Municipal Bond
German state plans road show for Islamic bond

Germany's eastern state of Saxony-Anhalt planned a Middle East roadshow to present Europe's first Islamic bond (sukuk) before an issue in early July. The German state, which expects its issue to be well oversubscribed, said it would probably send finance ministry representatives to Bahrain and Dubai to sound out interest among Islamic investors. The ministry had previously stated that the issue could take place in early June. Saxony-Anhalt announced in March that it would issue around 100 million euros ($120 million) worth of debt in a bond adapted to meet Islamic laws, which forbid interest payments. The Sukuk is based on a sale and lease back scheme under which the German state will transfer the rights on some state properties to a Dutch foundation. The holders of the Sukuk issued by the Dutch foundation will receive rent from the properties instead of interest. Saxony-Anhalt can buy back the rights to its properties after five years.

Sovereign Sukuk
Bahrain restructures $250 million sovereign Sukuk to avoid delays

Bahrain Monetary Agency has restructured its $250 million sukuk issue to avoid a royal decree. The Islamic bond is lead arranged by Citigroup’s Islamic subsidiary, Citi Islamic Investment Bank. Standard & Poor's affirmed the A- rating for the restructured sukuk. News of the restructuring removing the uncertainty around the fate of the sukuk, which has spent an unusually long time in the pricing phase. Under the original - and unique - structure, government land was to be sold to a special purpose vehicle (SPV) and rented back on an unconditional basis. However, it emerged that a royal decree would have been necessary to permit such a transaction, threatening a long drawn-out process. Instead, the land, which is part of Bahrain International Airport, will be leased to the SPV by the government for 100 years. The new structure was approved by Citi Islamic's Sharia board. With this obstacle cleared, the five-year paper is due to be launched in early June.

Ratings
Unused liquidity impacts Islamic bank ratings says Fitch

Islamic banks must find alternative ways to invest surplus liquidity to secure better risk ratings, said Gordon Scott, managing director of financial institutions at Fitch Ratings. The absence of Islamic banks from interest bearing international money market affects their ability to invest the access liquidity. "This affect rating because it affects the liquidity as Islamic banks can't just sell their loans or call them at any point of time. In liquidity, we like to see banks with their assets in short term deposits so they can quickly liquidate in times of crisis," Scott said. "We have seen more Islamic banks coming for us asking for rating, because they are becoming more international in their activities," Scott said. That lack of a viable inter-bank market for Islamic banks is also a weak point, Scott said. Scott said banks were attempting to create an inter-bank market compliant to Islamic laws, but few institutions opted to participate since it requires a great deal of documentation. Scott also said Islamic banks should issue more Islamic bonds (Sukuk) in order to create a secondary market for these bonds. Bahrain Monetary Agency (BMA), the kingdom's central bank, has issued Sukuks worth $1.03 billion since 2001 in parts of efforts to be the international market for these bonds. "BMA's efforts is not enough to create a strong liquidity market for the entire Islamic banking sector. I think banks themselves should get into issuing similar bonds to create a secondary market," Scott said.
 

Capital Restructuring
UAE: Abu Dhabi Islamic Bank plans $200 million bond issue

Abu Dhabi Islamic Bank (ADIB) is preparing to issue a sukuk, expected to be worth about $200 million. HSBC and Barclays are said to be in competition for the lead arranging mandate. ADIB's plans remain at an early stage of development, with the structure and tenor of the paper under discussion. The bank will join an increasing number of corporates employing the Islamic leasing instrument to raise funds. In the local market, National Central Cooling Company (Tabreed) launched a $100 million, five-year sukuk in March while Bahrain-based Liquidity Management Centre is arranging a $65 million, five-year issue for Dubai- based Emaar Properties.
 

Corporate Funding
Islamic Development Bank to provide funding to Malaysian corporates

The Jeddah Based international Islamic development finance institution, Islamic Development Bank (IDB) Group, is extending its Sukuk financing services to the corporate sector in Malaysia. The lending could reach up to US$60 million. The Jeddah-based bank is targeting companies which have viable projects with developmental impacts such as energy, telecommunications, al and construction. According to the bank companies can apply for financing from US$15 million to US$60 million and those asking for more than US$60 million would be allowed to find other financiers to co-finance their projects. However the repayment of the financing is fixed, as the bank only provide financing to acquire assets and not financing for capital expenditure. Financing would be made through purchase and leaseback or direct leasing. The bank said that the upfront fee would depend on the size of the project but the minimum fee was $150,000. The lending institution is also asking for security package such as a partial bank guarantee, a corporate guarantee or a sovereign guarantee.

Ratings Islamic Instruments
Rating of Islamic issues accounted for 2/3rd of Malaysia’s rating agency work

MARC announced 23 new ratings during the year, with a total rated value of RM9.6 billion, out of which 65 percent were Islamic instruments, emphasising MARC's niche in Islamic Private Debt Securities (PDS) ratings. During the same year, MARC achieved a milestone with the debut of a property-based Islamic Asset Backed Securities (ABS) issue, the first of its kind in the Malaysian capital market. Furthermore the rating agency is looking for opportunities abroad in Islamic financial tools. MARC was embarking on its first Islamic Collateralised Debt Obligations (CDO) but was not able to elaborate it in detail. MARC held 40 percent market share of the rating industry in Malaysia and 60 percent of it were for Islamic instruments. MARC foresees the interest for Islamic instruments growing as the issuer would have wider choice of investors.

Credit Facility
Dubai Islamic provides $270 million credit facility for Jumeirah Beach Project

Dubai Islamic Bank and Al-Habtour Engineering Enterprises have signed a credit facility agreement to cover execution of the USD270m fourth stage of the Jumeirah Beach Residence. This includes the construction of eight residential towers, some of them rising to 54 storeys.

Islamic Retail Bond
Malaysia: Central bank offers another tranche of Islamic bond to retirees

Bank Negara Malaysia announced the third issuance of Merdeka Savings Bond amounting to RM500 million.
This would be the third of the eight quarterly issues from 2004 to 2005. The bond is structured based on Shariah principles and provides an additional savings instrument to senior citizens, retired Malaysian Armed Forces personnel and Malaysian citizens who have retired on medical grounds. The bond offers a return of 5.0 percent per annum and provides the flexibility of early redemption before the maturity which has the maturity date of two years. Bondholders might redeem bonds at face value on and before maturity date, but not earlier than the first profit payment for each issue. The minimum investment in the bond is RM1,000 with a maximum of RM100,000 per investor.
 

Syndicated Loans
Emirates financing deal for new aircrafts to include Islamic financing

Emirates signed a $108 million financing agreement for a new Airbus A340-500, the first time this type of aircraft has been financed by a group of international commercial banks. The financing is for Emirates' fifth A340-500, which it will use on long-haul routes. Emirates' first four A340-500s were financed using a combination of European export credit and Islamic funding. The fifth plane, however, is financed, over a 12-year term, and was arranged and funded by Standard Chartered Bank, with Bank of Tokyo Mitsubishi and Lloyds TSB Bank as co-arrangers.

Corporate Bond
Malaysia's PLUS to raise 1 bln rgt via bonds to upgrade highway

PLUS Expressways Bhd plans to raise 1 bln rgt via an Islamic bond issue in the next 12 months to fund works to upgrade the North-South Expressway. The company said that the upgrading and the funding requirements are being discussed with the Finance Ministry. It is estimated that it would cost the company about 35 mln rgt to undertake repair work on the stretch of the Expressway that was damaged in last November due to rock fall. The stretch is scheduled to reopen on early June and as much as 20 mln rgt of the repair cost may be covered by insurance if current negotiations with the insurers are successful. During this period the loss of toll earnings for PLUS is estimated at 2 mln rgt a month.

Corporate Bond
Malaysia's cable maker plans MYR150M Islamic medium term note

Cable-maker in Malaysia, Leader Universal Holdings, is planning a 150 million ringgit ($39.47 million) Islamic commercial paper/medium-term note program for up to seven years. Proceeds from the program will be used to refinance existing borrowings and to generate working capital for the company. United Overseas Bank (Malaysia) is the principal adviser and lead arranger of the program, while Citibank Bhd. is co-arranger of the program.

Malaysia's KNM Group to Issue Up To MYR150M Islamic Notes

Manufacturer of petrochemical equipment in Malaysia, KNM Group, plans to issue up to 150 million ringgit ($1=MYR3.80) in Islamic medium-term notes to repay some of its borrowings. Amanah Short Deposits is the principal adviser and lead arranger for the planned issue. The notes will have a tenor of seven years, the group said, but it didn't disclose further information, such as when it will issue the notes.