NEWS in BRIEF

Government of Oman Raises OR200m (US$520m) Through its Third Domestic Sukuk in Year to Date Aimed at Bridging the Budget Deficit in the Wake of COVID-19

Muscat – The Ministry of Finance of Oman issued an OR200 million (US$520 million) domestic sovereign Sukuk in September 2020 – Series 3 under the Omani Rial Sukuk Issuance Programme, which was established in December 2019 and updated on 21 September 2020.

According to the prospectus, the 6-year Sukuk which matures in September 2026, is priced at an annual profit rate of 5.25% paid on a semi-annual basis in March and September of each year. The trust certificates were issued by Oman Sovereign Sukuk SAOC, incorporated as a closed joint stock company in the Sultanate of Oman, on behalf of the Ministry of Finance.

The OR200 million Sukuk were offered with a nominal value of 100 Rials/Suk during the period of 9-16 September 2020 via book building. A small percentage of the Sukuk was also allocated for retail investors, who could subscribe to the issuance through the designated primary dealers authorised by the Central Bank of Oman. On 9 September, the Omani Ministry of Finance mandated Bank Muscat and its Islamic window, “Meethaq”, to manage the issue.

“The third issue of the sovereign Sukuk programme is expected to contribute to boosting the rapid growth of the Islamic financial sector in Oman, and is part of the government’s strategy to deepen and expand the capital market in order to enable it to play a greater role in the local economic growth,” said the Ministry of Finance to the national news agency, ONA.

The Sukuk certificates are listed on the Muscat Securities Market (MSM) and the Muscat Clearing and Depository Company (MCDC) is responsible for all matters related to the registration of Sukuk and the periodic payments to Sukuk certificate holders.

Oman is similarly facing financial challenges as a result of the decline in oil prices and the consequences of the COVID-19 pandemic. Oman has taken several measures to curb government spending and reduce the size of the growing fiscal deficit, most of which have focused on reducing public spending items.

Earlier this year, Oman issued development bonds totalling OMR550 million and raised an OMR770 million bridge loan, the proceeds of which together with those of the OR200 million Sukuk will be used to close the budget deficit and to further mitigate the impact of the pandemic.

This latest Sukuk under the Programme follows the first issuance of a 5-year OR100 million Sukuk maturing in 2014 and the second issuance of a 7-year OR200 million maturing in 2026, both issued in 2019.

The total amount of funds raised to date through three series of Sukuk issuance under the Omani Rial Sukuk Issuance Programme now stands at OR500 million (US$ 1,298.71million).

Saudi Ground Services Company Raises SAR2bn (US$530m) Through 3 Murabaha Financing Facilities from Local Banks

Jeddah – A consortium The Saudi Ground Services Company (SGS), the Kingdom’s airport ground services handling company, has raised a total of SAR2 billion (US$530 million) of Murabaha financing facilities from local banks in three separate transactions.

The first agreement signed in September 2020 was with National Commercial Bank (NCB) for a SAR750 million (US$199.96 million) Murabaha facility with a tenor of 36 months. The facility is backed by a Promissory Note lodged by the company.

SGS signed a second agreement with AlBilad Bank in September 2020 for a similar SR750 million (US$199.96 million) Murabaha facility with a 36-month tenor and backed by a Promissory Note provided by the company. These two agreements followed that with Saudi British Bank (SABB), in August 2020 for a SR500 million (US$133.31 million) Murabaha facility with a 30-month tenor and similarly backed by a Promissory Note provided by the company.

In a disclosure to the Saudi Stock Exchange (Tadawul), SGS said the purpose of the three agreements is to provide a flexible source of funding to fund the company’s working capital requirements when needed, which in turn will help achieving the balanced liquidity policy that the company has developed as one of the precautionary measures to support its current liquidity position.

“The agreements would provide the required agility to reduce the impact of the Covid-19 pandemic on funding the working capital requirements while continuing with the expansion and growth strategic initiatives grow the company and elevate the quality of services. The agreements reflect the quality of the company’s credit rating and the banking confidence in the company’s capabilities and financial position, along to the strength of the Ground Services Industry in the Kingdom,” it added.

To achieve the optimum utilization of the agreements and to avoid unnecessary cost, the company said it will review the forecasted six-month working capital requirements on a monthly basis and will only drawdown funds from the facility to cover working capital requirements to support its operations in accordance with the review.

Turkish Treasury Sticks to Domestic Sukuk Al-Ijarah with Latest TRY816m Issuance as Lira Depreciates Sharply Against US Dollar

Ankara – The Turkish Treasury and Finance Ministry raised TRY816 million (US$104.72 million) through a direct sale auction on 22 September 2020 of its latest fixed rate CPI Indexed lease certificates (Sukuk Al-Ijarah) offerings. The auction was conducted by the Central Bank of Turkey via AS (Auction System under Central Bank Payment Systems).

The issuance has a 5-year tenor maturing on 17 September 2025 and priced at a fixed rental rate of 0.95% payable over a 6-month rental payment period.

The usual mantra of the Turkish Treasury when announcing these auctions is “In order to increase the domestic savings, broaden the investor base and diversify the borrowing instruments, TRY denominated fixed rent rate lease certificates will be issue to the banks through direct sale method.”

For the period January to September 2020, the Treasury raised TRY36,635.51m (US$4,701.56m) in fixed rate Sukuk Ijarah issuances through 11 auctions. Faced with a liquidity squeeze in the public finances of the country and of the banking sector, including the participation banks, and a very volatile currency against the US dollar and Euro, the Treasury has resorted to raising funds from the domestic market through Sukuk and conventional Treasury bonds, Gold-backed lease certificates and bonds, as well as the occasional foray into the US dollar and Euro markets with Sukuk and bond issuances.

The exchange rate for the Turkish lira against the US dollar depreciated to such an extent in a space of four weeks that by 28 September it had lost over US$253.27 million in value.

TURKISH TREASURY LEASE CERTIFICATES

(SUKUK AL IJARAH) ISSUANCES JANUARY-SEPTEMBER 2020

Source: Compiled by Mushtak Parker from data from the Debt Office Ministry of Treasury & Finance, Turkey   September 2020 US$/TRY exchange rate on 28/09/20    FX rate volatility very marked

Rawabi Holding Company Closes SAR583m Sukuk Issuance in September 2020, its Third Offering in Year to Date  

Al Khobar – Rawabi Holding Company, a leading provider of products and services to the oil and gas industry, successfully closed a SAR583 million (US$155.44 million) Sukuk in September 2020, the third issuance under the company’s SAR1.5 billion Trust Certificates Programme.

This latest issuance follows two successful Sukuk offerings since the Programme was established earlier in the year. AlBilad Capital, Alinma Investment Company and Riyad Capital acted as co-managers for the latest issuance.

Ahmad Al-Shubbar, Vice President, Treasury & Strategy at Rawabi stressed that the “successful issuance of three Sukuk totalling almost SAR1.16 billion under the Sukuk Programme in the year-to-date demonstrates the resilience of Rawabi’s business model and growth strategy during a remarkably challenging period. The Sukuk Programme plays an integral role in helping Rawabi to diversify its funding sources, ensuring that the Company is well-positioned to execute its ambitious growth strategy going forward. We are delighted to receive such a strong endorsement from capital markets investors, recognizing Rawabi’s unique position to capitalize on its leading position in the regional oilfield services industry.”

Rawabi provides oilfield, marine construction, industrial maintenance, general contracting, wireless solutions, electric, dredging and reclamation, offshore, and heat-treating services to the Upstream, Downstream and Midstream sectors in the Oil & Gas industry. Additionally, the group operates a large fleet of Offshore Service Vessels and Jack-up Barges in the MENA, Europe, North and South America and Far East.

Albaraka Turk Raises TL450million Through Two Sukuk Ijara Offerings in September 2020

Istanbul – Leading Turkish Participation bank, Albaraka Turk Katilim Bankasi, a subsidiary of the Bahrain-incorporated but Saudi-owned Albaraka Banking Group, raised TL450 million through two Ijara (Lease Certificate) Sukuk issuances in September 2020.

The issuances comprised a TL200 million issuance on 4 September 2020 with a tenor of 77 days maturing on 20 November 2020; and a TL250 million issuance on 11 September 2020 with a tenor of 84 days maturing on 4 December 2020. The Sukuk were issued through Bereket Varlik Kiralama, a locally incorporated special purpose company, on behalf of the obligor, Albaraka Turk Katilim Bankasi.

Albaraka Turk executes regular Turkish Lira Lease Certificate Issuances in the domestic market. “With the help of these issuances, we aim to contribute to the development of Islamic Capital Market in Turkey as well as enhance our investor base,” said Malek K. Temsah, Albaraka Turk’s Assistant General Manager of Treasury, Investment Banking, and Financial Institutions.

IILM Conducts Two Auctions Totaling US$1.41bn of Short-term Sukuk in September 2020 on the Back of an Increased Sukuk Issuance Programme to US$4bn

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) successfully conducted two auctions during September 2020 raising a total of US$1,410 million through short-term Sukuk issuances. The first auction took place on 8 September for a total issuance of US$900 million short-term A-1 rated Sukuk in two series of 1-month and 3-month tenors, respectively.

The two series were priced by the market as follows;

1. US$400 million of 1- month tenor certificates at 0.22%; and
2. US$500 million of 3-month tenor certificates at 0.43%.

The final profit rates of the two series, said IILM in a statement, “lie below and within the indicative pricing guidance for the 1-month and 3-month series. This demonstrates an increasing interest in high quality Sukuk from Primary Dealers and investors.”

The tender resulted in significant demand from Asian and Middle Eastern investors, with an orderbook closing in excess of US$1.59 billion, representing an average oversubscription rate of 1.77 times.

The second auction took place on 22 September for a total issuance of US$510 million short-term A-1 rated Sukuk in two series of 6-week and 6-month tenors, respectively.

The two series were priced by the market as follows;

1. US$210 million of 6-week tenor certificates at 0.24%; and
2. US$300 million of 6-month tenor certificates at 0.47%.

The 6-week tenor is a new one being introduced to the market. The auction resulted in significant demand mainly from GCC-based Primary Dealers and investors, with an orderbook that closed in excess of US$888 million for both tenors.

“With the September issuances, the IILM’s outstanding issuance size and asset pool has increased to US$3.51 billion from US$1.96 billion at the start of 2020. This is the first time since inception that overall issuance size has exceeded US$3.0 billion, demonstrating the IILM’s continued ability for progressive growth in its regular supply to meet increasing demand of its Sukuk from institutions offering Islamic financial services. This achievement would not have been possible without the support of our various stakeholders and is even more relevant today in challenging market conditions. I would like to thank our network of Primary Dealers for their continued support of the IILM Issuance Programme,” explained Dr Umar Oseni, CEO of IILM.

These latest auctions follow the successful update of the IILM Trust Certificates Issuance Programme from US$3 billion to US$4 billion in September 2020.

Since the start of the year, the IILM has raised total cumulative issuance of US$8.88 billion, representing around 30% of the US$-denominated Sukuk globally. The IILM is a regular issuer of Sharia’a compliant liquidity instruments of varying tenors and amounts to cater to the different needs of the market and investors.

The IILM short-term Sukuk programme is rated “A-1” by S&P. The total of IILM Sukuk outstanding is now US$3.51 billion.

According to the IILM, the primary dealers that participated in the two auctions 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.

Emaar the Economic City Raises SAR2,005m Through Two Murabaha Credit Facilities Provided by Local Banks to Support its Cash Flow Requirements

Riyadh – Emaar the Economic City signed two Murabaha financing facilities with local banks in September 2020, raising SAR2,005 million (US$534.56 million) in the process.

In the first transaction Emaar the Economic City signed an agreement with Al Rajhi Bank on 16 September 2020 for a SAR305 million Murabaha facility comprising a SAR120 million revolving credit facility that can be renewed periodically, and a SAR185 million facility for a period of 6 years, including a two-year grace period.

The guarantees provided for the credit facility includes a promissory note from the company. In a disclosure to the Saudi Stock Exchange (Tadawul), the company said that SAR120 million from the facility will be used to cover the working capital needs of the company, and SAR185 million medium-term financing will be used to finance the company’s digitization transformation.

Emaar the Economic City also rescheduled a SAR1,700 million Murabaha financing agreement with Alinma Bank in September 2020, revising the terms of the facility. The amended terms include a grace period of 3 years and a repayment over 10 years in semi-annual instalments, maturing in August 2030.

The financing will be used to enhance the company’s cash flow position. The company provided land assets located within King Abdullah Economic City as collateral along with signing promissory notes for the amount of the loan.

Indonesian Government Raises IDR25.4 trillion in Three Rupiah-denominated Sukuk Issuances in September 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 September 2020 raising a total IDR25.4 trillion (US$1.7 billion) in the process. In August, Jakarta similarly raised a total of IDR94.1352 trillion (US$6.3 billion) through five Sukuk issuances.

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.

The issuances comprised three auctions of Sovereign Shariah Securities (SSS) through the auction system of Bank of Indonesia. The first one was held on 1 September 2020 which raised IDR9.5 trillion comprising five tranches of 1, 3, 4, 13 and 26-year tenors and priced at a coupon rate at discount, 6.5%, 6.25%, 8.375% and 7.75% respectively.

The second auction of SSS was held on 15 September which raised IDR9.5 trillion comprising five tranches of 1, 3, 4, 13 and 26-year tenors and priced at a coupon rate at discount, 6.5%, 6.25%, 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 IDR78.9752 trillion (US$5.3 billion).

IsDB Board Approves US$320.56m in New Development Financing for Projects in Member Countries

Jeddah – The Board of Executive Directors of the Islamic Development Bank (IsDB) at its 337th meeting held virtually and chaired by IsDB Preasident, Dr Bandar Hajjar, approved US$320.56 million in new financing in September for development projects in the water and sanitation, health, roads and women empowerment sectors.

The financing includes:

i) US$40 million to The Freetown WASH and Aquatic Environment Revamping Project in Sierra Leone, which is aimed at improving the water supply and sanitation services and ensuring the sustainability of the vital aquatic ecosystem in the western area of the capital Freetown.

ii) US$8.5 million for the Business Resilience Assistance for Women Value-Adding Enterprises Project in Burkina Faso aimed at supporting the country’s National Plan for Economic and Social Development specifically in support of entrepreneurship programmes for 240 women-owned or led micro-, small and medium sized enterprises (MSMEs) reporting increased sales or profits; creation of 600 direct jobs by women owned or led MSMEs; and supporting 13 lead firms that introduce new products to markets, and

iii) US$261.7 million for strengthening the National Referral Hospitals and Vertical Technical Units Project in Indonesia. The Project, says the IsDB, aims to improve the health conditions and livelihoods of the people of Indonesia in general and the target population of around 77 million in particular. The aim is to improve the availability, accessibility, quality, and delivery of health services through upgrading six national referral hospitals and vertical technical units in five provinces. “The Project will lead to improved and strengthened mother and child health in terms of inpatient, outpatient and intensive care services; decreased maternal and child mortality, and increased cancer survival rates nationwide. Key output indicators by the end of the project will include the construction of 231.000 m2of health facilities, the provision of 952 hospital beds, and the training of 5500 hospital staff,” said the IsDB.

The Board in addition increased the grant allocation from Ordinary Capital Resources to 10% of the Annual Net Income, up from 5% currently, to implement the President’s 5-Year Programme and help member countries meet their social, human, technical and operating needs. It doubled, as of 2020, the grant allocation from the Bank’s Annual Net Income to 4%, up from 2% currently, to finance the IsDB Scholarship Programmes.

The Board also approved two policy documents. The Urban Sector Policy establishes the overall directions to guide the Bank’s future urban development financing operations, focusing on the goal of achieving inclusive and sustainable urban development in member countries. The Water Sector Policy for sustainable and resilient water and sanitation systems for all is designed to guide the Bank’s future contribution towards overcoming the major challenges of using and managing water resources and providing water and sanitation services.

Zahrat Al Waha Trading Renews SAR63.51m Murabaha Facility with Alinma Bank

Riyadh – Zahrat Al Waha for Trading Co., whose main business is the production of preform plastic bottles and caps, renewed its SAR63.51 million Murabaha credit facility with Alinma Bank in September 2020.

The new facility matures on 30 June 2021. The proceeds of the facility will be used to open letters of credit for the purchase of raw materials, machinery and equipment.

RHB Establishes RM10bn (US$2.4bn) Multi-Currency Sukuk Murabaha Programme

Kuala Lumpur – Malaysia’s RHB Bank established in September 2020 a RM10 billion (US$2.4 billion) multi-currency Sukuk Murabaha Programme, with an option to increase the size of the Programme.

In a disclosure to Bursa Malaysia, RHB said that proceeds from the Sukuk Programme will be used for working capital and general banking purposes of the Islamic business activity and refinancing of the Group. RHB Investment Bank was the lead manager for the establishment of the Programme while RHB Islamic Bank is acting as Shariah Adviser.