DIFC Shariah Debt Two-Month Rally 'Gone Too Far' in Dubai
Owner of assets in the Dubai International Financial Centre, DIFC Investments is in debt, and Islamic bonds aren’t helping matters.
Bloomberg
August 12, 2010
Dubai, United Arab Emirates
The two-month rally in DIFC Investments LLC’s Islamic bonds is ending on concern the Dubai state-controlled developer will struggle to meet payments on more than $3 billion of debt.
The notes that comply with Shariah law dropped for a third day yesterday to 79.15 cents on the dollar after surging almost 10 percent since the end of May, according to data compiled by Bloomberg. The securities need to fall at least 4 percent to 76 cents or below before they are attractive to buy, according to Zafar Nazim, a JPMorgan Chase & Co. analyst in London.
DIFC Investments, the owner of assets in the Dubai International Financial Centre, a tax-free zone, had its credit rating cut one level by Moody’s Investors Service on July 8 and its outlook reduced to negative this week by Standard & Poor’s, which cited about $3.1 billion of debt and “uncertainties” over the company’s plans to sell $1 billion of assets.
HSBC has sounded the alert for new employees across all business lines. It's looking to add 1,000 workers to support its Islamic banking unit and wants to add 500 private bankers in Asia, Latin America, and the Middle East.
Having reported positive earnings results for the first half of the year, HSBC has also announced that it's bulking up its headcount across many of its business lines.
The bank is planning to add 1,000 staff members in its Personal Financial Services unit to support its growing Islamic banking unit, Amanah, and aiming to add 500 private bankers in the emerging markets of Asia, Latin America and the Middle East. It is also recruiting for 500 staff in Brazil and Mexico.
The heavy hiring is spurred on, in part, by the positive results the bank reported for the first half of 2010. According to The Wall Street Journal, its net profit doubled, from $3.35 billion a year ago to $6.76 billion for the period. In general, the bank remains optimistic on the outlook across all its business lines, including in investment banking where it registered a fall in profit.
The value of bonds and sukuk issued by Gulf oil producers plunged by nearly 32% in the first half of this year (from around $35 billion to nearly $24.2 billion), but conventional bonds continued to dominate the market, according to Markaz financial centre.
The value of bonds and sukuk issued by Gulf oil producers plunged by nearly 32 per cent in the first half of this year but conventional bonds continued to dominate the market, according to a Kuwait financial company.
From around $35 billion in the first half of 2009, the total value of bonds and sukuk (Islamic financial instruments) slumped to nearly $24.2 billion in the first half of 2010, Markaz financial centre said in a study.
April was the dominant month in terms of issuance frequency and value, with 17 issuances and $6.1 billion, raising 25.1 per cent of H1 2010 total value.
"Continuing with the trend witnessed since 2003, conventional issuances raised the largest amount during the first half of 2010 with $20.1 billion through 68 issues representing 82.9 per cent of the total value raised, and five times the total value of sukuk issued during the same period," the report said.
Kuwait's International Investment Group (IIG) encountered its second sukuk default this year. The investment firm said in April it had appointed an international consultant, which it did not name, to review its business after it defaulted on a $3.35 million payment for a $200 million Islamic bond.
IIG said on Monday its payment on the Islamic bond, or sukuk, had been scheduled for July 12.
The company said KPMG would carry out an independent review of its business and make an assessment of its financial position. IIG said it has also received the central bank's approval for its 2009 financial statements.
"IIG will then be able to assess its positions and restructuring options with assistance from its professional advisors," the company said.
The investment firm said in April it had appointed an international consultant, which it did not name, to review its business after it defaulted on a $3.35 million payment for a $200 million Islamic bond.
Kuwait's investment sector was hit hard by the global financial crisis. The country's Investment Dar was the first company in the region to default on a major sukuk in May 2009.
First Philippines Sukuk Planned by Al-Amanah
Sukuk is coming to the poorest region of the Philippines at the behest of Al-Amanah Islamic Bank. Eight of Al-Amanah’s nine branches are based on the southern island of Mindanao, a poor region, and the base of the al Qaeda-linked Abu Sayyaf and some members of the communist New People’s Army, according to a U.S. government watch list for international terror organizations. “There is currently no regulatory framework for Islamic banking,” said Bangko Sentral ng Pilipinas Governor Tetangco. “What we have is the charter of Al-Amanah Bank.”
The Philippines’ state-owned Al- Amanah Islamic Bank may sell the nation’s first Shariah- compliant bonds to finance development in Muslim Mindanao, the poorest region and base of Abu Sayyaf separatist militants.
“There’s a lot of money in the market for sukuk that we can tap,” Al-Amanah President Armando Samia, whose bank is the only one in the Philippines with a mandate to sell Islamic notes, said in an interview yesterday. “We’re still in the very exploratory stage. Getting the first one out is difficult.”
A lack of regulations governing issuance makes it difficult to sell securities in the Philippines that comply with the religion’s laws banning payment of interest, according to Samia. The Autonomous Region of Muslim Mindanao had per capita gross domestic product that’s about 23 percent of the national average.
BNP Paribas Investment Partners, which manages the equivalent of $700 billion globally, said investors will be interested in the bonds. Global sales of debt that conform to Shariah law fell 29 percent to $6.65 billion this year, according to data compiled by Bloomberg.
