NEWS in BRIEF

Arab National Bank Issues US$750m Tier 2 Capital Sukuk

Riyadh – Arab National Bank (ANB) is the latest Saudi bank to tap the Sukuk market to boost its capital. In October 2020, ANB issued a US$750 million Tier 2 Capital Sukuk. The offering has a 10-year tenor maturing on 28 October 2030, callable on 28 October 2025.

The Sukuk, according to a disclosure to Tadawul (the Saudi Stock Exchange), may be redeemed prior to the scheduled maturity date due to a capital disqualification event, tax reasons; or on the fifth anniversary of the issue date, subject to the terms and conditions of the Sukuk. The Bank mandated HSBC Bank plc and J.P. Morgan Securities plc as Joint Lead Managers & Bookrunners and, together with Arab National Investment Company, as Joint Lead Manager, to arrange a series of local and international investor calls. The issuance was aimed at institutional investors (qualified investors in the jurisdiction in which the offering will be made in accordance with the rules and regulations of such jurisdictions).

“The purpose of the issuance is to support the bank’s capital base and fulfil the bank’s financial and strategic needs,” said ANB in the disclosure to Tadawul. The issuance was priced at a fixed coupon rate of 3.326% per annum payable semi-annually in arrears on each Periodic Distribution Date from and including the issue date. The Sukuk, according to ANB, will be listed on the Regulated Market of the London Stock Exchange.

IIFM Publishes Landmark Sukuk Al Ijarah Standard Documentation to Ease the Issuance of Asset-based Sukuk

Manama – The Bahrain-based International Islamic Financial Market (IIFM) published its latest set of standard documentation for the Islamic finance industry in October 2020 – the Sukuk Al Ijarah Standard Documentation, which comprises a Template Prospectus, Sale and Purchase Agreement, Ijarah Agreement, Service Agency Agreement, Purchase Undertaking, Sale and Substitution Undertaking and Declaration of Trust.

The purpose of the Sukuk standard documentation templates is to provide the industry with a standardized set of documents addressing clauses that are challenged and are repetitive during the drafting of the Sukuk prospectus and related issuance documentation, while also standardizing definitions and updating Sharia’a requirements. According to the IIFM, the Sukuk Al Ijarah Documents “have been developed to facilitate and ease the issuance of Sukuk Al Ijarah in a Sharia‘a compliant manner.”

IIFM is allowing any Islamic financial institution and any other Islamic financial industry participant to use the IIFM Template Sukuk Al Ijarah Documents and its use is not restricted to IIFM members only.

The Sukuk issuers, lead arrangers, legal advisors and other related parties, added IIFM, will greatly benefit from this suite of standard documents as it will lead to efficiency and cost reduction in drafting of voluminous Sukuk documentation for issuers and offer greater transparency and comfort to investors.

“This IIFM Sukuk Al Ijarah Standards for Asset-Based Sukuk are a culmination of extensive industry assessment, market consultation, working group deliberation and Sharia’a guidance. Going forward IIFM also plans to work with the industry on standardizing Asset-Backed Sukuk documentation as well as other Sukuk structures such as Sukuk Al Mudarabah (Tier 1 and Senior Unsecured) and hybrid Sukuk,” explained Khalid Hamad Al-Hamad, Chairman of IIFM.

Ijlal Ahmed Alvi, Chief Executive of IIFM, is confident that the documentation will contribute to the further development and easing of Sukuk origination. “Standardization of Sukuk documentation is a complex exercise considering that not all the clauses and information can be put in a standardized form. Hence, the aim of these document templates is to achieve a maximum standardization level which will help in the robust development of the Sukuk market,” he added.

The Standards were launched at a special webinar event organized by IIFM where an international panel of experts representing IIFM, Bank ABC Islamic, Credit Agricole CIB, Standard Chartered Bank, Clifford Chance LLP and DDCAP Limited spoke on the legal, operational, market and Sharia’a aspects of the documentation and their benefit to users as well as the positive impact of the standards in development of the market. The webinar inter alia discussed the market share and potential of Ijarah Sukuk as well as other fast emerging hybrid structures. The panellists noted that Ijarah is a leading structure for use in Sukuk issuance and, in light of market needs and innovation, the use of the Ijarah structure is now embedded across many Sukuk. 

In order to assist market participants, the IIFM Sharia’a Board have provided the following guidelines and recommendations regarding Sharia‘a compliance of the Template Sukuk Al Ijarah Documents:

1. Sukuk Issuances should retain the rules and principles of Sharia’a as set out in the Template Sukuk Al Ijarah Documents.
2. The proceeds from a Sukuk Issuances based on the Template Sukuk Al Ijarah Documents must be used for Sharia’a compliant purposes.
3. The underlying assets in connection with the Issuance must be tangible (i.e. financial assets are not acceptable in this regard) and must be Sharia’a compliant.
4. It is not permissible to lease in respect of forbidden (unlawful) activities (i.e. the benefit from the Ijarah must be permissible from a Sharia’a perspective).
5. No interest (whether called interest or an alternative name but which represents interest) is to be chargeable under the Template Sukuk Al Ijarah Documents.
6. Sharia’a supervision should remain in place for the duration of the Sukuk and the Sharia’a supervisory committee shall be responsible in monitoring and overseeing the implementation of the Sukuk Issuance.
7. In accordance with the terms of the Lease, the Lessor shall be responsible for takaful/insurance, major maintenance and repair and for payment of ownership taxes. The Lessor may delegate responsibilities to an agent.

Turkish Treasury Issues 1-Year Gold-backed Domestic Sukuk Al-Ijarah in Sixth Such Auction to Date in 2020

Ankara – The Debt Office Turkish Treasury and Finance Ministry issued 1-Year Gold-backed Lease Certificates (Sukuk Ijarah) on 7 October 2020 maturing on 8 October 2021 priced at a Lease Rate of 0.75% payable over the 6 Month lease period. The amount of gold collected, according to the Treasury, amounted to 14,210,590.000 grams of gold (995/1000 purity) from institutional investors for issuance of an aggregate 14,210,590 gold lease certificates (at a nominal value).

The direct sale auction of its latest 1-Year Gold-backed Lease Certificates (Sukuk Ijarah) offering was conducted by the Central Bank of Turkey via AS (Auction System under Central Bank Payment Systems). For the January-October 2020 period, the Treasury has conducted six such gold-backed lease certificate auctions in January, March, April, May, July and October 2020 collecting a total 51,105,190.000 grams of gold (995/1000 purity) from institutional investors for issuance of an aggregate 51,105,190 gold lease certificates (at a nominal value).

All the lease certificates were issued by Hazine Mustesarligi Varlik Kiralama A.S., a special purpose vehicle wholly-owned by and on behalf of the Ministry of Treasury & Finance, the obligor. The Ministry of Treasury & Finance issues these gold-backed lease certificates “to diversify borrowing instruments, broaden the investor base and bring the idle gold into the economy.”

According to Finance Minister Berat Albayrak [whose resignation on 8^th November 2020 became public after this issuance] “citizens are provided with a safe investment tool for gold savings. With the gold bond and gold-denominated lease certificate issuance through five banks, our citizens will win themselves and contribute to the economy.” Investors will be paid TL-denominated returns on a semi-annual basis indexed to the gold price. On maturity, according to the Treasury, investors may request the principal payment as 1 kilogram of gold bar (produced by refineries) or Republic Gold Quarter Coins printed by the Turkish State Mint.

TURKISH TREASURY GOLD-BACKED LEASE CERTIFICATES (SUKUK AL IJARAH) ISSUANCES January-October 2020

SOURCE: Compiled by Mushtak Parker from data from the Debt Office Ministry of Treasury & Finance, Turkey   October 2020

Note: The amount of Gold Lease Certificates issued is taken as 1000 for 1 gram collected gold from the issuances to individual investors and 1 for 1 gram collected gold from the issuances to institutional investors

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Banque Saudi Fransi Closes SAR5bn Perpetual Tier 1 Sukuk via Private Placement in October 2020  

Jeddah – Banque Saudi Fransi (BSF) successfully closed a Saudi riyal-denominated SAR5 billion (US$1.3 billion) Perpetual Additional Tier 1 Sukuk on 19 October 2020. The Sukuk was distributed to eligible investors in the Kingdom via a private placement. The Bank had mandated Saudi Fransi Capital as Sole Bookrunner, Lead Arranger and Lead Manager for the transaction.

In a disclosure to the Saudi Stock Exchange (Tadawul), BSF confirmed that the profit rate for the transaction is 4.5% per annum from the issue date up to 3 November 2025. The rate of return will then be reset on 3 November 2025 and every five years thereafter. The Sukuk is a perpetual issuance in that it has no maturity date.

The proceeds from the Sukuk will be used to strengthen the Bank’s capital base in accordance with the Basel III Capital framework agreement. The Sukuk may be redeemed early due to a capital event, tax event or at the option of the Bank as described in the terms and conditions of the Sukuk.

State Bank of Pakistan Issues Guidelines for Development Finance Institutions to Undertake Sharia’a-compliant Business

Karachi – The State Bank of Pakistan (SBP) has taken another important step in widening the impact of Islamic finance in the country’s economy and to enlarge the scope of Sharia’a compliant financial services in the country, by issuing guidelines for Development Finance Institutions (DFIs) to undertake Sharia’a-compliant businesses and operations in October 2020. Further, keeping in view various developments, such as changes in the licensing and regulatory regime for banks, the SBP has also updated the guidelines, introduced in 2004, for establishing Islamic banking Institutions.

The updated guidelines deal with the establishment of a full-fledged Islamic bank, Islamic banking subsidiary and Islamic banking branches of conventional banks. In addition, these guidelines cover different areas including minimum capital adequacy, requirements related to sponsor directors, business plan, Shariah governance, application fees, preconditions for commencement of business.

The guidelines for conventional banks and DFIs to undertake Sharia’a-compliant business and operations also cover the eligibility criteria for in-principle approval, proposal requirements, Sharia’a governance, minimum capital requirement and systems and controls.

The Guidelines further stress the separation of Islamic banking/finance division and its different components, responsibilities of head of the Islamic banking/finance division and requirements for commencement of operations. 

The SBP hopes that these guidelines will facilitate the new entrants in the field of Islamic banking through establishment of full-fledged Islamic banks, Islamic banking subsidiaries by conventional banks and the commencement of Shariah compliant business and operations by conventional banks and DFIs.

IILM Issues US$1.1bn of Short-term Sukuk in Various Tenors in October as Total Issuances for 2020 to Date Tops US$10bn

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) successfully reissued a total of US$1.1 billion short-term “A-1” rated Sukuk in three series across three tenors of 1, 3 and 6-months.

The Corporation held an auction on 6 October 2020 for the three series of issuances.

The three series were priced by the market as follows;

1. US$400 million of 1- month tenor certificates at 0.26%;
2. US$500 million of 3-month tenor certificates at 0.45%.

• US$200 million of 6-month tenor certificates at 0.46%.

Despite uncertain market conditions, stressed the Corporation, the reissuance generated strong demand from investors, with a combined orderbook in excess of US$1.6 billion representing an oversubscription level of circa 1.50 times.

GCC Primary Dealers took up majority of the allocation across all three series with strong participation observed from Asian-based Primary Dealers and investors on both the 1 and 3-month tenors.

Since the start of 2020, according to the IILM, the Corporation has issued on a monthly basis a total cumulative issuance amount of nearly US$10 billion, representing circa 33% of US dollar denominated Sukuk globally. The IILM is a regular issuer of short-term Sukuk across varying tenors and amounts to cater to the liquidity needs of institutions offering Islamic financial services. The total amount of IILM Sukuk outstanding is now US$3.51 billion. The IILM short-term Sukūk programme is rated “A-1” by S&P.

According to the IILM, the primary dealers that participated in the auction conducted under the competitive bidding of the Bloomberg AUPD Platform included Abu Dhabi Islamic Bank; Al Baraka Turk Participation Bank; Barwa Bank; Boubyan Bank; CIMB Islamic Bank Berhad; First Abu Dhabi Bank; Kuwait Finance House; Macquarie Bank; Maybank Islamic Berhad; Qatar Islamic Bank; and Standard Chartered Bank. The allocation was dominated by GCC-based institutions.

Etihad Credit Insurance Launches Sharia’a-compliant Export Credit and Investment Solutions to Boost UAE’s Share in the US$3.2 trillion Global Halal Trade and Economy

Dubai – Etihad Credit Insurance (ECI), the UAE Federal export credit agency, launched in October 2020 a suite of Sharia’a-compliant export credit solutions under ‘ECI Islamic’ in order to boost the country’s halal export industry and to cement its strong position as a global leader in the fast-growing Islamic economy. The launch of ECI Islamic makes it one of the first sovereign export credit agencies in the Middle East to offer Sharia’a-compliant Export Credit Insurance and Guarantee Solutions.

According to the State of the Global Islamic Economy Report 2019/20, Muslim spend across halal food, pharmaceutical, and Islamic lifestyle sectors is projected to grow from US$2.2 trillion in 2018 to US$3.2 trillion in 2024. As such, this upward trend can further be strengthened with a more extensive use of secure trade credit. The growth is fuelled by high growth and affluence among Muslim populations, increasing adherence to ethical values, continued engagement by global multinationals and investors, and a growing number of national strategies dedicated to halal products and related opportunities.

Massimo Falcioni, ECI CEO, stressed at the launch of ECI that this upward trend can further be strengthened with a more extensive use of secure trade credit because it can help businesses free up cash flow and finance growth. Trade credit is a type of commercial financing in which a customer purchases goods or services under ‘credit’ and pays the supplier at a later scheduled date. This arrangement, however, gives rise to a higher risk of non-payment – and this is where protection from ECI comes in very handy.

Products and services under ‘ECI Islamic’ have been reviewed and approved by Dar Al Sharia, and re-insured by the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the export credit agency of the Islamic Development Bank (IsDB) Group.

The launch of ‘ECI Islamic’ is also in line with the vision of the Dubai Islamic Economy Development Centre (DIEDC) which is centred on finding new ways to manage economic, commercial and financial growth, and the adoption of the Islamic Economy to stimulate economic growth and create new opportunities and initiatives through collaborations between local, Islamic and international companies.

“Through our Shariah-compliant trade credit, finance, and investment solutions,” added Falcioni, “ECI stays true to its mission of supporting the UAE’s non-oil sector and boosting the competitiveness of businesses. These solutions will provide UAE businesses operating in halal trade with a competitive advantage in the international market. We aim to not only strengthen the efforts of halal exporters in the country, but also to facilitate the development of new and innovative products that contribute significantly to positioning the UAE as the global leader in the Islamic economy.”

Among the export credit solutions offered under ‘ECI Islamic’ include Trade Credit Insurance, which offers whole turnover policy, single risk short term policy, and single risk long term policy; Letter of Credit Confirmation Insurance; Islamic Export Finance; Foreign Investment Insurance, and Surety Bonding.

With these trade credit solutions, says ECI, it can help companies recover the cost of fulfilling an order that is terminated by events outside their control, such as insolvencies, non-payments, and other adverse impacts of COVID-19. In addition, companies who avail of these solutions can also get loans and additional funding capacity from banks at a concessional rate, guaranteed by ECI. The Federal export credit company can also help them tap alternative supplies through its global network of 360 million companies worldwide.

Indonesian Government Raises IDR25.75 trillion in Three Rupiah-denominated Sukuk Issuances in October 2020

Jakarta – The Government of Indonesia continues to consolidate its role as one of the most proactive repeat issuers of sovereign domestic Sukuk in the market with three issuances in October 2020 raising a total IDR25.75 trillion (US$1.831 billion) through three auctions.

The Department of Islamic Financing at the Directorate General of Budget Financing and Risk Management, Ministry of Finance of Indonesia, is a prolific issuer of Sukuk on behalf of the Government of Indonesia. In September it similarly raised IDR25.4 trillion through three auctions.

The October issuances comprised three auctions of Sovereign Shariah Securities (SSS) or Sukuk Negara through the auction system of Bank of Indonesia. The first one was held on 6 October 2020 which raised IDR1.5 trillion through a private placement. The Sukuk, which has a tenor of 27 years maturing on 15 July 2047, was priced at a fixed coupon rate of 8% per annum and a yield of 7.52% and is listed on the Jakarta Stock Exchange for trading.

The second auction of SSS was held on 13 October which raised IDR11.9 trillion comprising five tranches of 1, 3, 4, 13 and 26-year tenors and priced at a coupon rate at discount, 6.5%, 6.625%, 8.375% and 7.75% respectively.

The third auction of SSS was held on 27 October which raised IDR12.35 trillion comprising five tranches of 1, 3, 4, 13 and 26-year tenors and priced at a coupon rate at discount, 6.5%, 6.625%, 8.375% and 7.75% respectively.

Demand for the securities from local institutional investors was robust with total bids for the three auctions amounting to IDR48.3561 trillion.

Central Bank of Kuwait Establishes Centralised Higher Committee of Sharia’a Supervision with Far-Reaching Powers to Regulate Sharia’a Advisory Sector in Islamic Finance Industry

Kuwait City – The Board of Directors of the Central Bank of Kuwait (CBK) approved in October 2020 the establishment of The Higher Committee of Sharia’a Supervision, a central Sharia’a advisory council which would be the Apex body dealing with Islamic legal issues relating to the financial services sector.

The move follows the introduction of Law No. (3) of 2020 in September 2020 concerning the formation of a higher Sharia’a supervision authority at the CBK. The new law gives the central bank and the Sharia’a Committee far-reaching powers to regulate the Sharia’a advisory sector and function in the Islamic finance industry in Kuwait.

“This initiative stems from the CBK’s commitment to maintain financial stability and to underpin the governance of Sharia’a supervision and compliance in Islamic financial and banking institutions according to international best practices. This is in line with rapid developments seen in the Islamic finance industry in Kuwait,” explained the regulator in a statement.

The CBK added that the decision to establish the Committee was taken after an assessment of global experiences where central banks have Sharia’a supervision authorities in place.

The mandate of the Committee is “to present opinions and counsel” to the Central Bank of Kuwait on:

1. Sharia’a compliance of financial transactions and other issues between the CBK and Islamic banks and financial institutions;
2. Propose general Sharia’a guidelines for financial products and services they offer;

• Propose controls to regulate the business of Sharia’a supervision bodies, conduct internal and external Sharia’a audits, and govern the activities related to Fatwa and Sharia’a supervision at Islamic banks and finance institutions;

1. Pre-approve candidates for membership on Sharia’a Boards at Islamic banks and finance institutions;
2. Issue final decisions where Sharia’a supervision authorities’ deliberations are inconclusive, thus serving as the Sharia’a Authority of Last Resort; and
3. Present Sharia’a-based opinions on matters referred to it by the Courts or Arbitration Centres relating to issues of Islamic banking and finance business.

The Governor and Chairman of the Board of the Central Bank of Kuwait, Mohammad Y. Al-Hashel, and his fellow directors have moved swiftly to appoint experienced Sharia’a and Fiqh (Islamic jurisprudence) specialists as members of the Committee.

They have confirmed the appointment of Dr Essa Z. E. Shaqra as Chairman of the Committee, which includes Dr Khaled M. Y. Boodi, Mostafa Sayed H. A. Alzelzelah and Dr Motlaq J. M. Aljaser as members. The appointment is for a three-year term and is renewable.

SC Guidelines on Digital Assets Take Force in October 2020 as Funds Raised Through Malaysian Regulated Crowdfunding Markets Tops RM1bn

Kuala Lumpur – The Securities Commission Malaysia (SC) has revised its Guidelines on Digital Assets, on the day they came into force on 28 October 2020.

The Guidelines aim to regulate Initial Exchange Offerings (IEO) and Digital Asset Custodians (DAC) and will facilitate the SC’s objectives in promoting responsible innovation in the digital asset space, while at the same time managing emerging risks and safeguarding the interests of issuers and investors.

In January 2020, the SC announced a framework to enable companies to raise funds via the issuance of digital tokens in Malaysia through an IEO platform registered by the SC. Under the Guidelines, IEO platform operators will be required to assess and conduct the necessary due diligence on the issuer, review the issuer’s proposal and the disclosures in the whitepaper, and assess the issuer’s ability to comply with the requirements of the Guidelines and the SC’s Guidelines on Prevention of Money Laundering and Terrorism Financing.

The Guidelines also include rules and regulations on DAC to facilitate interested parties who wish to provide custody services for digital assets. Digital asset custodians play an important role within the digital asset ecosystem of the Malaysian capital market to safeguard digital assets of investors.

The SC reminds members of the public that they are not permitted to offer, issue or distribute any digital assets in Malaysia without obtaining a registration or authorisation from the SC. Any person found to be operating a digital exchange or offering or distributing any digital assets without the SC’s authorisation commits an offence and may be liable, on conviction, to a fine not exceeding ten million ringgit or imprisonment for a term not exceeding ten years or both.

At its virtual SCxSC Fintech Conference in October, the SC revealed that more than 2,500 Micro, Small and Medium Enterprises (MSMEs) have raised more than RM1 billion through the regulated crowdfunding markets of the Malaysian capital market.

Since the introduction of the Equity Crowdfunding (ECF) and Peer-to-Peer Financing (P2P) regulatory framework in Malaysia in 2016, the SC has registered 21 platforms to provide regulated crowdfunding options to meet the financing needs of MSMEs.

“The SC continues to encourage digital innovation and promotes inclusiveness of the capital market. We have seen considerable increase in individual investor participation in the market via digital investment managers (DIMs), ECF and P2P financing platforms, digital asset exchanges (DAXes) and online brokers. Over 80% of the investors in the crowdfunding markets are retail investors, with 60% of them under the age of 35 years old,” said SC Chairman Datuk Syed Zaid Albar, at the virtual conference.

“However, we would like to remind investors to only invest in authorised capital market products and services. With the increasing number of online scams, investors should also be alert to avoid being deceived by scammers in their search for yield in this low interest rate environment,” he added.

The SC approved three DAXes in 2019 with four digital assets permitted for trading. Collectively, more than 400,000 accounts were opened across the three DAXes,

with the value of trades surpassing RM100 million in August this year. The seven DIMs registered with the SC continue to attract many first-time investors with close to 90,000 new accounts opened as of August this year, which has more than double the total number of accounts opened in the year of 2019.

SABB Arranges SAR2.17bn (US$580m) Murabaha Credit Facility for Dr Sulaiman Al Habib Medical Services Group

Jeddah – Saudi British Bank (SABB) arranged a SAR2.17 billion (US$580 million) Murabaha credit facility for North of Riyadh for Healthcare Company (One Person

Company), a subsidiary of Dr Sulaiman Al Habib Medical Services Group.

In a disclosure to the Saudi Stock Exchange (Tadawul), Dr Sulaiman Al Habib Medical Services Group confirmed that the facility has a tenor of 13 years with a 5-year grace period. The facility is secured by a promissory note from the company, a corporate guarantee provided by Dr Sulaiman Al Habib Medical Services Group, and a Mortgage of the Project’s land to the Bank.

The proceeds of the financing will be used to funding the construction of the North of Riyadh Hospital Project (Sahafa District).