Yet another financial frenzy - Islamic Finance News

Vol. 5, Issue 37 19th September 2008

T h e W o r l d ’ s G l o b a l I s l a m i c F i n a n c e N e w s P r o v i d e r

The fi nancial crisis began 13 months ago as troubled subprime mortgages. That ulcer in the fi nancial markets has exacerbated into a gangrenous patch that has not only metastasized but also claimed more victims, with heavyweights being the most prominent. Some regard the development as a new, far more serious phase. From bad bets on mortgages, it has spread — so far — to credit default swaps, the credit insurance contracts sold by American International Group (AIG) and others.

The meltdown of Lehman Brothers and the pending acquisition of Merrill Lynch by Bank of America were followed closely by the US government takeover of insurer AIG. Morgan Stanley sought shelter from the growing fi nancial storm by going into merger talks with Wachovia and other banks. Goldman Sachs Group, the largest US investment bank by market value, saw its share prices tumbling as well. These are fi rms that were once trusted and envied.

In the current crisis, a number of major Wall Street fi rms, including Citigroup, have turned to sovereign wealth funds, the government-controlled pools of money. The world’s leading central banks have made a fresh attempt to ease the growing stress in global money markets, taking coordinated action to provide US$180 billion in extra liquidity to cash-strapped banks.

The crisis is even crossing the pond, with Lloyds TSB taking over struggling HBOS, Britain’s biggest mortgage lender, and the British government saying it will facilitate the deal by overriding anti-monopoly regulations. Elsewhere, stock markets are tumbling. The rapid developments have led New York University economist Mark Gertler to declare: “This has been the worst fi nancial crisis since

the Great Depression. There is no question about it.” As one report put it, “the illness seems to be overwhelming the self-healing tendencies of markets. The doctors in charge are resorting to ever-more invasive treatment, and are now experimenting with remedies that have never before been applied”.

Federal Reserve Board and Treasury offi cials have identifi ed the disease — deleveraging, or the unwinding of debt. Deleveraging in turn can create a downward spiral. Deleveraging started with securities tied to subprime mortgages, where defaults started rising rapidly in 2006. But the deleveraging process has now spread well beyond, to commercial real estate and auto loans to the short-term commitments on which investment banks rely to fund themselves.

Hedge funds could be among the next problem areas. This crisis is complicated by innovative fi nancial instruments that Wall Street created and distributed. They’re making it harder for offi cials and Wall Street executives to know where the next set of risks is hiding and also contributing to the crisis’ spreading impact.

Could Islamic fi nance have saved the situation? Our IFN Report indicates that opinion is divided. One economist notes that most countries where Islamic fi nance is actively practiced have escaped relatively unscathed from the crisis, as Islamic investments require greater transparency and underlying assets. But there is bound to be some fallout affecting Islamic fi nance players since they share the same market as the conventional players.

Even so, there is acceptance of the fact that the transparency and ethical values insisted upon by the Shariah holds Islamic fi nance participants in better stead.

Yet another fi nancial frenzyIn this issue

Islamic Finance News ................................ 1

Takaful News ............................................10

Ratings News ...........................................11

IFN Reports ...............................................12

Labuan IBFC: An Offshore Destination for Islamic Finance .............13

Legal Aspects of Buying into an Islamic Bank .............................................15

Sukuk Market Picks up Pace Despite Gloomy Conditions .....................16

Basic Notions on Islamic Private Equity Fund (IPEF) ....................................20

Islamic Finance Forum ............................22

Meet the Head ..........................................23Nabeel Shoaib, Global Head of HSBC Amanah

Termsheet ..................................................24Amreli Steels’ US$16.81 million Sukuk

Moves .........................................................25

Deal Tracker ..............................................26

Islamic Funds Tables ................................27

S&P Shariah Indexes ...............................28

Dow Jones Shariah Indexes ....................29

Islamic League Tables .............................30

Events Diary...............................................33

Country Index ............................................34

Company Index .........................................34

Subscription Form ....................................34

www.islamicfi nancenews.comNEWS

Page 2© 19th September 2008

AMERICASLehman Brothers fi les for bankruptcy protectionUS: Lehman Brothers fi led for bankruptcy protection on the 14th September after Bank of America and UK-based Barclays pulled out of talks on a deal to rescue the 158-year-old global investment bank. It had tried to fi nance too many risky assets with too little capital. With US$600 billion of assets fi nance and just US$30 billion of equity as at the end of August 2008, Lehman has become the largest and highest profi le casualty of the credit crisis.

In the bankruptcy fi ling, Lehman named Citigroup, Bank of New York Mellon, Japan’s Aozora Bank and Mizuho Financial Group as among the bank’s top unsecured creditors. The fi ling did not include the bank’s broker-dealer unit and other subsidiaries, which will continue to operate although Lehman is expected to liquidate them.

Barclays has agreed to buy several parts of Lehman for US$1.75 billion. The purchase includes the bank’s North American sales, trading, and research and investment banking businesses, its midtown Manhattan headquarters and two data centers. The British bank said the purchase requires bankruptcy court approval and that it can walk away if the deal is not completed by the 24th September.

Meanwhile, a consortium of 10 banks announced their plans to create US$70 billion of collateralized borrowing facility to lend to troubled fi nancial fi rms. Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley and UBS will contribute US$7 billion each.

(Also see IFN Report on page 12)

Morgan Stanley mulls over a merger, says reportUS: Morgan Stanley is deliberating whether to remain independent or merge with a bank due to the current turbulence in its share price. It was reported that further instability in Morgan Stanley’s stock price may cause the bank to seek a merger partner, possibly a well capitalized bank.

On Tuesday, the investment bank’s chief fi nancial offi cer, Colm Kelleher, said it

remains optimistic in its broker-dealer model and dismissed the need to merge with a deposit-taking bank. Its shares have fallen 46% so far this year.

Bank of America acquires Merrill LynchUS: Bank of America has agreed to buy Merrill Lynch in an all-stock deal worth US$50 billion. The bank was initially thought to be a possible acquirer of Lehman Brothers but sought to purchase Merrill’s stock after breaking off deals with Lehman, which has

since fi led for bankruptcy protection. Merrill suffered from bad real estate bets and has posted more than US$17 billion of losses over the past four quarters.

ASIAMinistry reveals successful Sukuk pricingBRUNEI: The ministry of fi nance announced that the Brunei’s 18th issuance of short-term

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Sukuk Ijarah has been successfully priced. The BND45 million (US$31.5 million) issue carries a 91-day maturity from the 11th September until the 11th December, and has a rental rate of 1%, said the ministry.

So far, the government has issued BND1.2 billion (US$839.5 million) worth of short-term Sukuk Ijarah since its fi rst offering in April 2006, it added.

‘No major crises seen for Asian banking systems’ASIA: Asian banking systems will go through some diffi culties but are not expected to face a major crisis, said Standard & Poor’s Rating Services (S&P) in a report. It attributed this to a better economic outlook compared to other regions, strong regulatory frameworks and banks’ credit profi les.

The rating agency’s credit analyst, Ritesh Maheshwari, noted that the sensitivity of banking systems to economic decline depends on the total debt in the system, as well as the strength of the banking industry against changes in the environment. He felt that Vietnam is likely to be most affected.

Maheshwari said high infl ation had prompted some Asian central banks, such as in India, Vietnam and China, to tighten their monetary policies, which led to higher interest rates and, in some cases, rationed credit growth.

He reckoned that overall, by reinforcing their defenses in time, Asian banking systems are likely to benefi t from the continuing economic growth that is better than the global average.

Taiwanese company to invest in halal parkMALAYSIA: Sea Party Technology, a Taiwanese food-based and biotech company, is set to invest more than RM2 billion (US$591.4 million) at the world’s largest halal park in the state of Sarawak over the next three years. The company has signed an agreement with the Sarawak Timber Industry Development Corporation, Tanjung Manis Food and Industrial Park and Halal Industry Development Corporation which grants Sea Party the license to occupy the Tanjung Manis Halal Park.

The investment will assist in speeding up the development of the park, said Sarawak’s chief minister, Abdul Taib Mahmud. The state, he added, is looking at about RM20

billion (US$6 billion) worth of investments from local and foreign companies.

Bakrieland plans Sukuk issuance next yearINDONESIA: Bakrieland Development, a publicly listed property fi rm, plans to issue Sukuk worth between IDR200 billion (US$21.9 million) and IDR300 billion (US$32.9 million) next year, said its president director Hiramsyah S Thaib. It will be used to fi nance a number of its property projects including Bogor Nirwana Residence,

Ijen Nirwana Residence in Malang, East Java, and Batam Nirwana Residence in Batam.

Bakrieland is also studying the possibility of working with foreign investors in fi nancing the projects.

Bursa Malaysia explores Islamic derivatives optionsMALAYSIA: Bursa Malaysia is working on new derivatives contracts to boost the country’s profi le internationally, said CEO Omar

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Merican. These include Islamic derivatives, and work has been done on Islamic hedge funds. According to him, Islamic derivatives and Islamic hedging are under evaluation by the regulators.

Some of the other measures being explored are remote membership for market makers, improving the bourse’s product development pipeline and enhancing its securities borrowing and lending infrastructure.

Omar said the bourse has already begun on the derivatives front with its US dollar-denominated crude palm oil futures, launched on the 5th September, which could be a starting point for similar contracts

to be launched in the Asia-Pacifi c region. Stressing that palm oil should not be viewed as Malaysia’s only commodity for such contracts, he expressed the exchange’s hope to launch other contracts as well, such as carbon contracts.

ADB, IDB sign agreementASIA: The Asian Development Bank (ADB) and the Islamic Development Bank (IDB) have signed a co-fi nancing agreement that will enable them to work together in common member countries — among them Afghanistan, Azerbaijan, Bangladesh, Indonesia, Kazakhstan, Kyrgyz Republic,

Maldives, Pakistan, Tajikistan, Turkmenistan and Uzbekistan. The target will mainly be in the infrastructure, utilities, education, health and urban sectors.

Under the collaboration, both institutions will provide up to US$2 billion each over the next three years for this purpose. The business plan includes a common vision, strategic framework and best practice ideas in development fi nancing.

HLIB branches out to the east coastMALAYSIA: Hong Leong Islamic Bank (HLIB) has opened a branch in the state of Kelantan in its move to expand to the east coast. The branch will complement its existing two branches in Kuala Lumpur.

HLIB managing director Khalid Bhaimia said the move is in line with the market requirements for Islamic banking services. The branch offers e-banking, capital market, asset management and personal fi nancing services as well as ATM terminals, he added.

HLIB is a wholly-owned subsidiary of Hong Leong Bank. It began as a division under the bank but became a separate unit in March 2005.

Bondweb is now BPAMMALAYSIA: Bondweb Malaysia is now known as Bond Pricing Agency Malaysia (BPAM), said the agency in a statement. The name change comes at a time when the agency aims to strengthen its position as the pioneering bond pricing agency in the country by focusing more on its core business, which is evaluating bond pricing.

BPAM assured that it will continue to support the growth of the local Sukuk and conventional bond market in the long run by providing high quality and up to date data for all market players.

Bourses sign MoUMALAYSIA/PAKISTAN: Bursa Malaysia and the Karachi Stock Exchange have signed a MoU to cooperate in developing each other’s capital markets. The two parties have also agreed to work together in efforts to increase awareness of investment opportunities in both markets and assist in the maintenance of orderly markets in Malaysia and Pakistan.

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In addition, Bursa Malaysia said it will explore the possibility of working closely in organizing training programs for the two bourses, it said in a statement.

PIDM issues regulations on membershipMALAYSIA: The Malaysia Deposit Insurance Corporation (PIDM) has issued regulations on terms and conditions of membership following extensive consultations with Bank Negara Malaysia, the banking industry and related parties.

One of the requirements is that member banks, while maintaining an adequate level of capital and liquid assets as required by the central bank, also need to have appropriate, effective and prudent risk management policies, procedures and control.

According to PIDM CEO Jean Pierre Sabourin, the regulations are intended to promote the exchange of timely and relevant information. For example, member banks need to report

any event that can be considered as unusual in the course of its business within seven days. Banks are also required to maintain appropriate records.

Members of PIDM are all commercial as well as Islamic banks in Malaysia, including foreign banks incorporated and operating in the country.

Musharaka aims to invest in tech companiesMALAYSIA: The country’s fi rst Islamic venture capital fund, Musharaka, aims to invest in four technology-based companies by July 2009. Its fund manager, Musharaka Venture Management, is studying four out of 10 proposals it has received from, among others, technology, orthopedic trauma treatment, radio frequency and software companies, said managing director Nor Idzam Yaakub.

So far, the fund has raised RM35 million (US$10 million), RM30 million (US$9 million) of it from Malaysia Venture Capital

Management (Mavcap), while the rest are from other investors. Nor Idzam hopes to raise more funds by the end of the year, and the fi rm is in talks with fund managers from Switzerland and two parties based in the Middle East.

Meanwhile, its CEO, Husni Salleh, said Musharaka needs to develop more people who are familiar with Islamic venture capital funds due to the demand for such funds in Malaysia.

Musharaka was launched last July by Mavcap, the venture capital arm of the Malaysian ministry of fi nance.

IPS looks to expand with new shareholderMALAYSIA: IPS, operator of the country’s e-purse scheme MEPS Cash and the world’s fi rst Islamic payments switch, is set to get a new shareholder with the impending exit of Kencana Capital. Mokhzani Mahathir will sell his 75% stake, allowing IPS to expand

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further, said its managing director, Shahzad K Sultan, who owns the rest of IPS. He pointed out that previously, expansion was not easy due to the perception that the company is politically-linked, as Mokhzani is the son of former prime minister Mahathir Mohamad.

The new shareholder is expected to add substantially to IPS’ current paid-up capital of RM5 million (US$1.4 million). According to Shahzad, the company spends RM5 million annually on operations and capital expenditure, not including the amount it spends on providing the Islamic payments switch technology to member banks.

The Islamic payment program is designed to separate retail money into funds that are Islamic and those that are not. Al Rajhi Bank subscribed to the system last year, and Bank Muamalat Indonesia is set to join soon, said Shahzad. He added that an agreement will be signed with the central bank of Sudan to provide the payment system to all Islamic banks in the African country, while technical discussions have been held with Malaysia’s Bank Islam and Bank Muamalat.

The developments could boost the country’s aspirations of becoming the hub for Islamic fi nance, Shahzad noted.

BNM reinstates approval for Maybank’s acquisitionMALAYSIA: Bank Negara Malaysia (BNM) has reinstated the approval for Malayan Banking (Maybank) to acquire Bank Internasional Indonesia (BII). This follows a move by the Indonesian capital market regulator Bapepam to allow Maybank fl exibility in fulfi lling certain conditions in the takeover. Both banks participate in the Islamic fi nance industry.

In a statement, the Malaysian bank said Bapepam has given a conditional extension of more than two years to cut down its stake in BII should it end up with more than 80% of shareholding following a mandatory general offer. It added that Maybank will work with Fullerton Financial Holdings and Kookmin Bank to complete the acquisition.

BNM had revoked the approval for the acquisition in late July following amendments made to Indonesia’s regulations on takeovers on the 30th June.

Meanwhile, Maybank shares hit a seven-year low on Bursa Malaysia as investors and

analysts had viewed the acquisition as too expensive since it was proposed it March. Analysts are also concerned that Maybank is tapping the volatile capital markets to fund the deal. The bank will be looking to raise RM2.6 billion (US$750 million) in innovative Tier 1 capital, RM2 billion (US$577 million) in subordinated debt and will possibly place out up to 5% in equity, said Julian Chua, banking analyst at Citigroup.

Public Bank to set up Islamic unit in NovemberMALAYSIA: Public Bank is to open its Shariah compliant subsidiary in November as strong demand is projected for Islamic loan growth, said managing director Tay Ah Lek. The bank is expecting a 15% growth in its Islamic loans

in 2009, against the 7% to 8% increase it has projected for the conventional banking industry.

Its Islamic business will focus on the retail market, said Tan, such as retail fi nancing, the bank’s deposit-taking business and wealth management products.

Meanwhile, Malaysian lenders are expected to remain healthy in the absence of a sharp decline in economic growth, said Nasaruddin Arshad, Public Bank’s group economist. Islamic banking is seen as a safe sector as transactions need to involve specifi c assets, he noted.

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LEADERSHIP



EUROPEHSS forms Fund SolutionsLUXEMBOURG: HSBC Securities Services (HSS) has formed a specialist consultancy unit to assist clients in the implementation of complex fund projects. The unit, Fund Solutions, will provide guidance on regulation, domiciles, structuring, service delivery locations, operating models and market innovations to its customers and the wider HSBC Group.

Fund Solutions is already involved in structuring and closing a number of deals, including a global Shariah compliant UCITS III umbrella fund domiciled in Luxembourg for an Asian-based asset manager and another project involving Islamic banking services and Sukuk issuance.

The unit is led by Germain Birgen, the managing director of HSS in Luxembourg. The team also includes Miriam Gerver and Nicole Schaack, both from Luxembourg, and Edinburgh-based Alan Burnet.

Lloyds seals merger deal with HBOSUK: Lloyds TSB has closed a GBP12.2 billion (US$22.13 billion) deal to buy HBOS, creating a dominant mortgage and savings bank. The bank said the deal is expected to increase annual earnings by over GBP1 billion (US$1.8 billion) annually by 2011 through cost savings, and boost its earnings per share by over 20% a year. Lloyds also

said the merger will strengthen its ability to serve UK customers in the current diffi cult markets.

Lloyds CEO Eric Daniels insisted that the deal was not a government-brokered rescue of struggling HBOS, Britain’s biggest mortgage lender, stressing that the two banks have been discussing the merger for several weeks. Daniels will remain as CEO of the enlarged group while Victor Blank stays on as chairman.

Lloyds’ core tier 1 capital ratio will fall to 5.9% due to the deal. The CEO said he is targeting a ratio of between 6% and 7% and will pay this year’s fi nal dividend in shares, re-base the dividend next year and consider asset disposals on top of the cost savings to achieve this.

However, he declined to say what assets could be sold, although analysts speculate that it will be HBOS’ Australian arm, Bankwest.

MIDDLE EASTQNB Al Islami rewards card holdersQATAR: Qatar National Bank (QNB) has chalked up another fi rst, this time through its Islamic branch Al Islami. QNB Al Islami is rewarding its MasterCard holders with Qmiles, the loyalty program from Qatar Airways. Each time they use their gold or standard cards, they will accumulate one

Qmile for every QAR8 (US$2.20) and QAR10 (US$2.75), respectively. These Qmiles can then be redeemed to purchase or upgrade Qatar Airways tickets.

The cards were launched earlier this year to meet the growing demand for Islamic products and services.

QNB Al Islami is the Shariah compliant branch of Qatar National Bank, the fi rst Islamic bank to be opened by a conventional bank in Qatar.

Lehman’s employees face uncertain futureGULF: Lehman Brothers’ employees in the region are uncertain of their fate following the US-based bank’s decision to fi le for bankruptcy protection.

Lehman was engaged in investment banking and capital markets operations in the Gulf. Some of the major transactions that the bank was involved in were the merger of Emirates Bank and National Bank of Dubai, Jebel Ali Free Zone Authority’s AED7.5 billion (US$2 billion) Sukuk and US$2.7 billion worth of debt fi nancing for Qatari gas projects.

According to Benoit Demeulemeester, managing partner of Strategic Partners, a human resource consulting fi rm specializing in the fi nancial industry, several headhunting companies have received job applications from Lehman employees in Europe, Asia and the US.

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MIDDLE EAST(continued)

SBG completes maiden Sukuk issuanceSAUDI ARABIA: Saudi Binladen Group (SBG) has completed the issuance of its privately placed Sukuk and raised more than SAR1 billion (US$266 million) from the domestic capital market. The Islamic bond, which is the group’s fi rst in the kingdom, has a fi ve-year maturity with semi-annual profi t payments.

HSBC Saudi Arabia was the sole lead manager and bookrunner for the issuance. Proceeds will be used for the construction of a hotel project that SBG is developing in Makkah.

Emirates Airline raises US$265 million for aircraftUAE: Emirates Airline has raised AED973.4 million (US$265 million) in Islamic loans to purchase two Boeing 777ER aircraft, said the airline in a statement. The transaction involved 12-year long-term leases, and was lead-arranged by Noor Islamic Bank (NIB). Others involved in arranging the loan were Barclays Capital, CCB International Finance, SAMBA Financial Group and Standard Chartered Bank.

NIB also acted as the structuring bank, investment manager and investor security trustee of the fi nancing, added the statement.

Brian Jeffery, Emirates’ senior vice president of corporate treasury, noted the importance of Islamic fi nancing to the airline. He added that so far, Emirates had raised US$1.3 billion from the Islamic market, including a Sukuk issuance.

The aircraft were delivered in May and August, bringing Emirates’ fl eet to 111, 63 of which are Boeing 777s. The airline is set on becoming the largest Boeing 777 operator in the world with 39 of these jets on order.

High fi ve for single currency launch GULF: Five Gulf states approved a draft agreement on Tuesday to create a common currency, but have yet to decide on the launch date for the new money.

The single currency will play a key role in integrating the economies of the UAE, Saudi Arabia, Kuwait, Bahrain and Qatar, and could signal the start of greater political union. Oman withdrew its participation from the process last year.

JIB’s fi rst-half results shows improvementJORDAN: Jordan Islamic Bank (JIB) has released its fi nancial results for the fi rst half of 2008. Net operating income increased by 54% to US$48.3 million, from US$31.3 million reported in the fi rst half of last year. This improvement refl ects the growth in income from fi nancing and investment operations, and JIB’s success in controlling

operating costs. Net income went up by 34% to US$28.4 million while annualized returns on average equity and average total assets reached 29% and 2.4% respectively in the fi rst half of 2008.

Assets increased by 17% from US$2.2 billion to US$2.6 billion, while investment operations went up by 36% to US$1.7 billion. This growth was fi nanced by customer deposit accounts and unrestricted investment accounts, which increased by 20% to US$2.3 billion as at end-June 2008, which fi nanced 90.4% of the bank’s total assets. The remaining assets were fi nanced by shareholders’ equity, which increased by 16% to US$206 million.

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MIDDLE EAST(continued)

Dar confi dent of growth in third quarterKUWAIT: Shariah compliant Investment Dar is confi dent that its net profi t in the third quarter will report growth after a slight 0.3% decline in the second quarter, said its executive vice-president, Amr Abou El Seoud. He declined to give a forecast for this year’s profi t, but said that the investment fi rm is also positive about it after reporting a 37% increase last year.

Dar, which has joint ventures or partnerships with banks such as Goldman Sachs, Credit Suisse, Merrill Lynch, HSBC and Morgan Stanley, said that the fi rm is not exposed to any risky US investments. “Our partnerships with international banks are pure business partnerships rather than equity partnerships,” Amr Abou said, adding that Dar would not be affected in any way.

He added that Dar is also mulling the possibility of selling Sukuk to fi nance its expansion, but is waiting for the credit markets to improve.

Al Hilal aims to increase branch networkUAE: Shariah compliant Al Hilal Bank intends to increase its branch network to 50 by 2013 as part of its expansion plans, said CEO Mohamed Berro. The new bank currently has four branches in the UAE, and will add another six or seven by December, he added. After that, Al Hilal will set up 10 branches each year until 2013, he said.

The bank also plans to venture overseas starting next year for the same purpose, Berro noted. It is in the midst of forming its wholly owned Takaful subsidiary with AED100 million (US$27 million) in capital, as well as a real estate and a brokerage arm. The CEO said that the subsidiaries will be fully operational by the fi rst quarter of 2009, adding that these will help contribute to Al Hilal’s revenue.

Consortium acquires 52% stake in Jordanian bankJORDAN: A Jordanian-UAE consortium consisting of Jordan Dubai Financial, Dubai Islamic Bank (DIB) and Dubai International Capital has acquired Industrial Development Bank, which is to be rebranded as Jordan Dubai Islamic Bank. The consortium bought

the 52% stake by subscribing to 26 million shares it was offered in a private placement.

The agreement stipulates that DIB shall provide the necessary technical support and supervi-sion for the restructuring, and provide Industri-al Development Bank access to its experience in providing Islamic fi nancing products.

DMI Trust to raise its capital by US$100 millionSAUDI ARABIA: Dar Al-Maal Al-Islami Trust (DMI Trust) plans to raise capital by US$100 million, to US$400 million, with US$500 million in equity capital through a rights issue. CEO Khalid Abdulla Janahi said that the raised amount will be used to fi nance the expansion plans of its entities this year and in 2009.

He added that the money would be raised from its 7,500 shareholders across the world, including the Middle East, Asia, Africa and Europe. DMI Trust’s shares are not tradable, Khalid said, but shareholders can buy and sell among themselves. Among DMI Trust’s entities are Ithmaar Bank, Shamil Bank, Islamic Investment Company of the Gulf and Faisal Islamic Bank of Egypt.

Strong second quarter for EIB fundsUAE: Emirates Islamic Bank (EIB) recently released the second-quarter performance reports for two of its key funds. The Dynamic Liquid Fund and the Real Estate Fund saw returns exceeding expectations yet again.

The open-ended Dynamic Liquid Fund was fl oated to provide professional, institutional and high net worth investors with a professionally managed means of participating in Shariah compliant liquid assets. It had a solid month in May, returning 0.67% and outperforming its peer group average which brought home 0.35%. This strong performance has boosted the compound annualized growth rate of the fund to 5.15%.

Meanwhile, the Real Estate Fund was created to achieve high-yielding rental income and medium-to-long-term capital growth by investing in a diversifi ed portfolio of residential and commercial properties primarily in the UAE. It aims to retain some liquidity by maintaining an element of the portfolio in cash or cash equivalent investments. The current gross value of the fund is pegged at US$480 million with an averaged annualized return of 15.37%.

All you need this season from KFH-BBAHRAIN: Kuwait Finance House (KFH) Bahrain (KFH-B) has launched “All you need for Eid”, an auto fi nance promotion for Ramadan. The Murabahah-structured scheme offers, among others, competitive fi nance rates, fi nancing up to seven years, free Seef Mall vouchers, a mobile phone and zero down payment on selected car models. There is no requirement for salary transfer and approval takes one day.

Khalid Rafea, head of banking group at KFH-B, said the promotion was in line with the bank’s aim of meeting the demand for quality Islamic banking products and services.

Doha Bank still keen to pursue Sukuk QATAR: Doha Bank will still pursue the multibillion-dollar Sukuk plan to fi nance investment in renewable energy, said CEO R Seetharaman. He added, however, that the bank was unable to meet its initial schedule to sell the Islamic bond by the middle of 2008 due to the current global economic conditions. Seetharaman said that market conditions were different when Doha Bank announced the plan last year.

Last year, the CEO had said that the money raised would be used to set up the Gulf’s fi rst carbon-credit exchange in Lusail. The bank is undergoing regulatory approval for the scheme, and the Sukuk will be issued once the market settles down, Seetharaman said. The size may be scaled up if the situation demands it, he added.

HSBC launches GIF MENA Fund partly GIF SICAVMENA: HSBC has launched a Middle East and North Africa (MENA) fund as part of its Global Investment Funds (GIF) SICAV. The fund will invest in companies within the region that have a market capitalization of more than US$100 million, with potential business opportunities in countries including Oman, Egypt and Lebanon.

The fund, managed by Andrea Nannini at Halbis, will be available in 35 countries. The minimum retail investment is US$5,000 and there is a 1.5% annual management fee.

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AMERICASUS government steps in, takes over AIGUS: The US government seized control of American Insurance Group (AIG) on the 16th September. The bailout results in the US Federal Reserve lending up to US$85 billion to the insurance group for two years in exchange for a 79.9% equity stake.

AIG faced a cash crunch after losing more than US$18 billion over three quarters, mainly due to the complex securities tied to mortgages which dropped in value as the mortgage crisis in the US worsened. AIG will pay interest at 8.5% above the three-month London Interbank Offered Rate (LIBOR), which would give the fi rm a big incentive to begin an asset sale program to pay the loan back quickly.

The government decided to step in following concerns that the company’s collapse may cause far-reaching damage to the global fi nancial system, although some market players said the move may only bring short-term solution and could cause harm in the long run. It hired Morgan Stanley to come up with ways to salvage the insurer. The government’s decision came two days after it refused to save Lehman Brothers, which has since fi led for bankruptcy protection.

The insurance giant launched a regional Takaful company in Bahrain in 2006.

ASIAMNRB to expand to Indonesia, BritainMALAYSIA: MNRB Retakaful is set to expand in the rising markets of Indonesia and Britain as growth at home slows, said CEO Ismail Mahbob. He expects the Indonesian market to have high, double-digit growth and estimated the Takaful market there to be worth between US$70 million and US$80 million within the next two or three years.

Demand for Islamic insurance will likely increase, Ismail said, as authorities impose a ruling which requires Shariah compliant branches of conventional insurance fi rms to acquire reTakaful cover instead of the conventional ones. However, Ismail ruled out taking equity stakes in local fi rms in Indonesia, and added that MNRB will penetrate the market via strategic partnerships instead.

According to Ismail, MNRB is also keen to tap Britain’s Islamic reinsurance market, which may also open avenues to markets in other European countries such as Germany, France and Holland.

Moody’s: Huge potential in Asia-Pacifi cASIA: The booming economy in the Asia-Pacifi c has increased life and non-life insurance penetration in the region’s mature and emerging markets, which presents the industry with a huge potential, according to Moody’s Investors Service.

It said in a report that despite the subprime crisis, the outlook for the insurance industry is robust, although efforts by central banks to combat infl ation could reduce demand for products in the short term, which will delay planned investments and the achievement of profi tability among some companies. Some insurers still have exposures to equities, making them extremely vulnerable to the volatility of the fi nancial markets.

Moody’s added that insurance companies also need to invest more to educate consumers on the importance of their products and train the required workforce as both areas represent signifi cant challenges. They also need to provide suffi cient disclosures on their fi nancial condition and products to existing and potential customers.

The report covers Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan, Thailand and

Vietnam, and touches on a variety of themes including product development, distribution, risk and regulatory developments.

MIDDLE EASTSALAMA, NBF ink bancassurance pact UAE: SALAMA Islamic Arab Insurance has signed a long-term bancassurance partnership agreement with the National Bank of Fujairah (NBF). The partnership will provide NBF’s customers with access to a range of family Takaful solutions across the region.

SALAMA’s head of family Takaful, Noel D’Mello, expressed confi dence that the combination of its insurance expertise and the bank’s distribution capability will ensure the success and development of Islamic insurance solutions in the UAE market.

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AMERICASLehman Re downgradedBERMUDA: A M Best has downgraded the fi nancial strength rating of Lehman Re to ‘B’ from ‘A-’, as well as its issuer credit rating to ‘bb’ from ‘a-’. The outlook for both ratings is negative.

The company is a wholly-owned reinsurance company of Lehman Brothers, and the rating actions were taken following the parent company’s decision to fi le for bankruptcy.

The agency believes that the pending reorganization of Lehman will have an impact on Lehman Re. A M Best is also concerned about the future of ongoing operational ties, such as the securities activity between the reinsurance unit and other Lehman affi liates, the administrative and investment management services provided to Lehman Re by other subsidiaries of Lehman, as well as the inability of Lehman to refer potential insurance clients to Lehman Re.

A M Best said it will continue to evaluate the impact of the bankruptcy on Lehman Re. The rating and the outlook of the reinsurance fi rm could change as new information becomes available.

ASIABorcos’ Sukuk gets ‘A1’MALAYSIA: The proposed RM370 million (US$109 million) Sukuk by Syarikat Borcos Shipping (Borcos) has been assigned an ‘A1’ rating by RAM Ratings, with a stable outlook.

It refl ects the company’s position as one of the leading players in marine support services for the Malaysian oil and gas sector, the favorable policies and the strong demand outlook for this industry, and its steady cash fl ow.

However, RAM noted that the rating is moderated by its heavy debt load, aggressive risk appetite and exposure to vessel construction risk as well as escalating operating costs. According to the rating agency, Borcos’ debt-funded expansion will weaken its balance sheet in the near future, but the company will still enjoy its recurring revenue and profi t contributions from its

time charter contracts, which earn fi xed daily charter rates over a predetermined tenure and completely pass through fuel costs.

Proceeds from the Sukuk will be used mainly to fi nance Borcos’ vessel building program. It plans to add another nine vessels to its fl eet of 32 marine support vessels by the end of 2009. It will also be used to refi nance the company’s existing borrowings.

Borcos is a 30-year-old established provider of marine support services.

MARC affi rms Dura Palms’ Sukuk seriesMALAYSIA: MARC has affi rmed the ratings of Dura Palms’ RM100 million (US$29 million) Series A, RM90 million (US$26 million) Series B and RM10 million (US$3 million) Series C Sukuk Ijarah at ‘AAAIS’, ‘AAIS’ and ‘AIS’ respectively.

The ratings refl ect the quality of the collateral, the structural protections incorporated in the transaction, and the performance of the securitized estates buoyed by strong crude palm oil prices. The rating affi rmation of Series C Sukuk Ijarah, meanwhile, refl ects the affi rmed credit rating of Teck Guan Holdings, an investment holding company with diversifi ed businesses in oil palm and cocoa plantations, palm oil milling, manufacturing and trading.

Dura Palms is a wholly owned special purpose vehicle of Teck Guan Holdings, formed to purchase the benefi cial rights to the oil palm plantation assets of its holding company’s subsidiaries and subsequently lease the securitized assets back to them under an Ijarah agreement.

MIDDLE EASTCI assigns ratings to QIBQATAR: Capital Intelligence (CI) has upgraded Qatar Islamic Bank’s (QIB) long-term sovereign rating to ‘AA-’ from ‘A+’, while its short-term sovereign rating gets an ‘A1+’ from the previous ‘A1’.

The agency also upgraded the bank’s long-term foreign currency rating (FCR) to ‘A’ from ‘A-’, short term FCR to ‘A2’ from ‘A3’ and

fi nancial strength rating to ‘A’ from ‘A-’. The outlook is stable.

According to CI, the ratings are refl ective of QIB’s improved asset quality despite rapid growth, high profi tability, the improving sustainability of non-fi nancial and investment income and healthy capital adequacy ratio.

Over the past few months, it has arranged a US$250 million fi nancing for the Ras Laffan Power and Water Project, US$142 million fi nancing to Qatar Electricity and Water Company and signed a MoU with Gulf Oil Company Malaysia for a possible syndicated fi nancing of an oil derivatives project.

QIB is currently the second among the world’s fi ve best Islamic banks, second best bank in Qatar and the 13th largest bank in the Gulf.

Earlier this year, the bank opened the European Finance House, and is currently planning to open banks in Turkey and Kazakhstan as well as expand in Asia and North Africa.

Fitch affi rms AlaqariaQATAR: Fitch Ratings has affi rmed Qatar Real Estate Investment Company’s (Alaqaria) long- and short-term issuer default ratings at ‘BBB+’ and ‘F2’ respectively, with a stable outlook.

The ratings are based on the company’s position as a leading developer of long-term rental housing projects for both state and corporate entities in Qatar.

It also refl ects Alaqaria’s strong operational and strategic ties with the state of Qatar, its close business ties with Qatar Petroleum (QP) and the importance of QP’s projects to the state. These enhanced the fi rm’s stand-alone credit profi le.

Fitch also noted Alaqaria’s low counterparty risk, as the majority of projected income is due to come from strong credits and the benefi ts from a guaranteed rate of return on its contracts with QP or QP-related entities.

The agency is concerned that the company is undercapitalized in view of the large forward order book. Additionally, a large percentage of Alaqaria’s portfolio is currently in the construction phase. However, mitigating factors include the relatively low technical complexity of construction and the ability to pass on costs to sub-contractors.

www.islamicfi nancenews.comIFN REPORTS


Could the unraveling of the US and global economy pave the way for a more prudent and risk-averse fi nancing as afforded by Islamic fi nance? Some are optimistic and some have stated a resounding NO, but what’s certain is that they need to get themselves out of this rut.

This week, Lehman Brothers went bust while AIG, the world’s largest insurer, had to be rescued by the US government. Merrill Lynch found a savior in Bank of America, and now Morgan Stanley is said to be trying to bolster itself by bedding with Wachovia Bank.

The subprime crisis has unfolded into more of a “fi nancial tsunami,” according to a senior investment banker based in the Middle East. “What’s happening now is that there is a massive lack of confi dence, people are afraid to lend to each other because they’re scared of going bankrupt, and basically, you cut your lines.”

Azrul Azwar, senior economist at Bank Islam Malaysia, terms the crisis as “a bad consequence of innovation.” To him, hybrid products which involve collaterized-loan and debt obligations, poor pricing and being “too eager to innovate” had spun the system into what it is now. However, according to Azrul, most countries where Islamic fi nance is actively practiced have escaped relatively unscathed from the crisis, as Islamic investments require greater transparency and underlying assets. He is also confi dent of there being “virtually zero Malaysian companies affected” — either due to smart investment choices or for skipping the subprime bandwagon in 2000.

Many bankers are refusing to say much as it is too early, they feel, to say anything substantial or draw any conclusions. However, with some major US banks going under, and counterparts across the Atlantic in peril of following suit, those in the Middle East are said to be relatively safe, and not directly impacted by the crisis.

However, since the global economy is organically inter-linked, bankers believe that there will be an impact — albeit small — on other economies outside of those involved directly in subprime investments, and that does not exclude the Middle East. Interest rates are beginning to rise, equity markets are going south and some banks that have been directly impacted are even going as far as liquidating their positions in the Middle East.

Yes, it is indeed a scary situation for most, if not all, investment bankers across the board. However, some are confi dent of the US economy picking up again in the shortest time possible — with some anticipating a 2010 recovery — as they believe that restructuring is happening quickly and the system is being pushed as far as possible to normalize. “Institutions are readjusting quickly and not lingering,” a senior banker observed.

Hence, is Islamic fi nance the answer to the world’s fi nancial woes? By and large, investors just want to grow their money as much as possible and as quickly as possible. But are some of them now seriously looking at more prudent and secure means of doing this? Some seem to think so, with one saying: “There are two elements to this. One is to raise funds via Sukuk, because you basically need to have assets, thus reducing the leverage factor.”

“The second is in stocks which are highly leveraged. The SEC (US Securities and Exchange Commission) has, since the crisis, limited short-selling activities, which basically is in line with the Shariah. It is in some sense already mimicking our (Islamic) products, where you cannot short unless you have the stock.”

Azrul Azwar of Bank Islam Malaysia is also confi dent of the positive impact Islamic fi nance could have, stating: “This could trigger a re-look into the beauty of transparency and security that Islamic fi nance offers.”

Some however don’t think so. Islamic fi nance, they feel, is not separated from the organically inter-linked fi nancial system, as it is dealing with the same liquidity and same credit. “It is not a solution, just an alternative. It is not distinct from the economy, and is fundamentally reliant and an integral part of it. Even things such as Sukuk have been re-priced signifi cantly,” a senior banker pointed out. “What has to be done now is to prevent the domino effect, and stop other giants from crumbling, because we are all affected.”

Although it is indeed too early to say anything or draw any conclusions, what is certain is that the market has a short memory, and once the next boom comes along, most would have pushed this 2008 debacle to the back of their minds and jumped onto the most profi table bandwagon.

By Nazneen Halim

GLOBALCould Islamic Finance Have Saved the Situation?

www.islamicfi nancenews.comCOUNTRY REPORT


With over 30 years of experience in establishing its own Islamic fi nance system, Malaysia is now a leading Islamic Finance center which has the most progressive and attractive Islamic fi nancial sector in the world. A recent PricewaterhouseCoopers report said Malaysia has US$30.9 billion in Islamic banking assets and US$1.7 billion in Takaful assets.

Furthermore, according to the report, Malaysian Islamic private debt securities account for 45.5% or US$34 billion of the global Islamic private debt market and the country boasts of an active Islamic money market that moves up to US$12.3 billion monthly on average.

Data collected by Malaysia’s Securities Commission (SC) indicate that 76% of the bond proposals it approved in 2007 were Sukuk. The Islamic fi nancial management industry, it notes, is growing at a compounded rate of 40% annually.

According to the SC’s data, there are currently 134 Islamic unit trusts in the country and that 86% of the listed securities on Malaysia’s Bursa Malaysia stock exchange are already Shariah compliant. These companies, the regulatory body says, represent 63% of the local bourse’s total market capitalization.

Islamic Finance news obtained the views of Martin Crawford (pic), chief executive offi cer of Labuan International Business and Financial Center (IBFC), which is the marketing arm of the Labuan Offshore Financial Services Authority (LOFSA) on Labuan as an offshore center for Islamic investors globally and its plans moving forward. Describing Labuan as “a hidden gem”, Crawford said smart investors would do well to sit up and take notice of the offshore center.

What gives rise to an offshore center like Labuan to be able to provide an Islamic fi nancial environment?Labuan has the facilities, infrastructure, and legal and tax framework in place to make this offshore jurisdiction an attractive prospect for Islamic fi nance investors. As of last year, out of the 53 banks operating out of Labuan IBFC, fi ve offer full-fl edged Islamic fi nancial services. Three conventional banks offer Islamic fi nancial services through

their Islamic windows and six conventional banks hold Islamic assets.Furthermore, under efforts by the Malaysian government to develop the Islamic capital market, Labuan has been promoted as a center for the issuance of fi nancial papers such as Sukuk and to capitalize on the advantages of Labuan International Financial Exchange (LFX) for listing and trading purposes.

What does this information translate into for investors?The IBFC is the perfect destination for investors looking to tap the global Islamic fi nance sector. As of August 2008, US$4.2 billion in Islamic notes have been listed on the LFX and Islamic fi nancial services assets under administration in the IBFC grew by 36.9% in 2007 alone. Also, there are now 17 funds in total; one public and 16 private, operating in Labuan, with a total fund size of US$2.1 billion. As you can see, Labuan IBFC is well poised to become a center for Islamic fi nance.

Labuan faces very stiff competition from other fi nancial markets such the Middle East and even from other established offshore centers such as the Cayman Islands, Bermuda and even recently Hong Kong, Singapore and London. How do you plan to overcome this challenge?Labuan IBFC has a lot of advantages compared to many of its regional rivals. Labuan has been a pioneer in many developments both in the local and in the international Islamic fi nance sectors. It complements the Malaysian International Islamic Financial Center initiative undertaken jointly by Malaysian fi nancial and market regulators as well as government ministries and agencies.

As a founding member of the International Islamic Financial Market and an associate member of the Islamic Financial Services Board, Labuan IBFC works closely with the global Islamic fi nance community to set standards and ensure the stability of the industry.

Labuan IBFC is equally prepared and has been at the forefront of many developments. Labuan will also be one of the few jurisdictions with an Islamic Financial Services Act, a comprehensive set of regulations covering all aspects of Islamic fi nance in a single legislation. This is awaiting parliamentary approval.

Can you tell us more about the LFX?The LFX is proving to be an ideal platform for the listing of Islamic fi nancial instruments to provide price transparency and secondary trading. Already, over US$4.75 billion of Islamic securities are listed on the LFX, which represents 30% of the total market capitalization of LFX.

We believe the LFX can grow to become a region wide exchange for publicly traded Islamic instruments. Last year saw four listings at LFX,

Labuan IBFC: An Offshore Destination for Islamic FinanceBy Islamic Finance news

continued...

“Labuan has been a pioneer in many developments both in the local and in the international Islamic fi nance sectors”

www.islamicfi nancenews.comCOUNTRY REPORT


Labuan IBFC: An Offshore Destination for Islamic Finance (continued)

bringing the total to 32. These included the issuance of a US$1.0 billion Sukuk by Saudi Arabia-based Dar Al-Arkan International Sukuk Company, the fi rst Saudi corporate Sukuk to list on the exchange.

What are the factors contributing to making Labuan attractive?The major rationale behind Labuan’s attractiveness for potential investors in both conventional and Islamic fi nance is its major tax incentives that offer investors a low cost environment for doing business, including no corporate gains taxes and minimal corporate tax.

Under the Labuan Offshore Business Activity Tax Act 1990 (LOBATA) Labuan offshore companies pay a mere 3% tax or a maximum of RM20,000 (US$5,790) per year for offshore trading activities except for shipping and petroleum activities.

In addition, from January 2009, offshore companies in Labuan can opt to be taxed under LOBATA or the Malaysian Income Tax Act 1967. One of the benefi ts of the latter is that they will be treated as Malaysian companies with access to all the double tax agreements (DTAs).

Another attractive advantage of Labuan is that it has one of the largest numbers of DTAs in the world, 68 at last count. These DTAs have been signed with major trading partners including the UK, Canada, Australia, New Zealand, the Asean countries, other Commonwealth countries and many EU and Arab nations.

LOFSA is looking to build on its strong foundation and continue to innovate its portfolio of Shariah compliant products and structures that include Islamic trusts and foundations, Islamic leasing, Islamic funds, Takaful and reTakaful. The move to position Labuan IBFC as an important destination for Islamic fi nance was a timely one by the Malaysian government, given the hunger for Islamic fi nancial products both domestically and internationally.

In fact, I have just returned from a marketing trip to Mumbai, India’s fi nancial and commercial center. We went there expecting to talk about conventional product structures available through Labuan, yet the interest in Islamic fi nance was staggering. The Indian corporations understand the current disparity in demand and supply for Sukuk issuances, for example, which gives a greater likelihood of a new issue being oversubscribed and even commanding a slight price premium.

How do you see Labuan going forward?A lot of interest is expected from large Islamic markets like Indonesia and the Middle East for offshore Islamic trusts. We have new legislation that allows Islamic foundations, which operate in a similar way to trusts (Waqf) in ‘civil-law’ countries like Indonesia, Switzerland and France. With separate laws for Islamic fi nance, trusts and foundations, Labuan IBFC will continue to be an attractive center for Islamic fi nance and Islamic wealth management.

When Labuan IOFC was rebranded as Labuan IBFC earlier this year, fi ve core areas were identifi ed as key drivers for the island’s continued growth. Islamic fi nance is part of that initiative to turn Labuan IBFC into a premier international business and fi nancial center in the region to rival other more established offshore centers.

Internationally, Labuan is a relatively unknown jurisdiction when compared to more established centers in Europe and the Caribbean. However, by focusing on Islamic fi nance as one of our key areas, we can tap newer emerging markets for offshore investment fl ows such as India, China and the Gulf Cooperation Council region.

With a cost-effi cient and business-friendly center operating within a progressive and robust regulatory environment, and the regulatory will of LOFSA and the marketing prowess of Labuan IBFC, this Malaysian offshore business and fi nancial center will continue to lead the way in Islamic fi nance besides being Asia’s most connected, convenient and cost-effi cient IBFC.

To access and download a set of guidelines on Islamic fi nancial services available in Labuan, go to www.LabuanIBFC.my.

“Another attractive advantage of Labuan is that it has one of the largest numbers of DTAs in the world, 68 at last count”

www.islamicfi nancenews.comSECTOR REPORT


There is no secret that the proposed acquisition by DRB-HICOM of 70% shareholdings in Bank Muamalat Malaysia is coming close to completion. DRB-Hicom will hold an extraordinary general meeting on the 23rd September to seek the approval of its shareholders on this matter. Government investment arm Khazanah Nasional holds the remaining 30% shareholding. This article discusses this transaction from the legal aspects.

Late last year, DRB-HICOM had announced its plan to acquire the majority stake in Bank Muamalat from Bukhary Capital, which is controlled by tycoon Syed Mokhtar Al-Bukhary. Bank Muamalat was the second full-fl edged Islamic bank to be set up in Malaysia after Bank Islam Malaysia. Bukhary Capital has become a shareholder of Bank Muamalat in 2004 after it had acquired 40% and 30% of the shares from Khazanah and Commerce Assets Holdings respectively for RM361.90 million (US$105 million).This was considered as the fi rst step of the transaction and could be termed as the negotiation process. Usually, this phase would be followed by or would be done concurrently with the due diligence process. This was followed by the agreement stage when, in April this year, DRB-HICOM signed a sale and purchase agreement with Bukhary Capital to acquire the 70% stake for RM1.070 billion (US$310 million) by issuing 548,666,666 new DRB-HICOM of RM1 each (US$0.30) at an issue price of RM1.95 (US$0.56) per share.

DRB-HICOM has said that the price was arrived at on a willing buyer-willing seller basis after taking into consideration the independent valuation report by Ernst & Young which valued the 100% equity interest in Bank Muamalat between RM1.3 billion (US$377 million) and RM1.53 billion (US$443 million). After this is the completion stage which includes obtaining the approvals of shareholders and all relevant authorities. Note the appreciation of the value of the shares in Bank Muamalat since Bukhary Capital bought the 70% shareholdings in Bank Muamalat for a total investment of RM361.90 million (US$105 million).

Legal AspectsIslamic Banking Act 1983 (IBA). One of the IBA’s provisions relates to the requirement of sanction for reconstruction etc of an Islamic bank. Section 22(1) requires the approval of the Minister of any proposed arrangement or agreement for the sale or disposal of its shares or business, or affecting voting power, management or other matters, which will result in a change in the control or management of the bank. The Capital Markets & Services Act 2007 (“CMSA”) defi nes “control” as the acquisition or holding of, or entitlement to exercise or control the exercise of, voting shares or voting rights of 30% or more, or such other amount as may be prescribed in the Malaysian Code on Take-Overs and Mergers in a company. In the Bank Muamalat case, as the transaction will result in the transfer of 70% shareholdings in Bank Muamalat and change of the control of Bank Muamalat (based on the defi nition given in the CMSA), approval from the Minister of Finance is therefore required.

CMSA and Code. Section 218(2) of the CMSA provides that, subject to exemptions, an acquirer who has obtained control in a company shall make a takeover offer in accordance with the provisions of the Code. Section 216(1) defi nes the word “company” as a public company

whether or not it is listed on any stock exchange, and includes such private company as the Securities Commission may determine. As Bank Muamalat is a public company and the effect of the transaction is the change of control in Bank Muamalat from Bukhary Capital to DRB-HICOM, DRB-HICOM in principle needs to make a takeover offer to acquire the remaining shares in Bank Muamalat in accordance with the provisions of the Code. As the only remaining shareholder of Bank Muamalat is Khazanah, I am of the view that the takeover offer obligation is not mandatory on DRB-HICOM in the fi rst place. One of the objectives of the Code is to ensure fairness and justice to the remaining shareholder arising from the change in control of a target company. In this case, such a situation of unfairness and injustice does not arise as evidenced from the execution of the Deed of Adherence as discussed below. However, assuming that the obligations are still there, there is exemption available to DRB-HICOM from having to undertake the takeover offer.

Practice Note 2.9.6 of the Code provides that a person may apply for an exemption from the takeover offer obligations on the ground that the remaining holders of voting shares of a company have given written affi rmations that they would not be accepting a takeover offer, if such offer is made. As the only remaining shareholder in Bank Muamalat is Khazanah, this requirement can be easily satisfi ed.This can be further substantiated from the fact that DRB-HICOM, together with Khazanah and Bukhary Capital, had entered into a deed of adherence on the 5th June 2008 in relation to the shareholders agreement dated the 18th February 2004 entered into between Bukhary Capital and Khazanah.

Guidelines on the Acquisition of Interests, Mergers and Takeovers by Local and Foreign Interests (“FIC Guidelines”). The FIC Guideline stipulates that these will apply, among others, to the following transactions which require the approval of the Foreign Investment Committee:

• Any proposed acquisition of interest in a local company or business in Malaysia which is RM10 million (US$3 million) or more in value, by local or foreign interests.

• Any proposed acquisition of interest and control of more than 50% of the voting rights in any local company or business by local interest, regardless of whether the value is less than RM10 million.

However, the FIC Guidelines provide further that they shall not apply to any acquisition of interest in a company which has obtained the endorsement of the Secretariat of the Malaysian International Islamic Financial Center (MIFC).

ConclusionWhat’s awaited now is the completion of the transaction. What is most eagerly waited is regarding DRB-HICOM’s future plan for Bank Muamalat. Whether DRB-HICOM, being the majority shareholder of Bank Muamalat, wants to expand further the business of Bank Muamalat or whether it will allow the business of Bank Muamalat to remain as it is now. Let’s wait and see.

Legal Aspects of Buying into an Islamic BankBy Mohd Herwan Sukri Bin Mohammad Hussin

Mohd Herwan writes regularly on the legal aspects in Islamic fi nance. He currently works in the legal department of a prominent fi nancial institution in Malaysia. He can be contacted at [email protected].

www.islamicfi nancenews.comMARKET REPORT


After a slow start in 2008, the Sukuk market is picking up again. Total issuance stood at about US$14 billion in the eight months to the 31st August 2008, down from about US$23 billion during the same period in 2007. This lower level of issuance was largely due to the deteriorated conditions on the global markets, resulting in lower investor interest in buying the paper and the related widening of credit spreads. Although diffi cult to measure, this could have also been partly due to comments about the Shariah compliance of some Sukuk by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

Some issuers may have reconsidered how they structure their Sukuk, resulting in delays. Most Sukuk were issued in markets where liquidity is still abundant and/or appetite for Shariah compliant instruments is high, namely the countries of the Gulf Cooperation Council (GCC) and Malaysia.

Despite lower issuance versus last year, Standard & Poor’s Ratings Services (S&P) still expects Sukuk issuance to reach US$20 billion—US$25 billion in 2008 given the good pipeline. We continue to see a lot of appetite from issuers in a larger number of countries, both Muslim and non-Muslim.

Entities located in more than 15 countries, predominately non-Muslim, have expressed interest or announced their intention to issue Sukuk. We therefore expect the Sukuk market to continue globalizing. More than 50% of Sukuk issued in the fi rst half of 2008 were Ijarah (lease fi nancing), most probably as a direct consequence of the debate among some Shariah scholars regarding the Shariah compliance of most Sukuk previously issued.

To date, S&P has rated about 30 Sukuk (or Sukuk programs), the bulk of which are Ijarah or Musharakah (venture capital fi nancing). Credit spreads on Sukuk have followed the same trend as for conventional bonds with a sharp widening in the past 12 months.

The US dollar lost its position as the currency of choice for Sukuk issuance in 2008, not only because of its weakness but also due to speculation about the de-pegging of some GCC currencies from the dollar.

Corporates remained the main issuers, with fi nancial institutions and sovereigns far behind. These corporates fi nd that Sukuk are an alternative funding source to fi nancing their business or projects, and fi nancial institutions are issuing Sukuk to sustain strong lending growth with longer term funding sources, therefore curbing maturity mismatches.

S&P’s role is to provide market participants with independent and objective opinions about the creditworthiness of issuers or issues — Shariah compliant or conventional. Our ratings represent opinions about creditworthiness and don’t address Shariah compliance.

Sukuk market closes in on US$100 billionDespite gloomy market conditions, Sukuk issuance is rapidly approaching the symbolic US$100 billion mark. It is likely to surpass that sometime in 2009 (see chart 1). In other words, the Sukuk market has already established itself as a niche in the international capital markets and is on its way to becoming more than that. After a very slow start in the fi rst quarter of 2008, with less than US$3 billion

Sukuk Market Picks up Pace Despite Gloomy ConditionsBy Standard & Poor’s

continued...

0

10

20

2001 2002 2003

Total Sukuk outstanding

*Data as of the 31 July 2008. Sources: Standard & Poor’s, Zawya

Global Sukuk issuance in 2008

2004 2005 2006 2007 2008*

30

40

50

60

70

80

st

Chart 1



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Sukuk Market Picks up Pace Despite Gloomy Conditions (continued)

issued, the Sukuk market resumed rapid growth, but at a slower pace than in 2007. S&P expects continued signifi cant growth in the next 12 months.

Sukuk issuance is on a growth path for several reasons:• On the demand side, cash-rich investors from the Middle East

and Muslim Asia are showing growing interest for products that comply with their religious beliefs.

• On the supply side, massive infrastructure projects in the Gulf require huge amounts of funding. Banks there are also scrambling to balance the rapid increase in real estate lending with more long-term funding. Outside of the Gulf, conventional borrowers are willing to diversify their funding sources and attract deep-pocketed investors from the Middle East, especially under current tightened market conditions.

• Regulators and governments in the Gulf and in Muslim Asia, especially in Malaysia, support the development of Islamic fi nance, including the Sukuk market, for religious, political and business reasons.

We continue to believe that long-term growth of the Sukuk market will not be stunted by the debate among some Shariah scholars about the Shariah compliance of most Sukuk previously issued. However, we have noticed a shift toward the Ijarah structure in the fi rst half of 2008 and away from Musharakah, which was prevalent in 2007. The debate about Shariah compliance is likely to introduce more standardization and encourage innovation in the structuring of Sukuk.

We should see the development of Sukuk that are backed by cash fl ow-generating assets and that do not benefi t from “credit enhancements” or third party guarantees. Real estate, for example, could back Sukuk, given the explosive growth of this sector in the Gulf. For instance, we have assigned credit ratings to the AED4 billion (US$1.09 billion) Sukuk Mudarabah Muqayyadah certifi cates issued by Sun Finance. This transaction involves a plot sales receivables fi nancing company under which Sun Finance receives its cash fl ows from a property company, Sorouh Abu Dhabi Real Estate (SADRE), domiciled in Abu Dhabi.

Financial institutions seeking to optimize their funding profi les may fi nd these kinds of deals attractive. Indeed, the rapid growth of real estate fi nance has widened maturity mismatches on the balance sheets of GCC banks. The regional environment therefore seems increasingly fertile for the emergence of securitization, Islamic and conventional. As the region becomes more familiar with securitization techniques, the Sukuk market is set to benefi t from a wave of opportunities and innovation.

The club of Sukuk issuers is wideningThe Sukuk market is attracting issuers from a larger number of countries than ever before (see chart 2). This trend is set to continue. In the fi rst half of 2008, the Gambia entered the league of countries issuing Sukuk through a series of deals (very small in absolute terms) by its central bank. Entities in more than 15 countries, predominately non-Muslim, have expressed interest or announced their intention to issue Sukuk.

In the UK, the Treasury launched a consultation in November 2007 to seek views on the potential for the government to become an issuer of Islamic fi nancial instruments denominated in British pound sterling.

Several Asian countries, including Indonesia, are currently launching their Sukuk or reviewing their options to do so. Therefore, S&P expects the market to continue globalizing.

Issuers from the UAE and Malaysia continue to be the locomotives of Sukuk issuance. In the fi rst half of 2008, issuers from these two countries accounted for three-quarters of total Sukuk issuance. We expect them to continue to be the giants in the market, thanks to their

continued...

Chart 2

Sukuk issuance by country in 2008

*Data as of the 31 July 2008. Sources: Standard & Poor’s, Zawyast

Malaysia(37.96%)

Kuwait(1.66%)Qatar

(2.63%)

Bahrain(4.72%)Gambia

(0.05%)Indonesia(1.45%)

Brunei(0.35%)Pakistan

(2.22%) Saudi Arabia(12.24%)

UAE(36.72%)




authorities’ support for the development of Islamic fi nance and the UAE’s status as a regional gateway to global investors.

Since the 1st January 2008, the four largest Sukuk were issued by SABIC (Saudi Basic Industries Corporation, A+/Stable/A-1), Aldar Properties (A-/Stable/A-2), Nakheel Properties (not rated), and DEWA (Dubai Electricity and Water Authority; not rated), for a cumulative US$4.2 billion.

The Tadamun Sukuk program of the Islamic Development Bank (IDB; AAA/Stable/A-1+), launched in July 2008, was the fi rst Sukuk transaction by this multilateral lending institution, based in Saudi Arabia, issued through a special-purpose vehicle (SPV) with a transaction infrastructure entirely located in Malaysia. We have assigned an ‘AAA’ rating to the IDB transaction (on par with the ‘AAA’ rating of the offshore fundraiser), after analyzing the transaction structure and, in particular, the incentives for the bank to consider the performance of the Sukuk certifi cates that Tadamun issues as equally important as its own obligations and the exposure to Malaysian sovereign risk. This is the fi rst Sukuk that we have rated higher than the rating on the sovereign of the country where the issuer is located.

Malaysia continues to be Asia’s Islamic fi nance hubMalaysia remains Asia’s regional hub for Islamic fi nance. Its well-established Islamic banking system, strong regulatory framework and government support have made the country a leading market for Sukuk issuance. Sukuk issuance from Malaysia remained strong in the fi rst half of 2008, with structures denominated in Malaysian ringgit representing more than one-third of total issuance.

In 2006, the government and regulatory bodies established the Malaysian International Islamic Finance Center (MIFC) with the aim of promoting the country as a leader in this fi eld. One of the MIFC’s key objectives has been to liberalize the domestic Islamic fi nance industry by issuing new licenses to offshore Islamic banks and Takaful companies, to globally integrate the country’s domestic industry.

The government also introduced incentives to attract issuers and investors alike, including various tax exemptions for Islamic banks, brokerages, Takaful companies and offshore Sukuk investors; and the removal of ownership restrictions on Islamic funds.

Malaysia continues to be among the global leaders in innovative Sukuk structuring. The RM2.7 billion (US$0.78 billion) exchangeable Musharakah Sukuk that the government’s state investment arm issued was the world’s fi rst-ever Sukuk with convertibility features. In 2007, the world’s largest Sukuk transaction to date (US$4.8 billion) was issued in Malaysia by Binariang GSM.

Malaysia is also one of the world’s leading markets for Islamic securitization. This involves structuring Sukuk backed by payment streams from a wide variety of assets, from lease payments on plantation assets to trade contract payments or Islamic residential mortgages.

An increasing number of Asian corporates are looking to tap this market with the hope of lowering funding costs and obtaining much needed funding and liquidity in an otherwise diffi cult environment.

Chart 3

Global Sukuk issuance by type in 2008

*Data as of the 31 July 2008. Sources: Standard & Poor’s, Zawyast

Murabahah(5.4%)

Mudarabah(4.5%)

Wakala(12.2%)

Salam(1.0%)

Istina(5.4%)

Musharakah(17.2%)

Ijarah(54.3%)

Chart 4

Global Sukuk issuance by currency in 2008

*Data as of the 31 July 2008, as a percentage of total value in US$.st

Malaysian ringgit(33.16%)

Saudi Arabian riyal(12.24%)

US$(13.3%)UAE dirham

(35.53%)

Bahrain dinar(1.67%)

Indonesia rupiah(1.45%)

Gambian dalasi(0.05%)

Bruneian dollar(0.35%)

Pakistan rupee(2.22%)

continued...




They are doing this in conjunction with a plethora of international fi nancial institutions, led by Malaysian banks, promoting the Sukuk market to the rest of Asia.

Asian sovereign governments are also starting to focus on this market. The debut Indonesian rupiah-denominated IDR4.7 trillion (US$ 5.5.52 million) Sukuk that the Indonesian government raised in late August may be the catalyst for other Asian sovereigns to follow suit, which could lead to the popularity of Islamic fi nance in the region. For instance, Pakistan recently announced that it will sell its fi rst domestic Sukuk before year-end with an auction target of PKR15 billion to PKR20 billion (US$195.8 million—US$261.1 million).

The region’s international fi nancial centers, Singapore and Hong Kong, are also working to facilitate Sukuk issuance. Potential issuers from the non-Islamic Asian markets of Singapore, Hong Kong, Taiwan, and Korea have been studying the market and have started discussions with arrangers.

In August 2008, City Developments, Singapore’s second-largest developer, mandated a bank to arrange a SG$1 billion (US$698.28 million) unsecured multicurrency Islamic medium-term note program. Cambridge Industrial Trust (CIT), a real estate investment trust (REIT) listed in Singapore, announced in July 2007 that it intends to become the fi rst publicly listed Shariah compliant industrial REIT and appointed HSBC to arrange a Shariah compliant debt facility to refi nance its existing borrowings.

Ijarah is taking the leadIjarah structures have taken the lead in the fi rst half of 2008, accounting for more than 50% of total Sukuk issuance. This is probably a direct consequence of the recent debate regarding the Shariah compliance of some other structures. There are 14 ways to structure Sukuk, according to the AAOIFI. In the fi rst half of 2008, issuers used seven structures: Ijarah, Musharakah, Wakalah, Murabahah, Istisna, Mudarabah, and Salam (see chart 3).

US dollar lost its place as the currency of choice for Sukuk issuanceThe US dollar lost its place as the currency of choice for Sukuk issuance in 2008. Less than 15% of the value of Sukuk issued was denominated in US dollars in the fi rst half of 2008 (see chart 4). This is partly due to

its weakness compared with other major currencies but also the result of speculation about a change in the foreign exchange policy of some GCC countries. After the start of the global credit and liquidity crisis, Sukuk issuers deserted global markets and concentrated on their domestic markets where liquidity was available and the appetite for Shariah compliant instruments were strong. Issuance denominated in Malaysian ringgit and UAE dirham represented almost 70% of Sukuk issuance in the fi rst half of 2008.

Issuers are set to continue to use these currencies in the foreseeable future, especially if asset-backed Sukuk takes off with underlying assets generating cash fl ows in local currencies. However, once market conditions return to normal and uncertainties about GCC countries’ foreign exchange policies are removed, we expect issuance in the dollar to resume, mainly because issuers are fi nancing infrastructure projects in the Gulf where most costs are denominated in foreign currencies, usually the dollar.

Corporates continue to power growth of the marketCorporates continue to fuel Sukuk growth (see chart 5). In the fi rst half of 2008, corporates accounted for more than 85% of Sukuk issuance. S&P believes that corporates will continue to dominate, fi nding Sukuk to be an alternative way to boost growth amid a very supportive economic environment and some restrictions on bank fi nancing due to single name lending limits.

Financial institutions will also continue to play an important role, owing to their need to lengthen the maturity profi le of their funding sources as the duration of their loans widens. Finally, as already stated, S&P expects some sovereigns to issue their fi rst Sukuk in the near future. Some of these countries are looking at Sukuk as a way to diversify their funding sources, attract deep-pocketed investors and show their commitment to Islamic fi nance.

S&P’s role in the market for SukukOur role is to provide market participants with independent and objective opinions about the creditworthiness of issuers and issues, including those involving Sukuk. We do not comment on the Shariah compliance of a particular issue or issuer.

Our ratings don’t constitute a recommendation to sell, buy, or hold a particular security, whether it is Shariah compliant or not. Instead, our ratings help investors to make informed decisions and issuers to access debt markets and benchmark their creditworthiness against peers’.

Chart 5

Global Sukuk issuance by type in 2008

Data as of the 31 July 2008. Sources: Standard & Poor’s, Zawst

Corporate(86%)

Financial Institutions(6%)Sovereigns

(8%)

Primary Credit Analyst: Mohamed Damak, Paris (33) 1-4420-7322;[email protected] Credit Analysts: Emmanuel Volland, Paris (33) 1-4420-6696;[email protected] Maheshwari, Singapore (65) 6239-6308;[email protected]

www.islamicfi nancenews.comSPECIAL REPORT


To earn money is commendable for any Muslim. It enables one to support oneself, family and loved ones. It also allows one to pay the zakat (welfare contribution) and sadaqah (charity). However, there is also the obligation to use the money wisely and spend it in a way which allows the whole community to benefi t thereof. Together with the broad Islamic inheritance rules, the repartition of wealth is an important factor in Muslim society.

The sharing of profi t and loss in business is another facet of that same mirror and one upon which the foundations of the Islamic economy and fi nance is built upon.

However, until recently, all the attention seemed to be focused on the development of the Sukuk market. This market was pressured into developing into a fi xed income strategy that, whilst trying to attract investors, mimicked the conventional bond market as much as possible, rather than going its own way.

After the fi rst strong wave of the Sukuk market and in the full aftermath of the subprime crisis, the recent reminder by the Accounting and Auditing Organization for Islamic Finance Institutions (AAIOIFI) may cause some short-lived dips in the growth trend but will lead to further growth in a more apt direction. There also is the saying, “what you do not know you will not miss” or “ignorance is bliss.”

The large amounts of money involved in the Sukuk issuances by nature always attract more attention and publicity than the strong and steady but quiet growth of the Islamic fi nancial institutions themselves.

The Sukuk did help to give the industry as a whole a global brand and even enticed the conventional market to participate eagerly. Its overall value therefore must not be underestimated. Besides these instruments, it is a wide known fact that the trade fi nance contracts such as Murabahah and Ijarah form the main body of contemporary Islamic banking.

Strangely enough, the so-called “private equity” investments have been under-developed so far. Venture Capital can briefl y be described as capital that is made available for newly established to middle sized businesses that have signifi cant growth potential. Sometimes this is also accompanied by the contribution of additional human resources and networking aid made available by the investors (or their management teams).

Mostly, the investment is designed to exit once the growth targets have been reached. The investors aim to generate a return, typically through an IPO (initial public offer) or merger of the company. It is a full risk project where profi t and loss is shared by both the parties concerned during the growth phase and intended capital gains are reaped at the exit. Both Mudarabah and Musharakah principles can be fully applied, so there is therefore no better compliant way of investment possible.

Investment criteriaAny portfolio manager will confi rm that it is advisable to spread the risk of failure of a target company among several investors and over a larger portfolio of investments. It also makes sense to pool the investors in larger investment structures. The benefi t is that more money is available which in turn enables increased stakes in different target companies to be acquired (further spreading the risk). The pooling also allows special fund managers to be hired to manage the business professionally.

Investing money on the stock exchanges has its advantages. The companies concerned usually have had a reasonable life span, suffi cient publicly available information, controlled governance, supervision by capital markets or stock exchange regulators, fi nancial track records and dividend policy.

Companies that are in their early or mid stages or even in their start up stage, for that matter, lack all that and hence pose more risks to the investor. On the other hand, they also offer better growth prospects and profi t returns.

As far as the target companies are concerned, Shariah imposes some restrictions on the ethical selection criteria to make sure that the investments remain halal (lawful). In general, activities are considered to be haram (unlawful) when a company:

• Produces/slaughters/sells/trades or distributes pork (or pork-related) products and blood.

• Engages in pornography or obscenities in any form.• Primarily engages in the entertainment business (fi lms, videos,

theatre, cinema etc).• Is engaged in gambling, casinos, lotteries and related games

and activities like being bookmakers.• Is active in non-compliant fi nancial practices or insurance.• Is involved in the arms industry, defense and the like.• Produces/distils/sells/trades or distributes alcoholic beverages

or related products.• Produces/grows/sells/trades or distributes intoxicants or

related products (drugs, tobacco etc).• Other activities the Shariah adviser may deem as non-

permissible.

Immediately, it is clear that the available investment environment is considerable and almost unrestricted. Industries, services, retail, information technology — name it and it can be done. Most of the existing businesses, however, are not yet aware of the ethical-fi nancial restrictions related to interest (riba) and are entangled in interest based lending in different ways. The willing investor should avoid getting into such an undesirable environment.

Basic Notions on Islamic Private Equity Fund (IPEF)By Paul Wouters

continued...

“In the present economic circumstances, it is extremely diffi cult to fi nd target companies that are completely “interest free” (in terms of loans) and not too “liquid” (cash and receivables)”

www.islamicfi nancenews.comSPECIAL REPORT


Basic Notions on Islamic Private Equity Fund (IPEF) (continued)

In the present economic circumstances, it is extremely diffi cult to fi nd target companies that are completely “interest free” (in terms of loans) and not too “liquid” (cash and receivables). The Shariah scholars have accepted this reality and have allowed cooperation for the general benefi t. Partial “contamination” of the target companies therefore does not pose any insurmountable hindrance to investment.

A number of “rules of thumb” have been developed and are largely accepted in order to help discern which investment targets are acceptable and those which should be avoided. Here are some roughly summarized examples of the FTSE Shariah Global Equity Index Series’ guidelines:

• Exclude investments when total debt over total assets exceeds (or is equal to) 33%.

• Exclude investments when total cash and interest bearing securities on total assets exceeds (or is equal to) 33%.

• Exclude investments in target companies if account receivables on total assets are greater than (or equal to) 50%.

• Any haram income of a non-compliant target company that does not exceed 5% of overall gross income is considered marginal or accidental. The target company will still be acceptable, provided that suffi cient cleansing — isolated and given to charity — is made according to the guidelines set by the Shariah Adviser.

These guidelines are sound and safe. They basically exclude companies that are too exposed to credit and lending (and interest based debt), which is what makes them prone to problems or even failure anyway. When most Islamic portfolios yield better results than their likely structured conventional opponents, then the application of such guidelines even from the preliminary stages may be one of the reasons for the smaller rate of failures.

Investment structuresOf course, the nominative contracts such as the Mudarabah and Musharakah partnerships can be used to structure such consortia of investors. But more contemporary limited partnerships, trusts, funds or corporate structures also have been accepted to be compliant. Southeast Asian scholars in general tend to be more lenient in this respect than some of their Gulf based counterparts. The choice of the precise structure will depend on the legal vehicles that are available in the jurisdictions involved, tax and foreign direct investment regulations and Shariah restraints.

Shariah Adviser and legal assistanceThe use of experienced legal counsel on both Shariah and conventional consulting of course is beyond question. It facilitates the communication between the Shariah adviser, the investors, the management team and the target company and its initial shareholders. In order to assure full compliance with the Shariah, it is compulsory to involve a Shariah adviser. Since that adviser cannot be available all the time, he/she should be assisted on a daily basis by the function of the Shariah Compliance Offi cer whenever possible.

The Shariah Adviser will:• check that all aspects of the business are in accordance with

the Shariah (including portfolio management, trading practices, operational matters, administrative matters, etc).

• provide Shariah expertise on documentation, structuring and

investment instruments as well as ensure compliance with the general Shariah principles and the standards, regulations and resolutions of the regulator.

• scrutinize any compliance report or any investment transaction report prepared by the Shariah Compliance Offi cer.

• provide written opinions of compliance from time to time or when needed and at least annually to the board of directors of the private equity fund.

Legal challengesBesides tax implications in jurisdictions that are not apposite to receiving Islamic structuring, focus is streamed into aligning contracts, partnership structures and conventional regulations with the Islamic principles. Moreover, in most cases, the expectations of the lawyers and consultants involved — and possibly the other conventional investors or even the target company — do not fi t the Shariah framework. The conventional mindset indeed is directed to minimizing risk (and sometimes even excluding) and optimizing profi t on an interest-based basis.

Briefl y, on a few topics:• Preferential and not fully subordinated shares/debts, for

instance, are commonly used in conventional structuring. This would entail that some shareholders bear less risk or at least the risk of loss is not equally distributed among the shareholders. In this sense, preferred stock — giving the holder the right of pay out of investment before the common stock — is prohibited.

• Guaranteed liquidation pricing (in a way excluding the risk of sharing a loss) is also contrary to Shariah.

• Guaranteed return on investment (say, dividend of x% per annum) is also unlawful for the same reasons.

• On the other hand, preference to profi ts may be construed within limits when attached to common stock. Also, convertible and exchangeable structures have been approved.

• Vesting techniques can be used. This means that some stocks only accrue for the entrepreneur (or key employees) after agreed periods have elapsed or benchmarks have been reached.

• Lock-in agreements also have been approved.• It also is advisable to draft good covenants and where possible

insert Shariah protection clauses in articles of association and so forth.

• It is advised to consult properly trained professionals before and during any negotiations so that mindsets and expectations can be changed or breaking points can be discovered at early stages.

This article is a short introduction to an in-depth study by the author. The full report titled: ‘Understanding Islamic Private Equity’ will be made available to subscribers in the coming weeks.

Paul [email protected]



There is no reason why a BancaTakaful should not be successful, as long as

1) The customer/product/delivery channel matrix is carefully considered and understood.

2) It is recognized that the selling techniques that are required for BancaTakaful are a fundamentally different skill set from those required to promote fi nancing and deposit taking activities.

DAUD VICARY ABDULLAH: Chief Operating Offi cer, Asian Finance Bank

Banking and insurance are very different businesses, and the trend for the two to merge from the 1990s seems now to have gone into reverse. The same applies to Takaful, which is best provided by specialist operators, and not by Islamic banks.

Islamic banks can of course cross-sell Takaful policies to their current account clients and those seeking Islamic home fi nance, but these can be products offered by third parties, with the Islamic bank earning a fee for the sale. Apart from distribution, there are few synergies between Islamic banks and Takaful operators, as the latter is mainly concerned with asset management, while retaining suffi cient liquidity to meet claims.

Takaful has an exciting future, from family Takaful to Shariah compliant car insurance, but Islamic banks are best to focus on their strengths, and not to enter activities that require different skill sets.

PROFESSOR RODNEY WILSON: Director of Postgraduate Studies, Durham University, UK

The takeover by Commerzbank of Dresdner from Allianz is not necessarily a failed attempt at bancassurance, but can equally be seen as the sale of a non-performing asset. Were Dresdner part of a bank, the sale may still have occurred. Although bancassurance appears to be a diffi cult combination, there are successful examples such as Internationale Nederlanden Groep NV.

When combining an insurance company with a bank, it is key that both are run effi ciently and effectively on their own merit — Shariah compliant or not.

DR NATALIE SCHOON: Head of product management, Bank of London and the Middle East, UK

The advantages of scale — certainly for growing small and mid-sized enterprises — are obvious, spreading costs and risks while at the same time growing turnover and market penetration. Still in its infancy stages, the Takaful industry will benefi t largely from the organizational knowhow that has been acquired in the conventional (bank) insurance industry in this fi eld over the years.

At a certain point, however, the economy of size — certainly when combined with industry diversifi cation — poses questions, next to regulatory and supervisory and also organizational challenges. Then, bigger not necessarily becomes better. The mature conventional insurance industry knows what they talk about. They are learning it the hard way and they know for a fact that globalized bancassurance still has a long way to go. Time will tell if the Takaful industry, equipped with different ethical standards, has an answer to offer.

PAUL WOUTERS: Partner, Bener Law Offi ce, Istanbul, Turkey

The takeover by Commerzbank of Dresdner Bank from Allianz SE closes the book on yet another failed attempt at bancassurance in the conventional markets. Should this raise alarm bells for those entering bancaTakaful, or

can the Shariah version buck the trend and be a best seller?

Next Forum Question

The catastrophic events on Wall Street this week have thrown the global fi nancial markets into turmoil. What effect will this have on the Islamic fi nance industry and what lessons can be learnt? Would such developments

have been staved off had Islamic fi nancing principles been practiced by those concerned?

If you would like to air your views on the next Islamic Finance Forum Question, please email your response of between 50 and 300words to Christina Morgan, Forum Editor, at: [email protected] before Wednesday, 1st October 2008.

BENER LAW OFFICEIstanbul – Turkey

www.islamicfi nancenews.comMEET THE HEAD


Islamic Finance news talks to leading players in the industry

Could you provide a brief journey of how you arrived where you are today?

I joined HSBC Amanah in May 2007 from Saudi British Bank (SABB) where I had been general manager of operations and processing since 1998. Prior to that, I had held various senior positions within SABB for nearly two decades in operations, retail banking, corporate banking and in credit.

What does your role involve?I am responsible for HSBC Amanah’s business globally to ensure that all our key geographies, including the Middle East, the Asia-Pacifi c and the UK are aligned with the global business strategy. I also lead a central team based in Dubai which provides functional oversight for all the Amanah businesses and acts as the center of excellence for Shariah, development of Islamic fi nance systems as well as branding and marketing initiatives.

What is your greatest achievement to date?HSBC Amanah has launched its Islamic Micro Finance Initiative, which in effect extends the reach of the Islamic fi nance to a new segment of society and provides Islamic fi nance industry with a totally new paradigm. I feel extremely proud to have led the launch of this initiative by HSBC Amanah. HSBC Amanah has also teamed up with the Chartered Institute of Management Accountants (CIMA) to support the CIMA Islamic fi nance certifi cate initiative, which is a timely step for developing the right skill set for the industry. In addition, I feel extremely proud because due to hard work and perseverance of our team, HSBC Amanah won the accolade as the Best International Islamic Bank this year.

Which of your products/services deliver the best results?

HSBC Amanah offers Islamic banking solutions which combine our fi nancial expertise with our enduring values. Our fi nancial products and solutions are well received, be it in retail banking, corporate and investment or private banking. We have been at the forefront of introducing solutions through technology to our customers and this combination of technology, with our focused product offering, has resulted in a winning combination.

What are the strengths of your business?Our key differentiator is our strong brand that has become synonymous with trust, integrity and reliability. Innovation is a key strength of HSBC Amanah. We are always working towards improving the quality of our product propositions which includes enhancing customer experience

through increased education level of our sales force and setting up of an effi cient technology platform that can facilitate Shariah-based fi nancial solutions.

Our constant drive for innovation never compromises on the Shariah compliance of our propositions. HSBC Amanah brings together the largest team of any international Islamic fi nancial services provider with more than 300 bankers in 20 countries and beyond. We are widely recognized as a market leader in terms of global reach, innovative products and services and our investment in industry building initiatives.

What are the factors contributing to the success of your company?

At HSBC Amanah, our ultimate goal is to meet the growing needs of our customers for Shariah compliant products and services. We have experienced Islamic fi nance teams across our key geographies dedicated to research and product development. All HSBC Amanah products and transactions are developed in consultation with independent Shariah scholars and approved by them prior to distribution.

With the global resources of the HSBC Group including technology, distribution capability and market knowledge at its disposal and the largest Islamic fi nance team of any international bank, HSBC Amanah is uniquely positioned to understand, structure and distribute fi nancial services that are compatible with the requirements of Shariah.

What are the obstacles faced in running your business today?

Raising the standards of the Islamic fi nance industry is dependent on advanced research and development on the one hand and on increased education and awareness among the public on the other. At HSBC Amanah, we attach greater importance to both aspects.

The regulatory frame work in many countries needs to appreciate the peculiarities and requirements of the Islamic fi nance industry. Although there is a growing awareness of this issue, there needs to be active engagement by the regulators to provide an enabling environment for the growth of the industry.

Where do you see the Islamic fi nance industry in, say, the next fi ve years?

Islamic banking is an industry that is still evolving and with a maturing client base and increasingly demanding competitive products, along with increasing number of Islamic fi nance players in the market, the market place is ripe for the development of newer products and instruments. With increased investment and focus by the Islamic fi nance players, it is expected that Islamic fi nance will come up with products that live up to the high standards of Islamic clients, both in terms of Shariah compliance and competitiveness.

Name one thing you would like to see change in the world of Islamic fi nance.

The industry needs to focus on research and development, which would ensure the long term sustainability and viability of the industry and eventually result in shifting the business model from a Shariah compliant model to a Shariah based model.

Name:

Position:

Company:

Based:

Nationality:

Nabeel Shoaib

Global Head of HSBC Amanah

HSBC Amanah

Dubai

Saudi

www.islamicfi nancenews.comTERMSHEET


INSTRUMENT Privately placed Sukuk issue based on diminishing Musharakah

ISSUER Amreli Steels, one of the largest manufacturers of steel reinforcement bars in Pakistan

PRINCIPAL ACTIVITIES Steel bars producer

ISSUE SIZE Up to US$16.81 million (inclusive of a green shoe option of US$3.87 million)

MATURITY Up to seven years inclusive of grace period of two years, starting from the date of fi rst drawdown

PAYMENT SCHEDULE

The issue shall be structured to redeem the issue amount thus:• Year 1-2: Nil (grace period).• Year 3-5: 24% of the issue amount.• Year 6-7: 76% of the issue amount in eight equal quarterly installments.

AVAILABILITY PERIOD Up to three months from the date of signing the issue documents

DRAWDOWN In tranches during the availability period

PROFIT BENCHMARK Base rate plus a margin of 1.75 basis points

ARRANGERS Meezan Bank and Faysal Bank

LAW Laws of Pakistan

LEGAL COUNSEL Mandviwalla & Zafar Legal Advocates

FINANCIAL ADVISOR Faysal Bank

TRUSTEE Meezan Bank

SHARIAH ADVISOR Meezan Bank

PURPOSE OF ISSUE To swap existing conventional debt with Shariah compliant fi nancing and capital expenditure of Amreli Steels

RATINGS ‘A’ by Pakistan Credit Rating Agency (PACRA)

Amreli Steels’ US$16.81 million Sukuk

For more termsheets, visit www.islamicfinancenews.com

www.islamicfi nancenews.comMOVES


KFHMMALAYSIA: Kuwait Finance House Malaysia has announced the appointment of Baljeet Kaur Grewal as managing director and vice chairman. She is currently the group’s chief economist.

Baljeet will be based in Malaysia, heading the group’s research entity KFH Research, which is a 100% owned subsidiary of KFH Kuwait.

ISTITHMAR WORLDUAE: Former CEO Adel Al-Shirawi, who is being questioned by police as part of a corruption probe, has been removed from the Islamic mortgage lender’s board of directors, said the company in a statement to the Dubai Interna-tional Financial Exchange. A replacement has yet to be appointed.

Adel stepped down from his position as CEO in January this year and became Istithmar World’s vice-chairman. Istithmar has also sus-pended Adel from his post and removed him from the board of directors as well, alongside its chief fi nancial offi cer, Feras Kalthoum.

Both men are being investigated for alleged wrongdoing while in the previous positions at Tamweel. Istithmar World is owned by Du-bai World, and is the largest shareholder in Tamweel with a 21.6% stake.

SOROUH REAL ESTATEUAE: The real estate developer has announced that Paul Warren will be joining the company as chief strategic offi cer, to provide senior strategic advice to the CEO and board of directors.

He has 20 years experience in investment banking and strategy. He has held several senior roles including six years at JPMorgan Chase & Co in the US, where he was vice president of investment banking until 1992.

LATHAM & WATKINSQATAR/UAE: Craig A Stoehr has rejoined the law fi rm’s corporate department as counsel in its Doha offi ce. He previously worked with Latham & Watkins in the New York offi ce from 1994 to 2000.

He focuses on capital markets, mergers and acquisitions, strategic investments

and corporate counseling, and also had signifi cant exposure to project fi nance and real estate transactions.

The law fi rm also announced the appointment of Mark Godfrey as counsel in the fi nance department, in the Abu Dhabi offi ce. He joins the fi rm from Allen & Overy, where he worked in the fi rm’s Dubai, Abu Dhabi and London offi ces. His practice focuses on project fi nance transactions, with strong expertise in the energy, transport, infrastructure and communications sectors.

ABRAAJ CAPITALUAE: Four executive directors have been appointed to further strengthen the private equity fi rm’s management. Pervez Akhtar will be joining the Abraaj investment management team from Allen & Overy, where he was a partner and head of the corporate practice. He has more than 15 years experience in private equity, corporate and corporate fi nance work.

Hisham Ahmed Ashour joins the portfolio management team at Abraaj Capital. Prior to this, he was a partner and the regional practice leader for Alvarez & Marsal in the Middle East, Africa and Turkey.

He brings with him 19 years international operational performance improvement and turnaround experience spread across Europe and the Middle East across different sectors and industries.

Ashish Dave was a partner with KPMG based in Dubai before joining the fi nance team at Abraaj. He has more than 11 years of private equity experience advising clients within and outside the region.

Matteo Stefanel brings over 12 years of private equity and investment banking experience to the investment team. Prior to joining Abraaj, Stefanel was with Marfi n Investment Group where he was chairman of the recommending investment committee, heading all transaction execution.

Abraaj has also appointed two lawyers from law fi rm Simpson Thacher & Bartlett’s New York offi ce. Andrew Chvatal has already joined Abraaj while Darius Jannat will be making his move later this month.

Both join as lawyers in an executive role in the company.

DEUTSCHE BANKCHINA: The bank has hired three senior corporate fi nance bankers from UBS to strengthen its investment banking franchise in North Asia. The trio specializes in equity capital markets and advisory execution while focusing primarily on China-related deals.

Heidi Yang is the new managing director and head of its corporate advisory group for Asia. She was previously UBS’ head of the Greater China corporate fi nance group. Joining her are Danny Lee and Johnson Ngie as directors in the same corporate advisory group.

CLIFFORD CHANCEHONG KONG: Peter Charlton will be moving to Asia as the law fi rm’s new regional manag-ing partner. He is currently the global head of Clifford Chance’s corporate practice, a posi-tion he held since 2005. He was previously a managing partner at Clifford Chance’s London offi ce.

Charlton is succeeding Jim Baird, who retired due to ill health. He specializes in corporate fi nance, domestic and cross-border mergers and acquisitions, restructurings, buyouts, takeovers, and stock exchange matters.

ADCBUAE: Saeed Al Hajeri has stepped down from his position of Abu Dhabi Commercial Bank (ADCB) chairman, to focus on other directorship in his portfolio. He is replaced by Eissa Al Suwaidi, who has more than 15 years experience in the banking industry.

Meanwhile, Mohammed Sultan Al Hameli has been elected as the bank’s new vice chairman.

BGIUK: Deborah Fuhr is Barclays Global Investors’ (BGI) global head of exchange-traded fund (ETF) research and implementation strategy, effective from the 15th September. She is based in BGI’s London offi ce.

Fuhr, who will also be a managing director, joins BGI from Morgan Stanley, where she spent 11 years focusing on the ETF market. She is widely recognized as the leading research analyst covering the ETF market worldwide.

www.islamicfi nancenews.comDEAL TRACKER


Islamic Finance newsAdvisory Board:

Mr Daud Abdullah (David Vicary)Chief Operating Offi cer

Asian Finance Bank

Dr Mohd Daud BakarChief Executive Offi cer

International Institute of Islamic Finance

Prof Dr Mohd Masum BillahGroup Executive ChairmanMiddle Eastern Business

World Group of Companies

Dr Humayon DarChief Executive Offi cer

BMB Islamic

Mr Badlisyah Abdul GhaniChief Executive Offi cer

CIMB Islamic

Ms Baljeet Kaur GrewalGroup Chief EconomistHead, Global ResearchKFH Research Limited

Mr Sohail JafferPartner

International Business Development FWU International

Dr Monzer Kahf Consultant/Trainer/Lecturer

Private Practice

Mr Mohamed Ridza AbdullahManaging Partner

Mohamed Ridza & Co

Prof Bala ShanmugamDirector of Banking & Finance Monash University Malaysia

Mr Muhammad Nejatullah SiddiqiAuthor, Scholar, Speaker, Trainer

Mr Rushdi SiddiquiGlobal Director

Dow Jones Islamic Indexes

Mr Dawood TaylorHead of Takaful Taawuni Division

Bank Aljazira

Mr Abdulkader ThomasPresident & CEO

SHAPE – Financial Corp

Mr Paul WoutersPartnerBener

Prof Rodney WilsonDirector of Postgraduate Studies

Durham University

Mr Sohail ZubairiVice President & Head Shariah

Coordination Dubai Islamic Bank

Another Islamic Finance news exclusive

ISSUER SIZE (million) INSTRUMENT

Bakrieland Development Up to US$32.85 Sukuk

Borcos Shipping US$106.64 Sukuk

TSH Resources Up to US$115.3 Sukuk Ijarah

City Development US$708.32 Sukuk

Malaysian Debt Ventures Up to US$449.07 Sukuk

Bumiputra-Commerce Holdings

US$1.84 billion Islamic and conventional CP/MTN program

Islamic Bank of Thailand US$178.77 Ijarah

ETA Star Property Developers

Up to US$150 Sukuk

Abu Dhabi Commercial Bank US$1.07 billion Islamic MTN

Dewa Minimum US$500 Sukuk

Philippines Up to US$1 billion Sukuk

BTA Bank Up to US$150 Sukuk

Bahrain Central Bank US$500 Sukuk

Qatar Islamic Bank US$300 Sukuk

Barwa Real Estate US$800 Sukuk

Doha Bank US$1 billion Sukuk Ijarah

Tabreed Up to US$500 Sukuk

Dubai International Financial Center

US$200 Sukuk

Amlak Finance US$260 Sukuk

Al-Rajhi Cement Investment US$595 Sukuk

Indonesia up to US$2 billion Ijarah

Glomac US$18.83 Murabahah MTN

Prolintas US$187US$93.5 million senior Ijarah, US$93.5 million junior Musharakah

Monetary Authority of Singapore

TBA Sukuk

Islamic Development Bank US$122.75 Ijarah

UMW Toyota Capital US$306.9 Musharakah CP/MTN

For more details and the full list of deals visit


Deal trackerKeeping you abreast of the world’s upcoming Shariah compliant deals

www.islamicfi nancenews.comISLAMIC FUNDS TABLES


Monthly Returns for ALL funds (as of the 17th September 2008)

FUND FUND MANAGER PERFORMANCE MEASURE FUND DOMICILE

1 ETFS Physical Palladium ETFS Metal Securities 8.56 Jersey

2 ETFS Physical Gold ETFS Metal Securities 4.99 Jersey

3 ETFS Physical PM Basket ETFS Metal Securities 4.75 Jersey

4 DWS Noor Precious Metals Securities Fund - Class A DWS Noor Islamic Funds 4.74 Ireland

5 ETFS Physical Silver ETFS Metal Securities 4.70 Jersey

6Islamic Certifi cate on Capital Protected Commodity Basket

ABN Amro Bank 3.85 Not disclosed

7 ETFS Physical Platinum ETFS Metal Securities 2.75 Jersey

8 Islamic Certifi cate on HSBC Absolute Return Fund ABN Amro Bank 2.03 Not disclosed

9 Islamic Certifi cate on Water Sector Yield Discovery Note ABN Amro Bank 1.21 Not disclosed

10 Jadwa Conservative Allocation Fund Jadwa Investment 0.83 Saudi Arabia

Eurekahedge Global Islamic Fund Index -2.44

DisclaimerCopyright Eurekahedge 2007, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an “as is” basis and you assume and will bear all risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its affi liates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and fi tness for any purpose.

Contact EurekahedgeTo list your fund or update your fund information: [email protected]

For further details on Eurekahedge: [email protected] Tel: +65 6212 0900

Eurekahedge Global Islamic Fund Index

Monthly returns for Global funds (as of the 17th September 2008)FUND FUND MANAGER PERFORMANCE MEASURE FUND DOMICILE

1 KASB Islamic Income Fund KASB Funds 12.06 Pakistan

2 ETFS Physical Palladium ETFS Metal Securities 8.56 Jersey

3 Tijari Islamic Money Market Fund Commercial Bank of Kuwait 6.17 Kuwait

4 Al Rajhi Local Shares Fund Al Rajhi Bank 6.06 Saudi Arabia

5Islamic Al Yusr Certifi cate on the ABN AMRO US Opportunities Fund A

ABN AMRO Bank 5.50 Not disclosed

6 ETFS Physical Gold ETFS Metal Securities 4.99 Jersey

7 ETFS Physical PM Basket ETFS Metal Securities 4.75 Jersey

8DWS Noor Precious Metals Securities Fund - Class A

DWS Noor Islamic Funds 4.74 Ireland

9 ETFS Physical Silver ETFS Metal Securities 4.70 Jersey

10 HSBC Amanah Saudi Equity Segregated Portfolio HSBC Investments 4.51 Cayman Islands

Eurekahedge Islamic Fund Index* -2.40

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SHARIAH INDEXES


Index Code Index Name 17/09/08 August-08 July-08 June-08 May-08 April-08 Mar-08

SPSHX S&P 500 Shariah 1007.451 1105.698 1088.084 1117.006 1191.671 1159.136 1101.027

SPSHEU S&P Europe 350 Shariah 1173.674 1360.152 1422.505 1484.523 1561.127 1527.614 1447.319

SPSHJU S&P Japan 500 Shariah 1023.449 1118.087 1147.273 1215.950 1298.106 1256.791 1183.592

S&P Shariah Indices Price Index Levels


SPSHAS S&P Pan Asia Shariah 797.476 940.242 1018.429 1043.774 1181.396 1213.284 1128.294

SPSHG S&P GCC Composite Shariah 1150.304 1150.304 1212.987 1267.310 1275.791 1300.940 1217.620

SPSHPA S&P Pan Arab Shariah 1006.362 1192.275 1262.353 1315.524 1326.664 1346.319 1265.530

SPSHBR S&P BRIC Shariah 874.556 1221.728 1341.591 1491.666 1618.083 1490.222 1339.677


SPSHGU S&P Global Property Shariah 594.568 696.868 726.645 714.774 846.205 897.914 832.467

SPSHIF S&P Global Infrastructure Shariah 85.800 97.923 102.631 107.070 113.133 111.336 108.755

The S&P Shariah Indices. Creating opportunity for Islamic investors.To learn more, contact [email protected].

17/09/08 July-08 June-08 May-08 April-08 Mar-08August-081000

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1600

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2000S&P 500 ShariahS&P Europe 350 Shariah S&P Japan 500 Shariah

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1690S&P Pan Asia ShariahS&P GCC CompositeS&P Pan Arab ShariahS&P BRIC Shariah


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www.islamicfi nancenews.comSHARIAH INDEXES


DESCRIPTIVE STATISTICS Market Capitalization (US$ billions) Component Weight (%)

IndexComponent

numberFull

Float adjusted

Mean Median Largest Smallest Large Small

DJIM World 2391 15171.13 12469.18 5.22 1.01 405.16 0.01 3.25 0.00

DJIM Asia/Pacifi c 1080 2738.82 1839.29 1.70 0.35 94.05 0.01 5.11 0.00

DJIM Europe 334 3734.61 2836.81 8.49 1.93 159.69 0.19 5.63 0.01

DJIM US 634 7361.66 6904.4 10.89 2.79 405.16 0.10 5.87 0.00

DJIM Titans 100 100 7205.59 6425.25 64.25 45.07 394.44 10.64 6.14 0.17

DJIM Asia/Pacifi c Titans 25 25 964.90 635.03 25.40 19.99 57.71 10.64 9.09 1.68

Mean, median, largest, smallest and component weights are based on fl oat adjusted market capitalization, not full market capitalization.

Anthony YeungRegional Director

[email protected]: +852 2831 2580

Learn more about the Dow Jones Islamic Market Indexes

Data as of the 17th September 2008

INDEX PRICE RETURN (%)

1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD

DJIM World -4.02 -8.76 -11.91 -11.26 -18.23 -16.74 -18.55 -21.99

DJIM Asia/Pacifi c -4.65 -8.02 -11.75 -12.13 -23.48 -23.65 -27.79 -29.42

DJIM Europe -3.75 -10.86 -14.10 -12.96 -22.40 -22.08 -22.50 -27.66

DJIM US -4.01 -7.51 -9.92 -9.45 -12.71 -10.79 -13.78 -16.40

PERFORMANCE OF DJ INDEXES

INDEX PRICE RETURN (%)


DJIM Titans 100 -3.8 -7.51 -10.30 -9.74 -14.68 -14.69 -18.34 -21.79

DJIM Asia/Pacifi c Titans 25 -4.5 -8.06 -12.28 -12.22 -22.98 -20.15 -22.11 -23.94

PERFORMANCE OF DJ TITANS INDEXES

PRIC

E R

ETU

RN

(%)


DJIM World DJIM Asia/Pacific DJIM Europe DJIM US

PRIC

E R

ETU

RN

(%)


DJIM Titans 100 DJIM Asia/Pacific Titans 25

-35

-30

-25

-20

-15

-10

-5

0

-30

-25

-20

-15

-10

-5

0

www.islamicfi nancenews.comISLAMIC LEAGUE TABLES


For all enquires regarding the above information, please contact: Catherine Chu Email: [email protected] Phone: +852 2804 1223; Fax: +852 2529 4377

TOP ISSUERS OF ISLAMIC BONDS SEPTEMBER 2007 – SEPTEMBER 2008

Issuer or Group Nationality Instrument Amt US$ m Iss. % Manager

1 Binariang GSM Malaysia Sukuk Musharakah 4,524 9 18.5CIMB, RHB, Aseambankers Malaysia Bhd, Royal Bank of Scotland, AmInvestment, OCBC Bank (Malaysia)

2 Malaysia Malaysia Sukuk 2,753 3 11.3 Malaysia Government bond

3 JAFZ Sukuk UAE Sukuk Musharakah 2,043 1 8.4Barclays Capital, Deutsche Bank (London), Dubai Islamic Bank, Lehman Brothers International (Europe)

4 Saudi Basic Industries Saudi Arabia Sukuk Istithmar 1,333 1 5.5 Calyon, HSBC Saudi Arabia

5Projek Lebuhraya Utara Selatan

Malaysia Sukuk Musharakah 1,160 11 4.8 CIMB

6 Sun Finance UAEMudarabah Sukuk Asset backed Securities

1,093 3 4.5Citigroup Global Markets, Abu Dhabi Commercial Bank, National Bank of Abu Dhabi, First Gulf Bank, Noor Islamic Bank

7 Sukuk Funding (No.2) UAE Sukuk Ijarah 1,021 1 4.2

Abu Dhabi Commercial Bank, Barclays Capital, Credit Suisse Securities (Europe), Dubai Islamic Bank, First Gulf Bank, Lehman Brothers International (Europe), National Bank of Abu Dhabi, Noor Islamic Bank

8 Nakheel Development 3 UAE Sukuk Ijarah 980 1 4.0Dubai Islamic Bank, NBD Investment Bank, JPMorgan

9 DEWA Funding UAE Sukuk Ijarah 749 1 3.1Barclays Capital, Citigroup Global Markets, Dubai Islamic Bank, Emirates Bank International

10 Cagamas Malaysia Sukuk Murabahah 715 11 2.9 HSBC, CIMB, Aseambankers

11 Syarikat Prasarana Negara Malaysia Sukuk Ijarah 620 3 2.5 CIMB, AmInvestment

12Perusahaan Penerbit SBSN Indonesia

Indonesia Sukuk Ijarah 512 2 2.1Mandiri Sekuritas, Danareksa Sekuritas, Trimegah Securities

13 Lingkaran Trans Kota Holdings Malaysia Sukuk Musharakah 456 13 1.9 Aseambankers

14 Khazanah Nasional Malaysia Sukuk Musharakah 453 2 1.9 CIMB, AmInvestment

15 Central Bank of Bahrain Bahrain Sukuk Ijarah 350 1 1.4 Calyon

16 Rakia Sukuk UAE Sukuk Wakalah 325 1 1.3Credit Suisse Securities (Europe), HSBC, National Bank of Dubai

17 MRCB Southern Link Malaysia Sukuk Istisna 320 20 1.3 HSBC, CIMB, RHB

18 Menara MalaysiaSukuk Ijarah Asset backed Securities

307 8 1.3 Citibank

19 Tamweel Sukuk UAE Sukuk 299 1 1.2Standard Chartered, Dubai Islamic Bank, Badr Al Islami

20 RAK Capital UAE Sukuk Ijarah 272 1 1.1Mashreqbank, Standard Chartered, Arab Bank, Ahli United Bank, Emirates NBD

Total 24,399 282 100.0



ARE YOUR DEALS LISTED HERE?

Catherine ChuEmail: [email protected]

Telephone: +852 2804 1223

If you feel that the information within these tables is inaccurate, youmay contact the following directly:

TOP ISSUERS OF ISLAMIC BONDS JUNE 2008 – SEPTEMBER 2008

Issuer or Group Nationality Instrument Amt US$ m Iss. % Manager

1 Malaysia Malaysia Islamic Sukuk 2,127 2 36.0 Malaysia Government bond

2 Sun Finance UAEMudarabah Sukuk Asset backed Securities

1,093 3 18.5

Citigroup Global Markets, Abu Dhabi Commercial Bank, National Bank of Abu Dhabi, First Gulf Bank, Noor Islamic Bank

3 Cagamas Malaysia Sukuk Murabahah 619 9 10.5 HSBC, CIMB, Aseambankers

4Perusahaan Penerbit SBSN Indonesia

Indonesia Sukuk Ijarah 512 2 8.7Mandiri Sekuritas, Danareksa Sekuritas, Trimegah Securities

5 Khazanah Nasional Malaysia Musharakah MTN 453 2 7.7 CIMB, AmInvestment

6 MRCB Southern Link Malaysia Sukuk Istisna 320 20 5.4 HSBC, CIMB

7 Tamweel Sukuk UAE Sukuk 299 1 5.1Badr Al Islami, Dubai Islamic Bank, Standard Chartered

8 PLUS SPV Malaysia Musharakah MTN 234 7 4.0 CIMB

9 Tadamun Services Malaysia Musharakah MTN 92 1 1.6 CIMB, Standard Chartered

10 Bank Muamalat Indonesia Indonesia Sukuk Mudarabah 43 1 0.7Bahana Securities, Danareksa Sekuritas, Andalan Artha Advisindo, CIMB Securities Indonesia

11 Aneka Gas Industry Indonesia Sukuk Ijarah 24 1 0.4 Andalan Artha Advisindo

12 Pak American Fertilizers Pakistan Sukuk 22 1 0.4National Bank of Pakistan, Bank Ltd, Standard Chartered

13 Arpeni Pratama Ocean Line Indonesia Sukuk Ijarah 16 1 0.3 CIMB Securities Indonesia

14 Horizon Hills Development Malaysia Murabahah MTN 15 2 0.3 AmInvestment

15 Mukah Power Generation MalaysiaMudarabah and Istisna MTN

14 3 0.2 RHB

16 Tanjung Offshore Malaysia Istisna or Murabahah MTN 12 5 0.2 AmInvestment

17 Aeon Credit Service (M) Malaysia Musharakah MTN 9 1 0.2 Aseambankers, CIMB

18 Instacom SPV Malaysia Murabahah MTN 2 1 0.0 MIDF Amanah Investment Bank

19 Serrisa Sinar Malaysia Murabahah MTN 2 1 0.0 MIDF Amanah Investment Bank

Total 5,908 64 100.0



For all enquires regarding the above information, please contact:

Catherine Chu

Email: [email protected]: +852 2804 1223; Fax: +852 2529 4377

ISLAMIC BONDS BY CURRENCY JUNE 2008 – SEPTEMBER 2008

Amt US$ m Iss. %

Malaysian ringgit 3,897 54.0 66

UAE dirham 1,393 4.0 24

Indonesian rupiah 596 5.0 10

Total 5,908 64.0 100

ISLAMIC BONDS BY CURRENCY SEPTEMBER 2007 – SEPTEMBER 2008

Amt US$ m Iss. %

Malaysian ringgit 14,201 242.0 58

UAE dirham 6,621 10.0 27

Saudi Arabian riyal 1,333 1.0 5

US dollar 1,004 5.0 4

Total 24,399 282.0 100

ISLAMIC BONDS SEPTEMBER 2007 – SEPTEMBER 2008

Manager or Group Amt US$ m Iss. %

1 CIMB 4,345 89 17.8

2 Malaysia Government bond 2,753 3 11.3

3 Aseambankers 1,494 46 6.1

4 AmInvestment 1,485 50 6.1

5 HSBC 1,276 43 5.2

6 Dubai Islamic Bank 1,269 6 5.2

7 Calyon 1,016 2 4.2

8 RHB Capital 849 63 3.5

9 Barclays Capital 826 3 3.4

10 Citigroup 713 12 2.9

11 Oversea-Chinese Banking Corp 685 16 2.8

12 Emirates NBD 677 4 2.8

13 Lehman Brothers 638 2 2.6

14 Royal Bank of Scotland 622 8 2.6

15 Deutsche Bank 511 1 2.1

16 Standard Chartered 429 15 1.8

17 Noor Islamic Bank 346 4 1.4

18 National Bank of Abu Dhabi 346 4 1.4

19 First Gulf Bank 346 4 1.4

20 Abu Dhabi Commercial Bank 346 4 1.4

Total 24,399 282 100.0

ISLAMIC BONDS BY COUNTRY SEPTEMBER 2007 – SEPTEMBER 2008

Amt US$ m Iss. %

Malaysia 14,201 242.0 58

UAE 6,783 10.0 28

Saudi Arabia 1,333 1.0 5

Indonesia 711 9.0 3

Pakistan 529 15.0 2

Bahrain 350 1.0 1

Total 24,399 282.0 100

ISLAMIC BONDS JUNE 2008 – SEPTEMBER 2008

Manager or Group Amt US$ m Iss. %

1 Malaysia Government bond 2,127 2 36.0

2 CIMB 851 42 14.4

3 HSBC 313 29 5.3

4 AmInvestment 253 9 4.3

5 Noor Islamic Bank 219 3 3.7

6 National Bank of Abu Dhabi 219 3 3.7

7 First Gulf Bank 219 3 3.7

8 Citigroup 219 3 3.7

9 Abu Dhabi Commercial Bank 219 3 3.7

10 Aseambankers 211 10 3.6

11 (Persero) Danareksa 181 3 3.1

12 Trimegah Securities 171 2 2.9

13 Bank Mandiri 171 2 2.9

14 Standard Chartered 153 3 2.6

15 RHB Capital 121 23 2.0

16 Mashreqbank 100 1 1.7

17 Dubai Islamic Bank 100 1 1.7

18 Andalan Artha Advisindo 35 2 0.6

19 Bahana Securities 11 1 0.2

20 National Bank of Pakistan 7 1 0.1

Total 5,908 64 100.0

ISLAMIC BONDS BY COUNTRY JUNE 2008 – SEPTEMBER 2008

Amt US$ m Iss. %

Malaysia 3,897 54.0 65.97

UAE 1,393 4.0 23.58

Indonesia 596 5.0 10.08

Total 5,908 64.0 100.00

www.islamicfi nancenews.comEVENTS DIARY


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A M Best 11Abraaj Capital 25ADB 4ADCB 25AIG 10Al Hilal Bank 9Al Rajhi Bank 5Alaqaria 11Aozora Bank 2Bakrieland Development 3Bank of America 2Bank of New York Mellon 2Bankwest 7Bapepam 6Barclays 2Barclays Capital 8BGI 25BII 6BMI 5BNM 6Borcos 11BPAM 4Bursa Malaysia 3, 4, 6CCB International Finance 8CI 11Citibank 2Citigroup 2, 6

Clifford Chance 25Credit Suisse 2, 9Deutsche Bank 2, 25DIB 9DMI Trust 9Doha Bank 9Dubai International Capital 9Dura Palms 11EIB 9Emirates Airline 8Emirates Bank 7EFH 11Faisal Islamic Bank of Egypt 9Fitch 11Fullerton Financial Holdings 6Goldman Sachs 2, 9Gulf Oil Company Malaysia 11Halbis 9HBOS 7HDC 3HLB 4HLIB 4HSBC 9HSBC Group 7HSBC Saudi Arabia 7HSS 7IDB 4

Industrial Development Bank 9Investment Dar 9IPS 5Islamic Investment Company 9Istithmar World 25Ithmaar Bank 9Jebel Ali Free Zone Authority 7JIB 8Jordan Dubai Financial 9Jordan Dubai Islamic Bank 9JPMorgan Chase 2Kencana Capital 5KFHB 9KFHM 25Kookmin Bank 6KSE 4Latham & Watkins 25Lehman Brothers 2, 7, 10Lehman Re 11Lloyds TSB 7MARC 11Mavcap 5Maybank 6Merrill Lynch 2, 9Mizuho Financial Group 2MNRB Retakaful 10Moody’s 10

Morgan Stanley 2, 9, 10Musharaka Venture Management 5NBD 7NBF 10NIB 8PIDM 5Public Bank 6Qatar Electricity and Water Company 11QIB 11QNB 7QNB Al Islami 7Qatar Petroleum 11RAM Ratings 11S&P 3SALAMA 10SAMBA Financial Group 8SBG 7Sea Party Technology 3Shamil Bank 9Sorouh Real Estate 25StanChart 8STIDC 3Strategic Partners 7Tanjung Manis Food and Industrial Park 3Teck Guan Holdings 11UBS 2

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Company Index

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Country Index

Asia ‘No major crises seen for Asian banking systems’ 3 ADB, IDB sign agreement 4 Moody’s: Huge potential in Asia-Pacifi c 10Bahrain All you need this season from KFH-B 9Bermuda Lehman Re downgraded 11Brunei Ministry reveals successful Sukuk pricing 2Gulf Lehman’s employees face uncertain future 7 High fi ve for single currency launch 8Indonesia Bakrieland plans Sukuk issuance next year 3Jordan JIB’s fi rst-half results shows improvement 8 Consortium acquires 52% stake in Jordanian bank 9Kuwait Dar confi dent of growth in third quarter 9Luxembourg HSS forms Fund Solutions 7Malaysia Taiwanese company to invest in halal park 3

Malaysia Bursa Malaysia explores Islamic derivatives options 3 HLIB branches out to the east coast 4 Bondweb is now BPAM 4 Bourses sign MoU 4 PIDM issues regulations on membership 5 Musharaka aims to invest in tech companies 5 IPS looks to expand with new shareholder 5 BNM reinstates approval for Maybank’s acquisition 6 Public Bank to set up Islamic unit in November 6 MNRB to expand to Indonesia, Britain 10 Borcos’ Sukuk gets ‘A1’ 11 MARC affi rms Dura Palms’ Sukuk series 11MENA HSBC launches GIF MENA Fund partly GIF SICAV 9Pakistan Bourses sign MoU 4

Qatar QNB Al Islami rewards card holders 7 Doha Bank still keen to pursue Sukuk 9 CI assigns ratings to QIB 11 Fitch affi rms Alaqaria 11Saudi Arabia SBG completes maiden Sukuk issuance 8 DMI Trust to raise its capital by US$100 million 9UAE Emirates Airline raises US$265 million for aircraft 8 Al Hilal aims to increase branch network 9 Strong second quarter for EIB funds 9 SALAMA, NBF ink bancassurance pact 10UK Lloyds seals merger deal with HBOS 7US Lehman Brothers fi les for bankruptcy protection 2 Morgan Stanley mulls over a merger, says report 2 Bank of America acquires Merrill Lynch 2 US government steps in, takes over AIG 10

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Yet another financial frenzy - Islamic Finance News

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