Bahrain issues US$1 billion seven-year sukuk tranche

On 28 March 2018, Bahrain successfully priced an international US$1 billion sukuk offering. 

The financing exercise forms part of the kingdom’s prudent approach in managing its funding requirements. The transaction received strong global investor interest, with the order book peaking at around US$2.1 billion (2.1x of the total amount raised) from more than 100 investors.

Based on investor feedback, Bahrain elected to pursue the optimal cost-efficient debt capital markets format, issuing a single tranche sukuk offering with a yield of 6.875% that matures October 2025. The offering attracted a globally diversified order book from both Islamic and conventional investors, with 59% of the notes distributed in MENA, 16% in Europe, 14% in UK, 9% in the US and 2% into Asia. Distribution by investor type comprised 63% of banks/private banks, 33% of fund managers, 3% of pensions and insurance, and 1% classed as "others".

“Bahrain has fostered a long-term relationship with debt capital markets investors, and we are pleased to see strong appetite to the transaction despite the volatile market conditions,” said Salman Al-Khalifa, Executive Director of Banking Operations at the Central Bank of Bahrain.

The kingdom is expected to raise funds through other sources of financing, including local debt capital markets and potentially could seek to come back to the international debt capital markets at a later stage in 2018.

OES takes on financing from Alizz Islamic Bank to expand GUtech

Alizz Islamic Bank has signed an agreement with Oman Educational Services (OES) to finance the expansion of the German University of Technology in Oman (GUtech). OES is the owner company of GUtech.

The signing of this agreement is in line with Alizz Islamic Bank's strategy to support and finance projects in the sultanate and contribute to the growth of the economy, the bank said.

This is the first agreement of its kind in which OES acquires shari'ah-compliant financing. The agreement was executed by the project finance team at Alizz Islamic Bank, which has extensive experience in providing financial solutions that comply with the principles of shari'ah. The financing facilities will be used for the construction of an additional academic building at GUtech campus, a 400-room student on-campus accommodation building, completion works for the conference and exhibition centre, as well as the development of the Mahara research centre.

Al Shaksy said, "Backing the sultanate's educational institutions is an important part of our strategy and we are happy to be part of this initiative that will help this sector to grow and thrive. Alizz Islamic Bank is a strong example of how Islamic financial institutions can support the growth of the educational sector which is crucial for the development of the country.

Source: Alizz Islamic Bank. The agreement was signed on behalf of Alizz Islamic Bank by the Honorable Salaam bin Said Al Shaksy, CEO of Alizz Islamic Bank and by Dr Hussain bin Sulaiman Al Salmi, CEO of OES on behalf of GUtech.

"We have developed a variety of shari'ah-compliant banking products and services that meet all the financing needs of government and corporates operating in Oman."

Dr Hussain bin Sulaiman Al Salmi, CEO of Oman Educational Services said, "Alizz Islamic Bank offers the strategic financial solutions that our organisation requires and we are delighted to be affiliated with them. Partnering with Alizz Islamic Bank will help us fulfill our growth plans and boost facilities for our students and stakeholders to continue to their academic journey."

Alizz Islamic Bank launches 2017 Ramadhan auto finance scheme

Source: Alizz Islamic Bank. Poster for
the Ramadhan auto finance scheme.

With the aim to help fulfill the dreams of the bank's customers to own a car during Ramadhan, Alizz Islamic Bank has announced the launch of its 2017 Ramadhan auto finance scheme, Sharing the Blessings of Ramadan.

The auto finance scheme features competitive profit rates and deferred payment of installments for two months after the purchase of the car. The shari'ah-compliant finance scheme is available for purchasing both new and used cars.

The scheme is based on the shari'ah principle of murabahah and offers an easy settlement period of up to 84 months and the availability of auto finance for both employees and business owners. In addition to this, financing is open to both Omanis and resident expatriates with up to 80% of the value of the car being financed.


Moosa Al Jadidi, COO, Alizz Islamic bank said, "We are proud to have an integrated and efficient team that has developed an efficient auto finance scheme where customers only need to visit the nearest branch to complete the procedures. Our products and services are not based on competition, but on being exclusive when compared to products from other banks. Our top priority is to make the dream of owning a car for our customer come true through a smooth and hassle-free process.

"Alizz Islamic bank is the only bank that offers 35 sharia'ah compliant products that meet the needs of individuals and companies. They are designed to meet requirements of the different segments of society. In addition, we launch outstanding products that add value to customers' lives and enhances their confidence moving forward. All customers can benefit from the products and services provided by Alizz Islamic bank during Ramadhan and throughout the year."

Interested?

Eligible individuals include public sector employees who earn a minimum salary of OMR300 and private sector employees who have a minimum salary of OMR350. Customers can apply for the finance scheme car by providing a quotation from the retailer on the chosen car. The application is addressed to Alizz Islamic Bank and the customer pledges to purchase the car from the bank after the due process is completed. Consequently, the bank buys the car from the retailer and takes possession, and later resells the car to the customer via 'murabahah' once the payment of installments is completed.

The bank has also dedicated its Wattayah branch as an Auto Finance hub during Ramadhan. The branch will be open from 9am to 1pm and from 8pm to 11pm.

Initial tranche for Meethaq Sukuk Programme closes June 1

The debut issuance under the Meethaq Sukuk Programme, Series 1, closes on 1 June 2017.

Series 1 will be for OMR25 million with a green shoe option of a further OMR25 million, in case of oversubscription. It will have a tenor of five years - due 2022 - and will be issued through a public offer which will be open to Omani and non-Omani individuals as well as institutional investors.

Under the programme, Meethaq plans to issue sukuk certificates in several tranches up to a maximum amount of OMR100 million over a period of time which will be listed on the Bond and Sukuk market of Muscat Securities Market (MSM).

Advantages for the Meethaq Sukuk Programme include:

• Strong investment grade entity rating of Baa1 by Moody’s, BBB- by S&P and BBB by Fitch
• Market leader with 36% share in Islamic financing and 34% of total assets in Oman
• Strong Shari'ah Supervisory Board and Compliance Framework under the guidance of renowned shari'ah scholars.
• Shari'ah-compliant fixed income investment opportunity with stable returns and the backing of Meethaq Islamic Banking.
• Attractive return of 5% per annum payable semi-annually over a five-year period

Source: Meethaq website. Poster for Meethaq's sukuk programme.

Interested?

Read the FAQ or apply

The minimum application size is OMR1,002 per applicant for subscription of a minimum 1,000 certificates of OMR1.002 each (inclusive of offer expenses of 2 baisa per certificate) and thereafter in multiples of 100 certificates. Applications for the subscription of fewer than 1,000 certificates will not be accepted.

Alizz Islamic Bank offers new commercial finance options

Alizz Islamic Bank has enabled salaried individuals to access commercial finance for personal businesses via their salary.

New shari'ah-compliant commercial financing solutions have the advantage of purchasing different goods, including equipment, machinery, vehicles or even property through murabahah, ijarah or forward ijarah options.

Murabahah allows customers to buy equipment and goods and land at competitive prices whereas ijarah solutions help businessmen to finance ready properties. Forward ijarah helps them to finance the construction of facilities at competitive prices.

Under murabahah, the bank will purchase the asset from the seller based on the customer's request and sell it to the customer at cost plus the agreed profit rate, concluding the murabahah sale contract. The most important feature of this product is that the customer will know the profit markup and installments at the time of signing the deal. Another feature is that the murabahah cost remains unchanged throughout the term. Moreover, the customer takes possession of the goods immediately.

Under ijarah, the customer will be given the right to utilise or lease the property for a specific period while the bank remains the property owner. The bank will buy the property from the developer or seller and lease it out to the customer with a promise to sell it at the end of the lease term.

In Forward ijarah, the property is acquired by Alizz Islamic Bank under an istisna sale contract with a developer upon the customer's promise to lease. Istisna refers to a sale where a commodity or property transaction takes place before that commodity or property even comes into existence. This essentially means that a company is told to manufacture a specific commodity or build a property for the purchaser.

Once the construction process is completed, the property will be delivered to the customer based on rental conditions. At the end of the lease term (or upon maturity date) and once the obligations stated in the forward ijarah contract have been fulfilled, the bank will transfer the ownership of property to the customer at a nominal sale price on the basis of a separate sale contract.

Interested?

The financing options are available to Omanis working in government or semi-government agencies as well as those working in the private sector. The minimum salary is OMR500 for government and semi-government employees and OMR750 for those working in the private sector. The application procedure is easy and fast with simple documentation requirements.

Applicants seeking financing must be between 21 and 60 years old. Murabahah-based financing options for equipment and vehicles are available from OMR5,000 to OMR100,000. Ijarah-based financing options start from OMR50,000 to a maximum of OMR700,000.

Murabaha-based finance contracts last seven years while ijarah conracts are nine years long, excluding a 12-month construction period. An applicant can get up to 80% of finance for the costs of equipment, vehicles and property, and 100% on the cost of commodities.

Indonesia government sukuk breaks Dubai sukuk value record

+Milestone reflects the channelling of global Islamic finance activity and knowhow into Dubai

+Asian and MENA issuers choose Nasdaq Dubai for worldwide visibility and ease of listing

The government of Indonesia has listed two sukuk with a total value of US$3 billion on Nasdaq Dubai. The listings raised the total nominal value of all sukuk listed in Dubai above US$50 billion for the first time, to a global record high of US$52.06 billion. Indonesia’s latest sukuk listings comprise one issuance of US$2 billion and another of US$1 billion.


Of Dubai’s US$52.06 billion in listings, US$49.3 billion are listed on Nasdaq Dubai and US$2.75 billion are listed on Dubai Financial Market (DFM). Nasdaq Dubai announced in July 2015 that it had become the largest exchange for sukuk in the world and has since maintained that position.

MENA region sukuk issuers with Dubai listings include government and private sector entities active in a variety of industries including property, education, leisure, transport, finance, and infrastructure development. Among UAE issuers, Dubai Islamic Bank has the largest sukuk listings, totalling US$4.25 billion.

The Indonesian government is the largest issuer on Nasdaq Dubai, with a total value of US$11.5 billion from eight listings. Other leading issuers include Saudi-based Islamic Development Bank with US$8.5 billion and the government of Hong Kong with US$3 billion.

Dr Robert Pakpahan, Director General of Budget Financing and Risk Management, Ministry of Finance, Indonesia, said: “The channelling of sukuk listings into Dubai reflects the growing collaboration between Islamic finance practitioners based in different parts of the world. By pooling our knowhow and respective traditions, we are creating a more dynamic global industry that better meets the commercial and social needs of everyone who seeks the growth and development of sharia’ah-compliant finance.”

Hamed Ali, Chief Executive of Nasdaq Dubai, said: “The rapid expansion of Dubai’s sukuk market is based on intellectual as well as financial input from a wide range of issuers, investors and market participants based in dozens of countries. There is a common desire to come together to achieve new standards of excellence and efficiency and Dubai will further strengthen its role as a facilitator of this process.”

Nasdaq Dubai’s activities to promote the expansion of the sukuk sector include working with IdealRatings, with which it launched benchmark indices that track the performance of global sukuk in October 2016.

Dubai’s growth as the world’s largest sukuk listing centre supports the initiative announced in 2013 by Sheikh Mohammed Bin Rashid Al Maktoum, VP and PM of the UAE and Ruler of Dubai, for the Emirate to become the global capital of the Islamic economy.

Global sukuk issuances reached US$72.9 billion globally in 2016 according to RAM Ratings Services, with Islamic finance assets as a whole valued at more than US$2 trillion. 

Warba Bank celebrates Nasdaq Dubai listing of US$250 million sukuk tranche

Source: Nasdaq Dubai. Celebrating the listing of Warba Bank's sukuk.

Shaheen Al-Ghanem, Chief Executive, Warba Bank, has rung the market-opening bell to celebrate the listing on Nasdaq Dubai of US$250 million perpetual tier 1 Basel III-compliant capital sukuk.

Warba Bank’s sukuk comprises perpetual tier 1 mudarabah capital certificates, non-callable before 14 March 2022, with the initial coupon set at 6.5%. The sukuk listed on Nasdaq Dubai on March 15, 2017.

The sukuk will further strengthen the Kuwaiti bank's capital base and support the bank’s continued growth and development as well as its commitment to Islamic finance. Established in 2010, Warba Bank is expanding its activities in the full range of banking and investment services in Kuwait in compliance with shari’ah principles.

The sukuk reflects the accelerating growth in financial markets ties between the UAE and Kuwait. It also reinforces Nasdaq Dubai’s status as the global leader for sukuk listings, with a total nominal value of US$46.31 billion from issuers in the MENA region and beyond.

The bell-ringing ceremony took place in the presence of HE Essa Kazim, Governor of Dubai International Financial Centre (DIFC), Secretary General of Dubai Islamic Economy Development Centre (DIEDC), and Chairman of Dubai Financial Market (DFM), and senior representatives of Warba Bank, as well as Abdul Wahed Al Fahim, Chairman of Nasdaq Dubai and Hamed Ali, Chief Executive of Nasdaq Dubai.

Al-Ghanem said: “The success of our sukuk in attracting investors from Kuwait, the MENA region and beyond reflects the confidence of the market in Warba Bank’s strategy for growth and development across all our business areas including investment, treasury, corporate banking and retail banking. Nasdaq Dubai’s first-class listing environment, including its close links with regional and global investors as well as its international regulatory standards, provides important support for this capital-raising initiative.”

HE Essa said: “Warba Banks’s choice of Dubai for its sukuk listing further strengthens the collaboration between the capital markets of Kuwait and the UAE, which provides attractive opportunities to issuers and investors as well as supporting wider economic relationships within the GCC. The listing also strengthens the growth of Dubai as the global capital of the Islamic economy under the initiative launched by HH Sheikh Mohammed Bin Rashid Al Maktoum, UAE VP and PM, and ruler of Dubai.”

Al Fahim, Chairman of Nasdaq Dubai, said: “Drawing on our unrivalled network of relationships with regional and international issuers, advisers and investors in the Islamic capital markets, Nasdaq Dubai will expand as a centre for listing sukuk and other Islamic products. We will further streamline and enhance our listing processes to meet the commercial needs of issuers.”

Chief Executive Hamed said: “As one of Kuwait’s and the region’s most active and prominent financial institutions, Al Warba Bank is a very significant addition to Dubai’s sukuk market. We are delighted to support the bank’s expansion across a range of activities by facilitating its capital raising needs and strengthening its links with investors, including through the high visibility that our listing platform provides across the region and internationally. We are in contact with a number of leading Kuwait companies and institutions and look forward to providing them with an effective listing venue that will assist their development strategies.”

Warba Bank operates through corporate, retail, treasury and investment business functions, offering a variety of banking and investment products as well as financial services to corporate and retail customers.

Hong Kong government lists US$1 billion sukuk on Nasdaq Dubai

Nasdaq Dubai has welcomed the listing of a US$1 billion sukuk issued by the government of Hong Kong on March 1, 2017.

It brings the total value of Hong Kong government-issued sukuk listed on the Middle East’s international financial exchange to US$3 billion following two listings of US$1 billion each in 2014 and 2015.

The new listing strengthens Dubai’s position as the world’s largest venue for sukuk listings by value, raising the total listed in the Emirate to US$48.81 billion. The listings are from a wide range of government, multilateral and corporate issuers across the Middle East and North Africa (MENA) region and East Asia.

Islamic Development Bank lists sukuk in London, Dubai and Malaysia

The Islamic Development Bank (IsDB) has successfully priced a US$1.25 billion, five-year trust certificates (sukuk) under its US$25 billion Trust Certificate Issuance Programme. The certificates will be listed on the London Stock Exchange, NASDAQ Dubai and Bursa Malaysia (under the exempt regime).

Overall, the deal saw strong participation from money managers and official institutions, which showed confidence in IsDB’s credit strength. The sukuk were priced at par at 2.263%, to be payable on a semi-annual basis. This issuance marks the bank’s second benchmark issuance in 2016. In terms of the final allocation, the distribution was well diversified with 72% allocated to the Middle East and North Africa (MENA) region, 25% to Asia and 3% to Europe, respectively. Central banks and official agencies were allocated 90% followed by 10% to banks.


IsDB’s ability to issue a sizeable benchmark in a volatile environment is a clear testament to its strong credit and financial position, as affirmed by its AAA ratings. IsDB maintains ratings of Aaa, AAA and AAA by Moody’s, S&P and Fitch respectively.

“We are very pleased with the outcome of the deal, which met our objectives for the transaction to continue building on the success of our prior deals,” said Dr Ahmet Tiktik, IsDB’s Acting VP of Finance and Chief Financial Officer. “I would like to thank IsDB’s member countries and other investors for their continuous support and commend the lead managers for delivering a deal that fully met our objectives. We hope that this further IsDB funding will continue to contribute towards
extending bigger financing to our member countries to support their developmental needs.”

The joint lead managers and joint bookrunners were Boubyan Bank, Credit Agricole CIB, GIB Capital, JP Morgan, Mizuho Securities, National Bank of Abu Dhabi, NATIXIS, RHB Investment Bank and Standard Chartered Bank.

MARC scores Westports Malaysia's Sukuk Musyarakah Programme as AA+IS

MARC has affirmed its AA+_IS rating on Westports Malaysia's RM2 billion Sukuk Musyarakah Programme with a stable outlook. Westports handles a multi-cargo port in Pulau Indah, Port Klang, Malaysia.

In affirming the rating, the rating agency considered the potential migration of container traffic volume by one of Westports’ major clients, CMA CGM, to Pasir Panjang Terminal in Singapore. CMA CGM, which contributed 3.31 million twenty-foot equivalent units (TEU), or 37% of Westports’ total TEUs handled in 2015, is expected to move a portion of its existing traffic to Singapore following the setting up of a joint venture with the Port of Singapore Authority. The impact on Westports’ business and financial performance from CMA CGM’s move at this juncture is limited given that any decrease in the liner’s transhipment throughput could be gradual and that a new shipping alliance set to launch by April 2017 could see some traffic being routed to Westports under a dual hub strategy which is likely to be pursued by the new alliance.

Westports’ affirmed rating continues to be supported by its strong cash flow-generating ability, stemming from a steady operational and sound productivity performance. The port retains a strong competitive position, underpinned by its strategic location along one of the world’s busiest shipping lanes. These strengths are moderated by Westports’ exposure to high client concentration risk and to the vagaries of the global shipping industry.

As at end-2015, Westports’ container handling capacity stood at 11 million TEUs, which is expected to increase by 2.5 million TEUs by end-2017. It remains the dominant port operator in Port Klang, which is ranked the 12th busiest container port globally. MARC believes Westports’ continued investments in upgrading its port capacity and operations have been key in generating throughput growth and maintaining strong operating efficiency. The port achieved a throughput growth of 8.3% year-on-year to 9.1 million TEUs in 2015, translating to a CAGR of 9.2% between 2011 and 2015. For 2015, the port utilisation rate improved to 82.3% from 76.1% in the previous year. The higher port utilisation rate contributed to slightly longer vessel waiting time. MARC expects the vessel waiting time to improve gradually with the commencement of phase one of container terminal 8 (CT8) in April 2016.

While Westports’ debt-to-equity ratio stood at a moderate 0.62 times at end-2015 (2014: 0.66 times), the rating agency expects the port operator to prudently manage its port expansion and debt levels. In 2016, management has budgeted RM750 million for expansion and maintenance capital expenses to be funded by internally-generated funds and short-term borrowings. Westports’ outstanding amount under the sukuk programme is RM1.15 billion as at end-2015; its first two payments of RM50 million each are due in April 2021 and May 2021 respectively.

The outlook on Westports remains stable on expectations that the port operator will continue to maintain its operational and financial metrics at current levels. A prolonged economic downturn, reduction of port calls as a result of industry consolidation and/or erosion in its cash flow and leverage metrics would exert downward pressure on Westports’ rating.

Interested?

View the definitions of MARC's ratings

MARC rates TNB Northern Energy's sukuk as AAAIS

MARC has affirmed its AAA_IS rating on TNB Northern Energy's Islamic securities (sukuk) of RM1.625 billion with a stable outlook.

TNB Northern Energy was established to finance and develop a 1,071.43-megawatt combined-cycle gas turbine power plant in Seberang Perai Tengah, Penang, under a 21-year power purchase agreement (PPA) with offtaker Tenaga Nasional (TNB). TNB Northern Energy is 100% owned by TNB Prai which is itself a fully-owned TNB subsidiary.

The rating and outlook are equalised with those of TNB Northern Energy’s ultimate parent TNB, on which MARC currently has a senior unsecured rating of AAA/Stable. The rating equalisation is based on TNB’s commitment in the form of an unconditional and irrevocable project completion support guarantee and post-completion rolling guarantee in favour of sukuk holders. MARC’s assessment is further underpinned by TNB’s undertaking to maintain full ownership of TNB Northern Energy in addition to the operational proximity and financial linkages between the two entities.

The power plant project achieved full commercial operation date (COD) on February 20, 2016, following a 50-day delay from the original scheduled COD. The delay, which was attributed to design issues and defects encountered during the commissioning phase, has resulted in liquidated damages (LD) of RM32.1 million payable to TNB. MARC notes that TNB Northern Energy will claim a LD payment of RM59.6 million from the engineering, procurement and construction (EPC) contractor, Samsung C&T KL. The delay, coupled with the weakening ringgit, has led to a 3.9% increase above the original project cost budget to RM2,587.3 million at completion. The increase, however, remains well within the project sponsor’s completion support guarantee of 10% or RM249 million.

The plant’s operations and maintenance (O&M) duties are carried out by related entity TNB Repair & Maintenance (TNB Remaco) under a 21-year O&M agreement. The rating agency notes that the LD provision under the O&M agreement is not sufficient to recover any revenue losses given that TNB Remaco is only liable for up to 30% in capacity payment reductions and non-reimbursable fuel cost in the event of breaches in the contracted average availability target, net output capacity and net heat rate. Nonetheless, O&M risk is mitigated through the availability of plant warranty and long-term turbine maintenance support provided by Samsung and Siemens respectively. With regard to fuel supply risk, the long-term gas supply agreement with Petroliam Nasional addresses this concern.

The project revenue in the form of availability capacity and energy payments subject to meeting performance standards under the PPA provides sufficient coverage to TNB Northern Energy’s fairly flat debt servicing profile. The company is expected to achieve an average finance service cover ratio (FSCR) without cash balances of 1.31 times during the sukuk tenure. MARC views TNB Northern Energy’s finance service ability as adequate even after taking into account the COD delay which has led the projected cash balance being revised downward by RM4 million to RM33 million as at December 31, 2016. TNB Northern Energy’s designated account balances of RM118 million as at April 30, 2016 is well above the finance service obligations of RM70 million for 2016.

MARC’s sensitivity analysis reveals that the project coverage is only able to withstand mild stresses due to the absence of cash build-up. TNB Northern Energy is expected to return about RM834 million of capital to its shareholders during the sukuk tenure subject to meeting a distribution finance service cover ratio of 1.5 times. The rating agency expects the project sponsor’s rolling guarantee to act as a reliable liquidity source during periods of weaker-than-projected cash flows.

The stable outlook mirrors the outlook on TNB's senior unsecured rating. Any changes in TNB Northern Energy's rating and/or outlook would be primarily driven by a revision of TNB's rating and/or outlook.

Interested?

View the definitions of MARC's ratings

Read the Suroor Asia blog post about MARC's analysis of TNB Western Energy's sukuk 

Malaysia is No. 1 for global sukuk issuance, followed by Indonesia

RAM Ratings says shari'ah-compliant securities accounted for 53% (or RM33.1 billion) of government, quasi-government and corporate debt issues in Q116. The company expects RM100 billion to RM120 billion of gross issuance for the domestic sukuk market in 2016, underscored by the government of Malaysia’s ongoing efforts to deepen the sukuk market through the issuance of Islamic securities to finance its budget deficit.

The latest issue of RAM’s Sukuk Snapshot reports that of the RM28.5 billion of government securities (Islamic and conventional) issued as at end-March 2016, about 51% constituted Islamic securities. This was followed by the government's fifth global sukuk issuance of US$1.5 billion in April.

Indonesia is in second place, after Malaysia, in terms of global sukuk issuance by country as at end-2015, with a 12% market share (or US$8.2 billion) ahead of Saudi Arabia’s 10% (US$6.4 billion). “We are closely monitoring Indonesia’s progress in the sukuk arena, which is quickly gaining traction,” said Ruslena Ramli, RAM’s Head Islamic Finance. Indonesia, with a projected GDP growth of 5.5% this year, has the economic momentum to rival its peers in tapping the global sukuk market vis-à-vis funding its fiscal deficit, says RAM, which stated that Indonesia is still firmly committed to promoting sukuk issuance as part of its government’s efforts to finance its budget deficit while deepening the local bond market.

As at end-March 2016, Indonesia maintained its lead with a 15% share (or US$2.8 billion) of global sukuk issuance - compared to Saudi Arabia’s 11% (or US$2.1 billion) - and looks set to continue its trajectory in expanding its Islamic finance market. For the same period, Malaysia’s better performance (inclusive of foreign-currency issuance) brought global sukuk issuance to US$18.9 billion in total while strengthening its own contribution to 57% (or US$10.7 billion).


Interested?

The monthly Sukuk Snapshot is designed as a quick reference point for sukuk data and trends. Subscribers can read the Sukuk Snapshot via the RAM website. Non-subscribers may purchase the report at RM530 (inclusive of GST) per copy. For further enquiries, call Ain at +603 7628 1108

RAM Ratings analyses Maxis Broadband's Unrated Sukuk Murabahah Programme

RAM Ratings says that the Unrated Sukuk Murabahah Programme (New Sukuk) with a nominal value of up to RM10 billion over a tenure of up to 30 years by Maxis Broadband – a subsidiary of Maxis – is so far credit-neutral on the AA3/Stable rating of BGSM Management’s existing Islamic medium term notes (IMTN) Programme of up to RM10 billion in nominal value (2013/2043).

Post Maxis’ internal reorganisation exercise, Maxis Broadband intends to utilise the proceeds of the New Sukuk to part finance the purchase consideration of the businesses and undertakings, including relevant assets and liabilities from Maxis’ other wholly-owned subsidiaries, capital expenditure, working capital requirements and/or other general funding requirements and general corporate purposes as well as refinancing of other debt/ financing obligations and any maturing sukuk under the New Sukuk Programme. Ultimately, BGSM Management’s cumulative debts are expected to remain unchanged and hence these developments are not expected to have any material impact on the gearing of Maxis, RAM Ratings says. 

Maxis is the sole subsidiary of BGSM Management and also the latter’s key source of cashflow. Maxis’ debt load has been increasing through the years on the back of its hefty capex requirements and dividend payouts. As at end-March 2016, Maxis’ gearing ratio stood at 2.10 times while the combined debts of Maxis and BGSM Management came up to RM15 billion. As such, further aggressive leveraging by Maxis could reduce its ability to support the Group’s credit metrics.

RAM does not discount the possibility of additional capex and working capital, pending further details on spectrum assignment fees by the Malaysian Communications and Multimedia Commission, the company added. 

Interested?

Read RAM Ratings' ratings definitions

MARC confirms rating of AAAIS on Islamic Development Bank's sukuk wakalah

MARC has assigned a final rating of AAA_IS to Islamic Development Bank’s (IsDB) proposed sukuk wakalah (sukuk) issuance of up to RM400 million by Tadamun Services (Tadamun), a trust established by IsDB for the purpose of issuing the sukuk. The outlook on the rating is stable.

Upon review of the final documentation of the issuance, MARC is satisfied that the terms and conditions of the sukuk have not changed in any material way from the draft documentation on which the earlier preliminary rating of AAAIS was based.

Interested?

View the definitions of MARC's ratings

Read the Suroor Asia blog post about MARC's ratings for the IsDB

Bank Muscat launches Terhal travel financing

Coinciding with the summer (Q2 to Q3) holidays and the upcoming Eid al Fitr, and in line with the bank’s vision Let’s do more, Bank Muscat, has launched Terhal, a suite of travel services with banking features and facilities. Oman’s first-of-its-kind product is in alignment with strategies aimed at providing a distinct banking experience aimed at customers interested in tourism and travel, the bank said.

Under Terhal, customers will be able to obtain finance of up to RO10,000, at a 3.5% interest rate, repayable over 12 months. Terhal customers will receive a Bank Muscat Oman Air credit card plus a superior travel insurance package. The insurance package will cover a lost passport, flight postponement or cancellation, emergency medical expenses and services, plus personal incidents and lost luggage. Customers are also eligible to earn Oman Air’s free Sindbad miles.

Abdullah Tamman Al Maashani, Deputy General Manager – Institutional Sales & Products Development at Bank Muscat said: “We aim to provide the best banking services and products to all customers while assisting them to draw up ideal financial plans.

"Terhal is designed to help its customers prepare themselves financially and avail special offers during their holidays. Bank Muscat continues adding value to its services and products, in line with a firm commitment to all its customers.”

Interested?

Read the Suroor Asia blog posts about Bank Muscat's Tadhamun initiative and about Oman's Eid al Fitr holiday dates

MARC discusses Islamic Development Bank ratings

MARC has assigned long-term and short-term financial institution (FI) ratings of AAA and MARC-1 respectively to the Islamic Development Bank (IsDB). The ratings are on the Malaysian national scale. Concurrently, the rating agency has assigned a preliminary rating of AAA_IS to the proposed sukuk wakalah (sukuk) issuance of up to RM400 million by Tadamun Services (Tadamun), a trust established by IsDB for the purpose of issuing the sukuk. IsDB will provide an undertaking to acquire the sukuk upon maturity, early redemption or in the event of a default by Tadamun as well as to cover any shortfall in profit payments on the sukuk. The outlook on the ratings is stable.

Established by the Organisation of Islamic Cooperation (OIC) in 1975 and headquartered in Jeddah, Saudi Arabia, IsDB is a multilateral development bank (MDB) with a membership of 57 countries, most of which are from the Middle East and North Africa (MENA) and Sub-Sahara Africa (SSA) regions. IsDB undertakes financing and investment activities to support the economic development of member countries and Muslim communities across the world.

MARC’s ratings on IsDB primarily reflect the bank’s solid capital position and strong liquidity levels, which are underpinned by high shareholder support. The ratings also incorporate IsDB’s prudent financing policy that includes limits on geographical and sectoral exposures and the bank’s preferred creditor status. These strengths significantly mitigate the credit risk in the bank’s financing and investment portfolio.

IsDB’s capital adequacy levels provide significant coverage over any unexpected losses stemming from its financing and investment activities. For the Islamic year ended 1436 (FY1436H), which corresponds to October 13, 2015, the bank’s total members’ equity of ID7.8 billion (Islamic dinar*), comprising paid-in capital of ID4.9 billion and reserves of ID2.9 billion, accounted for 48.8% of total assets. As a proportion of total financing and investments, members’ equity amounted to 60.7%. The coverage ratios are comparatively higher than its peer MDBs such as the African Development Bank and the Asian Development Bank. MARC notes IsDB’s capital position is further enhanced by the bank’s callable capital of ID40.5 billion as at end-FY1436H; the bank’s callable capital constitutes contractual support that can be called upon on member countries to cover the bank’s obligations.

MARC views positively the strong financial commitment of IsDB’s key shareholders, in particular Saudi Arabia, Kuwait, Qatar and UAE (with a combined stake of 45%), to support the bank. The rating agency draws comfort from the fact that among the member countries, 47% or ID19.1 billion of total callable capital is committed by member countries rated in the A and above category on a global rating scale.

In line with its financing policy, IsDB maintains a single country exposure limit of 15% on its financing and investments to address concentration risk; its three largest country exposures Turkey (8.78%), Morocco (8.74%) and Pakistan (8.43%) are well within the limit. In terms of sectoral distribution, the bank’s inclination is towards infrastructure-related activities, namely public utilities (40.0%) and transport & telecoms (26.8%).

The bank continues to have significant exposure to sovereigns with weak credit ratings, although this has declined from 80% in 1432H to about 70% of the bank’s financing and investments. The bank makes full provisions against installment payments overdue by six months. As at FY1436H, installments overdue stood at 0.97% of total financing and investments. IsDB mitigates the credit risk by requiring explicit guarantees on all sovereign entities; financing for non-sovereigns is limited to strategic entities and projects in which the governments of member countries are major stakeholders and are guarantors of suppliers/offtakers. Given that IsDB has been granted preferred creditor status by its shareholders, the bank has priority claim over other creditors in the event of default.

MARC observes that IsDB has historically maintained a conservative leverage position, relying mainly on equity capital to fund its operations. However, in recent years the bank shifted to capital markets for funding through several sukuk issuances. This led to an increase in the bank’s gearing ratio from 79.1% in 1432H to 93.2% in 1436H; nonetheless, the bank’s gearing remains conservative, both by its own internal measures of 1.25 times members’ equity (paid-in capital plus reserves), as well as compared to its peer MDBs. IsDB is also one of the most liquid institutions among its peer MDBs, with liquid assets constituting 23.5% of total assets.

The stable rating outlook reflects MARC’s expectations that IsDB will maintain its strong capitalisation and liquidity profile, and that the bank’s member countries will continue to extend strong support.

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View the definitions of MARC's ratings

Read the Suroor Asia blog post about IsDB's work in Bangladesh

*The Islamic dinar is a unit of account used by the IsDB, that is currently equivalent to one Special Drawing Right (SDR) of the International Monetary Fund (IMF). The composition of currencies in SDR basket for the Islamic Dinar are 41.9% for US dollars, 37.4% for the Euro, 11.3% in British pounds and 9.4% in Japanese yen. The IMF declares changes in the composition of currencies in the SDR basket every five years. The last change was declared by IMF on January 1, 2011.

MARC decides Senai Desaru Expressway rating remains BBB-IS

MARC has affirmed its rating of BBB-IS on Senai-Desaru Expressway’s (SDEB's) RM1.89 billion Islamic Medium-Term Notes (Restructured Sukuk) Programme with a stable outlook.

The rating incorporates the improving traffic volume on the expressway and the accommodative payment structure under the programme, which provides SDEB with headroom to improve its cash flow coverage. Under the restructured sukuk, initiated in 2014, the step-up profit rate structure eases liquidity pressure in the early years of the programme’s tenure, allowing for cash buildup to meet its back-ended principal obligations. In addition, extension of the concession to 2053 from the initial 2038 allows for upside benefit from traffic volume growth generated from planned developments in the expressway’s service areas. The rating also takes into account SDEB’s continued weak credit profile, characterised by persistent negative shareholders’ funds.

MARC notes that total annual traffic volume on the Senai-Pasir Gudang-Desaru Expressway (SDE), which comprises a 77km tolled inter-urban expressway between Senai and Desaru with a connecting highway to Pasir Gudang, increased 17.6% year-on-year (YoY) to 292.4 million passenger car unit-kilometres (pcu-km). The growth was 10.6% higher than the projected traffic volume. The improvement, despite a toll hike in October 2015, has been attributed to increased development activities along the expressway, widening works on the toll-free alternative, and the ongoing projects in Pengerang, where the multi-billion ringgit RAPID project is in progress. Given the actual traffic CAGR of 6.9% over the last three years, traffic volume growth would need to at least sustain to meet traffic projections: the SDE is projected to achieve CAGR of 8.3% from 2016 to 2022, normalising to 7.4% until 2038 before declining to 5%.

The sensitivity analysis on SDEB’s cash flow projections demonstrates that the company can withstand a drop of 7.4% in traffic volume from the base case projections throughout the sukuk tenure and a higher-than-expected operating cost of 4.8% per annum. MARC notes that in the absence of toll hikes and no government compensations given, SDEB’s debt servicing ability would come under pressure starting in FY17. The sensitivity results also show that delays in the RAPID project would weigh on SDEB’s traffic volume and, consequently its cash flows to meet principal repayment of the sukuk, which commences by FY2039.

The back-ended amortisation structure provides SDEB headroom to strengthen its liquidity position in order to maintain compliance with the covenanted finance service cover ratio (FSCR) of 1.25 times, a requirement that commences from June 30, 2018 and runs throughout the remaining tenure of the restructured sukuk.

As at 8MFY2016, the company’s cash and cash balances stood at a low RM26.6 million relative to its financial obligations. MARC remains concerned on SDEB’s sizeable obligations under the concession agreement to widen and upgrade the Cahaya Baru-Pasir Gudang and Ulu Tiram-Cahaya Baru stretches in 2016 and 2017 respectively. However, due to the low usage of the aforementioned stretches, SDEB is seeking a deferment from the government as it will need to incur costs of about RM373.6 million to carry out the upgrading works. The sukuk holders have given SDEB an extension until June 30, 2016 to obtain approval, failing which a technical breach would occur.

The stable outlook reflects SDEB achieving sustainable traffic performance and timely receipt of government compensations as demonstrated in the recent years. Any revision to the rating and/or outlook would depend on the outcome of deferment on the upgrading works or any material deviations from the assumptions set out in the projections.

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View MARC's list of rating definitions (PDF)

MARC affirms AA-IS rating on Grand Sepadu's sukuk murabahah

MARC has affirmed its AA-IS rating on Grand Sepadu's issuance of RM210 million sukuk murabahah. The outlook on the rating is stable.

Grand Sepadu is the concessionaire of the New North Klang Straits Bypass (NNKSB) expressway until 2032. The 17.5km expressway provides direct connectivity between North Port and major industrial areas in Klang Valley. It has four toll plazas namely Kapar, Kapar Westbound, Kapar Eastbound and Bukit Raja. Grand Sepadu is indirectly equally owned by Taliworks Corporation and the Employees Provident Fund (EPF) with a 37.5% stake each.

The stable outlook incorporates MARC’s expectations that the concessionaire will generate stable cashflows to service the sukuk. However, the rating would come under pressure if there is significant downward deviation in Grand Sepadu’s traffic performance. In addition, prolonged toll hike deferrals without timely compensations from the government and/or an aggressive dividend payout policy would negatively affect the rating.

The rating takes into consideration the concessionaire’s adequate cashflow coverage, supported by resilient traffic performance on the NNKSB, which has a mature and fairly stable profile. The rating also factors in the NNKSB’s higher capacity as compared to alternative routes and the concessionaire’s moderately leveraged capital structure.

Moderating the rating are uncertainties associated with the scheduled toll rate hikes and timing of government compensations to maintain its debt service coverage levels. In addition, traffic on the NNKSB is also susceptible to any slowdown in operations at North Port and with industrial activities.

For 2015, the NNKSB registered 0.25% year-on-year (YoY) growth with average daily traffic (ADT) of 87,746 vehicles; this was 2.1% below projections, mainly due to a drop in Class 3 and 5 vehicles at the Bukit Raja toll. Class 3 vehicles are defined as vehicles with three or more axles, while class 5 vehicles are buses. Offsetting the decline was the higher number of Class 5 vehicles at the Kapar and Kapar Westbound toll plazas due to newly-built workers’ quarters in the Kapar area. The growth in traffic volume at the Kapar toll plazas coupled with sufficient liquidity headroom are expected to provide a buffer against traffic under-performance.

For 2015, Grand Sepadu recorded toll revenue of RM41.7 million, 1.7% lower than the projected RM42.4 million. The contribution was mainly from the Bukit Raja and Kapar toll plazas which contributed 35.8% and 44.5% of total revenue respectively. Despite incurring higher-than-expected routine maintenance expenses, the company’s operating profit of RM14 million was 7.5% above projection on the back of lower administrative expenses. This, coupled with lower finance costs, contributed to better profit before tax of RM2.8 million. As at end-December 2015, Grand Sepadu’s cash and bank balances of RM28.1 million are sufficient to cover its existing financial obligations of RM11.2 million in 2016 while its current debt-to-equity ratio of 2.84 times is well below the covenanted 4.5 times.

MARC notes with some concern that Grand Sepadu has yet to receive government approval to implement the toll rate hikes which were scheduled for January 2016. The toll charges are expected to increase by between 10 sen to RM1.20 and are not expected to negatively impact the NNKSB given the capacity constraints of alternative non-tolled roads. Nonetheless, the traffic flow of commercial vehicles which constituted 13.7% of the NNKSB's traffic volume in 2015 (2014: 14%) could be affected given its higher elasticity to toll rate hikes.

In respect of cashflow projections under the base case, the concessionaire will have an average annual free cashflow of RM20.7 million from 2016 till 2027. MARC’s sensitivity analysis shows that Grand Sepadu’s cashflow is able to withstand toll hike deferrals but is more susceptible to traffic volume growth. Traffic volume would need to fall by 4.2% before the covenanted finance service coverage ratio (FSCR) of 1.75 times is breached in 2023. Grand Sepadu would still remain current on its debt service obligations with a minimum FSCR of 1.87 times under a highly stressed scenario of 3% traffic volume reduction and toll hike deferrals throughout the sukuk tenure.

Interested?

Refer to the MARC Definitive Ratings Guide for rating definitions (PDF, page 54)

Meethaq launches Ramadhan vehicle finance offer

Meethaq, the pioneer of Islamic banking in Oman from Bank Muscat, has launched a vehicle finance promotion coinciding with Ramadhan. The Meethaq Ramadhan auto finance campaign is available at a 5% annual profit rate inclusive of life takaful during the full finance period. The limited period offer is valid till 31 July 2016.

The shari’ah-compliant Meethaq auto finance programme is based on the concept of murabahah, under which the cost of the vehicle and the profit is disclosed to the buyer. Meethaq purchases the vehicle on customer request, and sells it to them at a cost plus agreed profit.

The exclusive benefits of Meethaq auto finance include financing of up to 80% of the value of the vehicle, repayment tenure up to eight years and free life takaful coverage during the finance period. Financing is also available for purchasing used vehicles.

The bank does not charge any processing fee and offers competitive pricing. With minimal documentation and fast processing, Meethaq car finance is available for citizens and residents at all Meethaq branches.

Eleven Meethaq branches will be open with extended working hours, from 8.30pm to 11.30pm, during Ramadhan: Wattayah, Al Khoud, Barka, Saham, Sohar, Sur, Salalah, Buraimi, Ibri, Ibra and Nizwa.

Meethaq offers a full suite of Islamic banking products and services, including savings account, current account, home finance, auto finance, credit card, mobile banking and Internet banking. Meethaq has 18 branches across the Sultanate of Oman and plans to expand the network as well as launch new products and services to complement the Islamic banking experience.

RAM Ratings assigns final ratings to RCE-sponsored Tranche 1 sukuk

RAM Ratings has assigned final AAA/Stable and AA3/Stable ratings to Al Dzahab Assets' (the Issuer) RM95 million class A sukuk and RM25 million class B sukuk, respectively. This is the first issuance under Al Dzahab’s RM900 million sukuk murabahah asset-backed securitisation programme (the programme).

The issuance will be collateralised by personal-financing (PF) facilities originated by RCE Marketing (RCEM) through its business partners and extended to civil servants. These facilities are repaid via non-discretionary salary deductions processed by the Accountant General's Department and Angkatan Koperasi Kebangsaan Malaysia, thereby substantially insulating the transaction from the credit risks of the borrowers as long as they remain in active service.

RAM Ratings' cashflow assessment indicates that the underlying portfolio will be able to meet full and timely payment of the financial obligations of Tranche 1 under respective “AAA stress” and “AA3 stress” scenarios for the class A and class B sukuk. The class A sukuk and class B sukuk will be backed by receivables with an outstanding principal value of RM148.6 million and RM3.4 million of cash balances respectively, translating into corresponding over-collateralisation ratios of 60% and 26.66%.

Given the underlying portfolio’s weighted-average (WA) seasoning of only 1.21 years against a WA original tenure of 9.74 years, however, the actual performance of the portfolio as it seasons may deviate from our cashflow assumptions. Furthermore, the historical data reflect a benign period for the industry as a result of regulatory changes.

The transaction structure prioritises the financial obligations in respect of the class A and class B sukuk. Profit on the unrated class C sukuk are payable only after the full redemption of the rated classes. The minimum required balance in the Finance Service Reserve Account can only be utilised to top up any shortfall in meeting the profit obligations vis-à-vis the rated sukuk. In relation to Tranche 1, the issuer will pay fixed servicer fees without any servicer commission or bonus.

RAM Ratings believes that RCEM (as the servicer) is sufficiently “incentivised” to uphold its responsibilities in relation to Tranche 1, as the programme remains a long-term source of funding for the RCE Group. RCEM has been providing and servicing PF facilities for more than 10 years, and this transaction marks its fourth venture into the private debt market, which gives confidence to the conclusion.

Al Dzahab is a special-purpose vehicle incorporated to undertake the securitisation of receivables originated through the business partners of RCEM. Under the programme, the issuer will, from time to time, issue sukuk to fund its acquisition of PF portfolios. Stop-issuance trigger events prohibit further issuance under the programme should the servicer’s ability to perform its obligations – including servicing the PF facilities – become impaired.