NEWS in BRIEF

Saudi Franchise Retailer, Fawaz Alhokair Co. Signs US$800m Syndicated Murabaha Facility with Consortium of GCC Banks

Riyadh – Fawaz Abdulaziz Alhokair Co., the largest franchise retailer in Saudi Arabia and the Middle East and North Africa (MENA) and Central Asia regions, has signed an US$800 million Syndicated Murabaha facility with a consortium of participating banks which include Al Rajhi Banking & Investment Corporation, The National Commercial Bank, Samba Financial Group, The Arab National Bank, Mashreqbank and Abu Dhabi Commercial Bank.

The facility is composed of two tranches: i) a US$650 million Murabaha facility whose proceeds will be used to refinance existing debt, and ii) a US$150 million revolving standby credit facility to finance the business’ operational and expansion needs.

The transaction consolidates all of the Group’s previous borrowings under the rubric of one Murabaha facility, while extending Alhokair’s debt maturity profile and offering enhanced terms and conditions under an improved pricing regime. Management estimates that the consolidation of the Group’s debt under the transaction will allow the Group to make significant savings on financial charges.

“Our success in securing this new debt package is a vote of confidence in our Group by regional lending institutions, signifying its strong relationship with the Group’s strategic Saudi banking partners, while further diversifying our funding mix with the addition and retention of leading GCC Banks,” said Marwan Moukarzel, Chief Executive Officer of Fawaz Abdulaziz Alhokair Co.

“The transaction allows us to consolidate all our existing debt into one Murabaha facility with more favourable terms and significantly reduces our cost of debt in a manner conducive to our long-term and ambitious growth strategy,” he added.

Alhokair’s successful conclusion of the Murabaha agreement marks a key milestone in the Group’s turnaround story, with the new debt profile providing the Group with a more optimized capital structure as it works to efficiently implement its growth strategy and continue its evolvution towards a lifestyle company model. Since the opening of its first store in 1991, Alhokair Fashion Retail has grown considerably and now trades in more than 1,600 stores across 100 shopping malls in 13 countries. ch 2020

“We believe that the surest way to enhance our customers’ shopping experience, deliver long-term sustainable growth and create value for our shareholders is to deepen and broaden the Company’s ability to invest in its successful business model,” said Marwan.

“To this end, an optimal capital structure will place the Company in a prime position to benefit from Saudi Arabia’s favourable long-term macro fundamentals and its new drive to enhance and develop its retail, leisure, entertainment, and cultural offerings. With the integration of the food and beverage business, our increasing online penetration, and further enhancement and expansion of our existing portfolio, we are confident in the Group’s ability to capture upside and generate superior returns,” he added.

The US$650 million (SR2,435.5 million) Murabaha tranche has a tenure of 7 years with a 1-year grace period, with semi-annual repayments. The security to the transaction is “the customary security package associated with Term Murabaha agreements.” The US$150 million (SR562.5 million) Revolving Credit Facility has a tenure of 3 years with an annual repayment.

Malaysian Mortgage Securitisation Entity, Cagamas, Raises RM605 million in Hybrid Sukuk/Bond Offering in March 2020

Kuala Lumpur – Cagamas Berhad, the National Mortgage Corporation of Malaysia, one of the most prolific issuers of Sukuk, started off the year 2020 with a combined issuance totalling RM605 million comprising RM300 million 3-month Conventional Commercial Papers (CCPs) and RM305 million 3-month Islamic Commercial Papers (ICPs).

The proceeds from the issuances, according to the Corporation, which continues to play a major role in the Islamic mortgage securitization market in Malaysia, will be used to fund the purchase of housing loans and Islamic home financing from the domestic financial system.

Cagamas was established in 1986 to promote the broader spread of home ownership and growth of the secondary mortgage market in Malaysia. It issues corporate bonds and Sukuk to finance the purchase of housing loans from financial institutions and non-financial institutions. The provision of liquidity to financial institutions at a reasonable cost to the primary lenders of housing loans, maintains the Corporation, encourages further expansion of financing for houses at an affordable cost.

“Market uncertainties amidst a challenging global economy and slower momentum in domestic activities, exacerbated by the recent Covid-19 virus outbreak saw investors shifting investments into haven assets. Expectations of monetary policy easing by the market coupled with the pending announcement of economic stimulus package by the Government also provided support for the Company’s fund-raising exercise”, said Cagamas President/Chief Executive Officer, Datuk Chung Chee Leong.

“Due to strong demand from the market, the Company had successfully priced its combined issuances at a competitive pricing level of 15 basis points (bps) below the corresponding 3-month Kuala Lumpur Interbank Offered Rate (KLIBOR) benchmark rate or equivalent to 2.94% on the pricing date. The pricing of the CCPs and ICPs also represented 26 bps and 29 bps over the respective Malaysian Treasury Bills and Malaysian Islamic Treasury Bills”, he added.

The conclusion of the deals represent the Company’s second issuance exercise this year which brings the Company’s year-to-date issuance to RM805 million.

All the above issuance proceeds will be used to fund the purchase of mortgage loans and Islamic house financings from the financial system. The papers, which will be redeemed at their full nominal value upon maturity, are unsecured obligations of the Company, ranking pari passu among themselves and with all other existing unsecured obligations of the Company.

Cagamas’ corporate bonds and Sukuk continue to be assigned the highest ratings of AAA and P1 by RAM Rating Services Berhad and AAA/AAAIS and MARC-1/MARC-1IS by Malaysian Rating Corporation Berhad, denoting its strong credit quality.  Cagamas is also well regarded internationally and has been assigned local and foreign currency long-term issuer ratings of A3 by Moody’s Investors Service Inc. that are in line with Malaysian sovereign ratings.

The Cagamas model is regarded by the World Bank as the most successful secondary mortgage liquidity facility. Cagamas is the second largest issuer of debt instruments after the Government of Malaysia and the largest issuer of AAA corporate bonds and Sukuk in the market. Since incorporation in 1986, Cagamas has cumulatively issued circa RM328.7 billion worth of corporate bonds and Sukuk.

Albaraka Turk Raises TL580 million Through Three Sukuk Ijara Offerings in February 2020

Istanbul – Leading Turkish Participation bank, Albaraka Turk Katilim Bankasi, a subsidiary of the Bahrain-incorporated but Saudi-owned Albaraka Banking Group, raised TL580 million through two Ijara (Lease Certificate) Sukuk issuances in February 2020. The issuances comprised a TL250 million issuance on 28 February 2020 with a maturity of 105 days; and a TL330 million issuance on 12 February 2020 with a maturity of 112 days.

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.

Strong Demand Marks IILM’s Second Auction of Short-term Sukuk in February 2020 totaling US$1bn

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) concluded its second auction of the year on 12 February 2020 by issuing a total amount of US$1 billion short-term A-1 rated Sukuk in three series.

The overall demand, said the Corporation, was strong with a total order book of US$2.15 billion and a weighted average bid-to-cover ratio for the three Sukuk series of 215%.

The three series comprises:

  1. The issuances of US$300 million Sukuk with a tenor of 1 month and priced at a profit rate of 1.71%;
  2. The issuance of US$300 million Sukuk with a tenor of 3 months and priced at a profit rate of 1.75%; and
  • The issuance of US$400 million Sukuk with a tenor of 6 months and priced at a profit rate of 1.80%, respectively.

The cut-off profit rates across the Sukuk were far below the January 2020 levels, namely – 14, -18, -15 basis points for the 1-month, 3-month and 6-month Sukuk, respectively. The decline of the IILM Sukuk profit rates, said the Corporation, reflected the drop in the money-market rates since the beginning of the year.

In terms of geographical distribution, the allocation of the 3- and 6-month Sukuk is equally split between the Asian region and other jurisdictions at more than 90% in total, while the 1-month Sukuk allocation is split between Asia with 50% and the GCC region with 33%.

The IILM Short term Sukuk programme is rated “A-1” by S&P. The total of IILM Sukuk outstanding at end February 2020 is US$2.51 billion with a Sharia’a tradability ratio of 71% tangible assets.

According to the IILM, the primary dealers that participated in the three 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.

Danajamin Guarantees First-of-its-Kind Sukuk Programme and Structure to Monetise Future Sales Earnings of a Commercial Real Estate Development Project

Cyberjaya – Danajamin Nasional Berhad, Malaysia’s state-owned Financial Guarantee Insurer for bonds and Sukuk, has an agreement with Malaysia’s EXSIM Group in February 2020 to provide guarantees for the standby working capital and liquidity facilities for the Group’s Tranche 1 Sukuk under its landmark Sukuk Programmes totalling RM3 billion.

In February EXSIM Group established a RM2 billion Islamic Medium-Term Note Programme (IMTN Programme) and a RM1 billion Islamic Commercial Papers Programme (ICP Programme) to refinance its existing borrowings, to purchase new land and to help finance its working capital requirements.

The Sukuk Programme and tranche is structured by NewParadigm Capital Markets Sdn Bhd, a corporate finance advisory firm licensed by the Securities Commission Malaysia, whilst the United Overseas Bank (UOB) (Malaysia) is the Principal Adviser, Lead Arranger and Lead Manager of the Sukuk Programmes. The Programmes is being established through a special purpose vehicle, EXSIM Ventures Berhad.

According to Danajamin, the IMTN Programme is the first Sukuk structure in Malaysia to monetise the future sales earnings of a commercial real estate development project. “Each tranche under the IMTN programme will be secured against a specific commercial development project, with the first tranche backed by the executed sales and purchase agreements of Scarletz Suites,  which is EXSIM’s second commercial property development in the centre of Kuala Lumpur,” said the Group in a statement.

The first tranche of the IMTN Programme carries a credit rating of AA3/Stable assigned by RAM Ratings Services Berhad. The ICP Programme, which is unrated, will also have its first tranche guaranteed by Danajamin, and will be fully underwritten by UOB Malaysia.

According to Lim Aik Hoe, Managing Director, EXSIM, “the Sukuk Programmes will help EXSIM achieve our next level of growth and provide us with liquidity for future development projects. With the support of UOB Malaysia and our partners, this innovative structure will enable EXSIM to deliver more value to its stakeholders and help us to finance the capital expenditure and working capital requirements of our new and existing commercial real estate development projects.”

The RM3 billion Sukuk Programmes mark EXSIM’s second Islamic debt capital market transaction arranged by UOB Malaysia. EXSIM issued its first Sukuk Programme through the Bank in January 2019 to monetise its residential real estate earnings which was also structured by NewParadigm and guaranteed by Danajamin.

UOB Malaysia, says Ms Ng Wei Wei, Managing Director and Country Head of Wholesale Banking at UOB, has a long history of arranging Islamic capital markets transactions. “This confidence is also testament of our deep understanding of the real estate sector and our capabilities to arrange a first-of-its-kind Sukuk programme to monetise the future earnings of a commercial real estate asset. UOB Malaysia has lead-arranged a number of significant Islamic debt transactions,” she added.

Commenting on the landmark transaction, Mohamed Nazri Omar, Chief Executive Officer of Danajamin stressed that “EXSIM is recognised in the market for its delivery of top real estate projects, as well as consistently demonstrating take-up rates of more than 90 per cent for their projects. We also commend EXSIM’s commitment as a socially responsible developer with its emphasis on innovative green features, with six of its recent developments being certified under the Green Building Index. It is our mandate to support growth of mid-size companies in a sustainable manner. At the same time, we hope to encourage our clients to make environmental awareness one of their top priorities.”

Danajamin’s mandate is to ensure that financially viable corporates continue to be able to access the bond/Sukuk market for their long-term financing needs and, at the same time, be an enabler to further develop the domestic bond/Sukuk sector. To date, Danajamin’s guarantees have assisted 42 issuances across various sectors; and brought about a market impact of about RM22.7 billion through its risk sharing collaboration with partner banks.

Danajamin is ‘AAA’ rated by both RAM Rating Services and Malaysia Rating Corporation and regulated and supervised by Bank Negara Malaysia under the Financial Services Act 2013. Danajamin is owned equally by the Minister of Finance Incorporated, a subsidiary of the Malaysian Ministry of Finance, and the Credit Guarantee Corporation Malaysia.

Kuwait Parliament Approves Law for Establishing Centralised Shariah Advisory Authority at the Central Bank of Kuwait

Kuwait – Kuwait is the latest country to establish a centralized Sharia’a Advisory Authority, in this case at the Central Bank of Kuwait (CBK), to set the Sharia’a rules for the country’s Islamic banking, finance and insurance industry. Kuwait’s National Assembly in February 2020 approved an amendment to the Central Bank of Kuwait (CBK) Law to establish a Sharia’a board to oversee the country’s Islamic finance sector.

The amendment calls for the formation of a “higher and independent supervision body” to ensure that Kuwaiti Islamic banks abide by the principles of Fiqh Al Muamalat (Islamic law relating to financial transactions). The CBK is responsible for establishing the Authority and introducing the relevant Sharia’s governance guidelines and framework.

The prime driver behind the amendment is Dr Mohammad Y. Al-Hashel, the Governor of the CBK, who has helped the introduction of a Sharia’a Supervisory Governance Framework which is aimed at strengthening the soundness and stability of the Kuwaiti Islamic banking and finance sector. The regulator indeed sought parliamentary approval to amend the CBK Law and to pave the way for establishing a Central Sharia’s Advisory Authority at the CBK.

ICIEC Provides US$360m Islamic Reinsurance Facility to Dutch ECA Atradius to Cover Riyadh Metro project

Riyadh – The Islamic Corporation for the Insurance of Investment and Export Credits (ICIEC), the export credit agency (ECA) of the Islamic Development Bank (IsDB) Group, provided a US$360 million Sharia’a-compliant reinsurance facility to Atradius Dutch State Business N.V., the state-owned Export Credit Agency (ECA) of Netherlands and one of the leading ECAs in the world, in support of Dutch contractor, Strukton Civiel Projecten B.V., for its role in the construction of the metro project in Riyadh.

The project is being implemented by an international consortium called FAST, of which Strukton is a key member. Infrastructure is an important component of the KSA Vision 2030. The Riyadh Metro Project, started in 2013, is one manifestation of infrastructure delivery driven by a rapidly rising local and regional population and traffic flow. The project is in the process of being built and when completed will be the world’s largest metro system.

Strukton’s contract consisted of the design and construction of three of the six lines of a fully automated driverless underground system with a total of 25 stations in Riyadh.

“Due to the high time pressures,” explained Strukton, “we opted for time-saving methods, such as building in segments and prefab, for the construction of the viaducts. Strukton’s expertise had major interfaces with the various disciplines coming together in this project. Although we were primarily responsible for the civil engineering side of things, our knowledge of railway and train systems was decisive in the contract award (by Riyadh Development Authority, the commissioning client). As a result, we functioned as a connecting factor within the consortium.”

The Riyadh Metro Project is a network covering 176 kilometres. The project aims to reduce traffic congestion in Riyadh and is expected to have a positive impact on the quality of life in the city as its residents will have access to a modern and efficient public transportation system. From an economic point of view, the project will generate substantial employment during the construction period by employing over 30,000 people.

Where only 2% of the population uses public transport today, it is expected that 20% of the city’s inhabitants will use the underground once the metro is fully operational in 2021. According to Strukton, the Saudi capital is expected to grow by some 2.5 million inhabitants to a total of 8.3 million inhabitants over the next decade.

Malaysian State Pension Fund, EPF’s Islamic Pension Fund Meets 5% Dividend Target Despite Challenging Market Conditions

Kuala Lumpur – The Malaysia’s state pension fund, The Employees Provident Fund (EPF), declared a dividend rate of 5.00% for 2019 for Simpanan Shariah, with a payout amounting to RM4.14 billion.

Simpanan Shariah is the Sharia’a-compliant pension option offered by EPF in addition to its conventional pension offering. The EPF Act 1991 requires the Fund to pay the dividend for Simpanan Shariah at any rate according to the actual performance of the investment.

“We started offering Simpanan Shariah in August 2016 in response to keen interest and demand from members who wanted their savings managed and invested in accordance with Sharia’a principles,” said EPF Chief Executive Officer, Alizakri Alias.

Explaining the differing dividend rates between Simpanan Shariah and Simpanan Konvensional, Alizakri said that the “dividends from Simpanan Shariah differs because the universe of assets that we can invest in and which is Sharia’a-compliant is not as wide as that available for the conventional option. A majority of the investments were in the domestic markets, which did not perform as well in 2019.”

“However, members can take comfort from the fact that all their investments are Sharia’a- compliant. Despite challenging market conditions in 2019, our prudent management and fund allocation efforts still ensured that we delivered on the targets we set for Simpanan Shariah last year and fulfilled our mandate.”

Alizakri said that 2020 looked to be similarly, if not more, volatile than 2019. “The COVID-19 virus will certainly have its impact on the markets, and to weather this storm our domestic markets must prove resilient. Despite these difficulties, we will do our best to sustain a similar performance for Simpanan Shariah in 2020.”

EPF is one of the oldest retirement funds in the world. Established in 1951, the EPF is a Member-Linked Company (MLC) focused on a mandate to safeguard member savings and deliver excellent services. In recent years, in line with its vision of helping members achieve a better future, the EPF has expanded its role to encompass the creation of a comprehensive social well-being ecosystem.

Share this post