RAM Ratings analyses risks for sukuk ijarah at Ampang Point Shopping Centre

RAM Ratings has reaffirmed the ratings of Purple Boulevard’s RM250 million sukuk under its RM450 million asset-backed Sukuk Ijarah Programme. The issuer is a special-purpose vehicle sponsored by Nadin Holdings and Nadin Management to undertake the securitisation of Ampang Point Shopping Centre in Malaysia.

There are five classes of sukuk under the programme with different ratings and expected maturity dates, with the earliest being 13 November 2020.

RAM Ratings says the reaffirmation of the ratings of the Class A, Class B and Class C Sukuk Ijarah - AAA/Stable, AA₃/Stable and A₃/Stable respectively - is premised on our expectation that Ampang Point’s performance will remain supportive of our assumed annual sustainable net property income (NPI) and also the assessed capital value of RM221.1 million. The reaffirmation of the Class D Sukuk Ijarah rating (AAA[fg]/Stable) reflects the credit standing of its guarantor, Danajamin Nasional, the rating of which was reaffirmed at AAA/Stable on 23 August 2017, RAM Ratings added.

In fiscal 2016, Ampang Point recorded positive rental reversion as a result of the commencement of leases and revised rental rates of a related-party tenant, RAM Ratings observes. However, the property’s average rental rate (ARR) fell in the first seven months of FY17, mainly because some tenancy agreements were renewed at lower rental rates during the period. This downside risk is mitigated however by the turnover rent component. Correspondingly, NPI fell 1.9% to RM22.85 million (annualised), from RM23.29 million in fiscal 2016 – above the assumed annual sustainable NPI of RM20.00 million. Despite this, Ampang Point’s average occupancy rate (AOR) remained stable at 95%-96%. 

"We note that rental reduction is part of the management’s tenant-retention strategy amid the challenging business environment. As such, we envisage its top-line growth to be constrained in the near to medium term, along with some margin compression," RAM Ratings said. 

The consultancy also noted that Ampang Point's management is continually striving to create additional lettable space and enhance the property’s tenant mix to drive footfall. "These efforts, if they materialise, may provide upside to the property’s cashflow. Nonetheless, our assessment does not accord any benefit to these considerations as such plans remain fluid at this juncture," the consultancy said.

RAM Ratings also brought up the risk of tenant concentration as the top five tenants account for 45.5% of the property's total net lettable area and 19.7% of its monthly gross rental income as at end-July 2017. Furthermore, almost half of the tenancies will expire in 2018. "That said, we expect minimal non-renewal risk from its top anchor tenants as one of them is a related party while two have been tenants since Ampang Point’s inception; the other two anchor tenants are only in their second rental cycles," RAM Ratings said. 

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RAM Ratings says Tanjung Bin Power's sukuk ijarah programe continues to be stable

RAM Ratings has reaffirmed the AA2/Stable rating of Tanjung Bin Power's (TBP's) Sukuk Ijarah Programme of up to RM4.5 billion in nominal value (2012/2029) (the sukuk). The rating continues to reflect TBP's strong debt-coverage levels owing to robust cashflow generation and a well-matched debt-repayment profile. The rating is also supported by the company’s strong business profile, backed by the favourable terms of its power purchase agreement (PPA) with Tenaga Nasional (TNB), its sole off-taker.

TBP is an independent power producers (IPP) that has been granted the right to construct, own and operate a 2,100-MW coal-fired power plant in Tanjung Bin, Johor, under a PPA with TNB which expires on 27 September 2031.As with other IPPs, TBP remains exposed to regulatory and single-project risks, RAM Ratings says.

Following the progressive completion of the second phase of the power plant’s turnaround programme from July 2015 to February 2016, TBP had witnessed a notable operational improvement and claimed full available capacity payments (ACPs) and daily utilisation payments (DUPs) in fiscal 2015. In addition, the company managed to fully pass through its fuel cost to TNB.

Looking ahead, TBP’s credit metrics are expected to stay solid, with its minimum finance service coverage ratio (FSCR) standing at 1.65 times for the remaining tenure of the sukuk despite stress test assumptions of ACP and DUP losses in certain years. In RAM Ratings' assessment of its distribution policy, the company had represented to pay its subordinated debt obligations and dividends, subject to meeting financial covenants under the sukuk on a forward-looking basis, as opposed to only in the year of assessment.

Issue No. 126 of CBB's Sukuk Al-Ijara oversubscribed by 220%

The Central Bank of Bahrain (CBB) has announced that the monthly issue of the short-term Islamic leasing bonds, Sukuk Al-Ijara, has been oversubscribed by 220%.

Subscriptions worth BD57.2 million were received for the BD26 million issue, which carries a maturity of 182 days. The expected return on the issue, which begins on 11 February 2016 and matures on 11 August 2016, is 2.14% compared to 2% for the previous issue on 14 January 2015.

Sukuk Al-Ijara are issued by the CBB on behalf of the Government of the Kingdom of Bahrain.

This is issue No.126 (BH0005L57493) of the short-term Sukuk Al-Ijara series.

Al Osool Properties obtain forward ijarah financing from alizz islamic bank

Source: alizz islamic bank. Al Osool Properties signs a forward ijarah financing agreement with alizz islamic bank for The Pearl Muscat. The signing ceremony on 28 December 2015 was attended by Salaam Al Shaksy, CEO of alizz islamic bank (second from left) and Hassan Mohamed Juma Al Lawati, Managing Director of Al Osool Properties (third from left). The signing ceremony was also attended by Ehab Hashish, DGM-Head of Wholesale Banking of alizz islamic bank, alongside the proprietors of the The Pearl Muscat; Hilal Abdullah Al Hoqani and Ahmed Ali Khamis Al Mahrouqi. 

Alizz islamic bank has signed a financing agreement based on forward ijarah with pioneer real estate development and investment company Al Osool Properties for the development of its premium integrated tourism complex (ITC) project The Pearl Muscat. The Pearl Muscat is being developed on land in the Muscat Hills Commercial area. The project spreads over 6,911 sq m and will comprise a basement, ground floor plus six storeys and a penthouse.

The financing agreement marks an important milestone in the development of Oman's real estate sector and reiterates alizz islamic bank's commitment to strengthen institutional participation for real estate projects. Alizz islamic bank provides shari'ah compliant financial solutions for corporate, government and individual customers. In forward ijarah, the property is acquired by alizz islamic bank under an istisna sale contract with a developer upon customer's promise to lease. The property is accordingly leased and delivered to the bank's customer for the agreed term and rentals, after which the ownership is transferred to the customer.

Salaam Al Shaksy, Chief Executive Officer of alizz islamic bank said, "We are pleased to partner with Al Osool Properties for developing its premium project The Pearl Muscat. This is in line with our strategy to support the local tourism and development projects. The bank continues to demonstrate its commitment towards financing projects which contribute to the local economy."

Al Shaksy added that the entry of Islamic institutions has brought a range of shari'ah compliant products and services to meet the diverse financing needs of corporate and institutional clients in Oman.

Hassan Mohamed Juma Al Lawati, Managing Director of Al Osool Properties said that "the development agreement between Al Osool Properties and alizz islamic bank will provide a solid guarantee to our customers that their properties will be delivered within the stipulated deadline irrespective of the market dynamics."

Bank Nizwa offers bespoke shari'ah-compliant home financing for Al Mouj Muscat

Source: Bank Nizwa.

Al Mouj Muscat has partnered with Bank Nizwa to bring shari'ah-compliant home financing services to the destination for the first time. Under the agreement, prospective homeowners will have access to a full range of the Bank's financing solutions and competitive financing rates when purchasing property at Al Mouj Muscat.

Nasser Al Sheibani, CFO and Acting CEO at Al Mouj Muscat, said, "Underpinned by strong ethical principles, Islamic banking products are growing in popularity and I am sure there will be strong demand for the bespoke solutions Bank Nizwa has created to facilitate the purchase of residences on our waterfront community."

Dr Jamil El Jaroudi, CEO of Bank Nizwa said, "We are continuously looking to enhance our role as the leader of Islamic finance in Oman. Therefore, we are providing individuals looking to experience world class living in Al Mouj Muscat with a seamless and effective portfolio of home financing solutions catering to their various requirements and choices of real estate properties in one of the Sultanate's finest destinations."

The Al Mouj Muscat apartments, townhouses and villas are already home to more than 4,000 people of 69 different nationalities. The leisure and lifestyle destination is home to the 400-berth Almouj Marina, Almouj Golf, and commercial, social and entertainment hub The Walk. In 2016, Al Mouj Muscat will open the first of four planned luxury hotels. Further residential precincts, lifestyle assets and tourism experiences are under development and under construction.

Bank Nizwa's home financing products and services have gained a reputation for providing customers with competitive rates, transparent pricing, quick processing and approval. Designed to best suit the needs of prospective homeowners, the Bank's property solutions are based on the Islamic finance concepts of ijarah, murabahah, and forward ijarah.

Indonesia issues shari'ah securities via Bank Syariah Mandiri

The Indonesian government has issued government shari'ah securities (SBSN) series PBS-010 through fund placement by Bank Syariah Mandiri on October 26, 2015.

The nominal amount of the ijarah assets is 1 trillion rupiah, at a coupon of 8.625% per year. The yield is 8.7%, to mature on January 25, 2019.

Linklaters advises Oman on first sovereign sukuk

Linklaters has advised the government of the Sultanate of Oman, represented by the Ministry of Finance, on its proposed issuance of sukuk (Islamic bonds). The transaction is the first sovereign sukuk by Oman.

The sukuk is proposed to be issued on the basis of a sukuk al-ijarah structure, over government land, for a tenor of five years. Application will be made to the Muscat Securities Market for listing and trading of the sukuk in Oman.

The proposed issue represents a landmark stage in the development of the sukuk market and Islamic Finance industry in Oman, paving the way for further sukuk issues in Oman in the future.

Jonathan Fried, who leads the capital markets practice for Linklaters in the Middle East, said: “The firm has acted on sovereign sukuk issues by a range of countries, including the UK, Luxembourg, Hong Kong and Middle Eastern countries including, now, the Sultanate of Oman, a key regional power. These deals demonstrate how truly international the sukuk market is today.”

The Linklaters team was based in Dubai, led by Partner Fried, working in conjunction with Neil Miller, Global Head of Islamic Finance, and Associate Leah Weldon.

100% subsciption for CBB's Sukuk Al-Ijara

The Central Bank of Bahrain's (CBB's) monthly issue of the short-term Islamic leasing bonds, Sukuk Al-Ijara, has been subscribed by 100%.

Subscriptions worth BD26 million were received for the BD26 million issue, which carries a maturity of 182 days. The expected return on the issue, which begins on 17 September 2015 and matures on 17 March 2016, is 1.40 % compared to 1.31% for the previous issue on 13 August 2015.

The Sukuk Al-Ijara are issued by the CBB on behalf of the Government of the Kingdom of Bahrain.

This is issue No.121 (BH000577N570) of the short-term Sukuk Al-Ijara series.

Gulf Finance Corporation gets SAMA licence in Saudi Arabia

Gulf Finance Corporation in Saudi Arabia, a wholly-owned subsidiary of SHUAA Capital and a provider of shari'ah-compliant finance to small and medium sized enterprises (SMEs) in Saudi Arabia, has received a licence from the Saudi Arabian Monetary Agency, (SAMA) to officially practice financial leasing, financing productive assets and SME financing in line with SAMA’s new laws and regulations.

As part of the new licensing process, Gulf Finance Corporation has been converted from an instalment company previously regulated by the Ministry of Commerce to a private closed joint stock company regulated by SAMA. The company has also changed its name from Gulf Installments Company to Gulf Finance Corporation PJSC.

“As one of the first non-bank lenders operating in the GCC, we see tremendous potential in the Saudi Arabian SME market,” said HH Sheikh Maktoum bin Hasher Al Maktoum, Executive Chairman of SHUAA Capital and Chairman of Gulf Finance Corporation in Saudi Arabia at the time*. “Our shari'ah-compliant products and services see a strong demand from SMEs in KSA. We would like to take this opportunity to thank SAMA for granting us this licensing, which will enable Gulf Finance Corporation to better serve the Kingdom’s SME sector by providing access to a wider range of products to finance its growth.”

In order to qualify for the license, Gulf Finance Corporation had to commit a minimum capital of SAR100 million. The license will allow the company to continue operations in Saudi Arabia, providing shari'ah compliant financing products such as ijarah for finance leases, financing production assets, and for financing SMEs.

“We hope to address this gap in financing and provide solutions to SMEs to fund their expansion into new markets, benefiting from our capabilities to finance cross-border deals between KSA and the UAE,” added Sheikh Maktoum.

Gulf Finance Corporation in Saudi Arabia is a sister company to Gulf Finance Corporation in UAE, which is headquartered in Dubai and has been providing SME funding solutions to businesses in the Emirates since 1997. Gulf Finance Corporation in Saudi Arabia currently has offices in Jeddah and Riyadh and is expanding operations in the Eastern province.

*As of 15 February Abdul Rahman Hareb Rashed Al Hareb is Chairman of the Board of Directors for SHUAA Capital. He replaces HH Sheikh Maktoum Hasher Al Maktoum who has held the position of Executive Chairman since May 2011. Houssem Ben Haj Amor will continue as General Manager of the company.

Central Bank of Bahrain oversubscribed for sukuk

The Central Bank of Bahrain (CBB) has announced that its monthly issue of the short-term Islamic leasing bonds, Sukuk Al-Ijara, has been oversubscribed by 365%. Subscriptions worth BD73 million were received for the BD20 million issue, which carries a maturity of 182 days.

The expected return on the issue, which begins on 13 November 2014 and matures on 14 May 2015 is 0.82%, equivalent to 0.82% for the previous issue on 16 October 2014.

Sukuk Al-Ijara are issued by the CBB on behalf of the Government of the Kingdom of Bahrain.

This is issue No.111 (BH00015A8104) of the short-term Sukuk Al-Ijara series.

The bills, carrying a maturity of 182 days, are issued by the CBB, on behalf of the Kingdom of Bahrain.

The issue date of the bills is 16 November 2014 and the maturity date is 17 May 2015.

The weighted average rate of interest is 0.80%, equivalent to 0.80% for the previous issue on 5 October 2014.

The approximate average price for the issue was 99.597%, with the lowest accepted price being 99.597%.

This is issue No. 1521 (ISIN BH000GQ96783) of Government Treasury Bills. With this, the total outstanding value of Government Treasury Bills is BD 1.230 billion. - See more at: http://www.noodls.com/view/94BA1FEE13C43706401218D552CDB1F8E07594A8?6842xxx1415788078#sthash.t2EeBpS8.dpuf

The bills, carrying a maturity of 182 days, are issued by the CBB, on behalf of the Kingdom of Bahrain.

The issue date of the bills is 16 November 2014 and the maturity date is 17 May 2015.

The weighted average rate of interest is 0.80%, equivalent to 0.80% for the previous issue on 5 October 2014.

The approximate average price for the issue was 99.597%, with the lowest accepted price being 99.597%.

This is issue No. 1521 (ISIN BH000GQ96783) of Government Treasury Bills. With this, the total outstanding value of Government Treasury Bills is BD 1.230 billion. - See more at: http://www.noodls.com/view/94BA1FEE13C43706401218D552CDB1F8E07594A8?6842xxx1415788078#sthash.t2EeBpS8.dpuf

Islamic finance ideal for alleviating poverty

Islamic finance is well-suited for addressing poverty, whether it is used by Muslims or non-Muslims, says the organisers of the 4th Global Islamic Microfinance Forum (GIMF), which kicks off on 1 November in Dubai at the Dusit Thani Hotel.

Muhammad Zubair Mughal, Chief Executive Officer, AlHuda Centre of Islamic Banking and Economics (CIBE) quoted research which has found that Islamic microfinance has a greater impact on poverty alleviation than general microfinance. Firstly, its focus on investing on assets can boost income levels, and opportunities for business, health and education. Secondly, it is available to the poor.

He further said that murabahah, musharakah, mudarbah, and ijarah are some of the options available, and micro takaful helps to keep those emerging from poverty from backsliding.

The forum runs from 1 to 4 November, 2014 and is jointly organised by AlHuda CIBE and Akhuwat. It is supported by the IRTI - Islamic Development Bank, Azerbaijan Microfinance Association, Association of Microfinance of Tajikistan, Indonesia Microfinance Association, Centre of Microfinance Nepal, Metropolitan Training Academy Turkey, Awqaf South Africa, and KFDWB among others. 

Go for ijarah sukuk and have respected shari'ah scholars certify them: IMF working paper

The type of sukuk and the choice of shari'ah scholar could affect interest in a sukuk issue.

In Do the Type of Sukuk and Choice of Shari'a Scholar Matter?, a working paper* from the International Monetary Fund (IMF) released in August 2014, authors Christophe Godlewski, Rima Turk, and Laurent Weill study a sample of 131 sukuk from eight countries from 2006 to 2013 and find both criteria do indeed matter.

Some observations from the analysis include: 

• The average coupon is above 4%, maturity is 8 years, and the average amount issued is US$1,270 million with a large standard deviation. 
• An average of three scholars certify an issuer’s sukuk. 
• On average, half of the team of scholars is from the same country as the issuer. 
• A typical scholar certifies on average 24 sukuk per year, or almost 75 issues over three years. 
• Issuing firms have issued on average more than 11 bond issues.

According to the working paper, ijarah (اجارۃ) sukuk "exert a positive influence on the stock price of the issuing firm". The authors suggest that ijarah structures may benefit the most from the expansion of sukuk markets because of the better investor reaction to them compared to other structures. 

The authors observe that sukuk in the musharakah and mudarabah formats, which are partnership contracts in which the financier and entrepreneur share profits based on pre-agreed ratios but also the losses that are proportional to their contributions (financial or physical) to the partnership, are not as popular. "Ijarah is a debt-based instrument that is not based on profit and loss sharing principles; hence, it does not suffer from the possibility of attracting borrowers of poor financial condition as would a musharakah instrument," the authors suggested.

A similar positive impact was observed with sukuk that had been certified by prominent shari’ah scholars from the same country as the sukuk issuer. In more than half of the sample, at least one scholar is from the same country as the issuer, the authors observed. 

"Our finding provides some evidence that high compensation for reputable shari’ah scholars certifying sukuk may be justified on the grounds of better valuation of issuing firms," the authors said.

*Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The views do not necessarily represent the views of the IMF or IMF policies.