010
Best sukuk arranger2011
The best Sukuk Structuring House in KuwaitIREF ME Award
2010
Deal of the Year- KuwaitAref Investment Group
2010
Restructuring Deal of the Year
Aref Investment Group2010
Best Sukuk DealWorld Finance – Islamic
Finance Awards2011
Most Innovative DealKTPB Sukuk
2009
Sukuk Deal of the YearGE Capital Sukuk
2009
Best Sukuk DealGE Capital Sukuk
The best Sukuk Structuring House in
KuwaitIREF ME Award
2009
Wakalah Deal of the year IFC Hilal Sukuk
2009
Deal of the year – KuwaitBurgan Company
2009
Contact Information
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Senior Oversight
Iqbal Mohammed Executive Vice President
[email protected]: (+965) 2225 7606
Ahmed Al-Kharji Senior Vice President
[email protected]: (+965) 2225 7604
Masroor Ahmed SiddiquiSenior Vice President
[email protected]: (+965) 2225 7607
Nawaf Al MenayekhSenior Vice President
[email protected]: (+965) 2225 7617
Liquidity Management House for Investment Co. K.S.C.C.Level 23, Baitak Tower, Safat SquareAhmed Al Jaber Street, Kuwait CityP.O.Box : 2650 Mishref, 40177 Kuwait
Telephone: (+965) 2225 7600 Facsimile: (+965) 2225 7618
Questions ?
Thank you.