Indonesia Issues Another Waqf-linked Sukuk to Finance a Retinal Centre at an Eye Hospital to Promote Impact Investment

Surabaya – Indonesia has issued another Waqf-linked Sukuk to finance a retinal centre at a hospital in West Java as part of the government’s strategy to promote impact investment.

Mr Suminto, a senior official in the State Expenditure Department at the Ministry of Finance (MoF), confirmed at the Annual Islamic Finance Conference (AIFC) in Surabaya on 25 July 2019 that the first Waqf Link Sukuk was recently issued in the form of a cash Waqf to finance the building of the facility at the Achmad Wardi Eye Hospital BWI in Serang, Banten.

“One example that has been built using a cash waqf collection is the Achmad Wardi Eye Hospital in Serang. In the future we will build more much-needed facilities whether in the sanitation, health, and education sectors. Currently we have issued the Waqf Link Sukuk financing instrument, which is the result of cooperation from the Indonesian Waqaf Agency and the Ministry of Finance. By investing the principal of the Waqf in Sukuk, the principal nominal is used to develop Indonesia, monthly returns are used to build useful facilities,” Suminto told delegates.

Citing a recent study by the local Urban Institute, Suminto stressed that the government needed to play a role in the development of impact investment because it had limited resources; by involving the private sector it is more likely to get innovative solutions; and the experience of the government in managing social and environmental issues can be an input for the private sector in making an impact investment.

The above Sukuk reportedly raised up to IDR50 billion and has a tenor of 5 years and a projected profit rate of 8% per annum, which the Sukuk investors can redeem or donate back to the Waqf. 

Cash Link Waqf is a form of trust fund set up with money from individuals and endowments to primarily support charitable services. It was pioneered in 2018 by Indonesia to build affordable housing units in the aftermath of the earthquakes in Lombok and Palu. The certificates reflect the nature of the instrument. It has two types of certificates – investors who seek a return on their contribution and those who wish to donate their returns.

The potential for Waqf Link Sukuk is potentially huge because it can be expanded to various segments of society other than governments and institutional investors. These include high net worth individuals, ordinary customers of Islamic banks, state employees and so on.

However, since its introduction its proliferation has been slow. This is partly due to the management of the instrument and initiative by the National Waqf Board, and the nascent oversight measures, which are necessary to mitigate various risks.

Others believe that digitisation and FinTech can help take the concept and reach of the Waqf Link Sukuk to the next level through the use of blockchain, which they stress could improve transparency and traceability for a national Waqf database platform.

IILM Re-issues US$750mn Sukuk in Two Tranches in June 2019

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) successfully re-issued a total of US$550 million in A-1 short-term Sukuk in two tranches during July 2019.

The US$550 million Sukuk were rated A-1 by Standard & Poor’s Rating Services and were reissued in two tranches comprising:

  1. A US$250 million tranche with a 2-week tenor at a profit rate of 2.48%; and
  2. A US$300 million tranche with a 3-month tenor at a profit rate of 2.4%.

According to the IILM, it is the first time that the Corporation reissued its Sukuk with the shortest tenor of 2-week; the IILM previously issued a 3-week Sukuk in May 2019 and is regularly reissuing 1-month Sukuk since January 2019.

The reissuance was well supported with demand across the two series of the IILM Sukuk reached a bid to cover ratio of 235% for both the 2-month and 3-month tenors respectively. “The 3-month tenor profit rate is 8 basis points lower compared to the 2-week issued on the same day, reflecting the global sentiment over the current market conditions. The profit rate achieved for the 2-week Sukuk is 2.48% compared to the indicative pricing guidance range of 2.49% -2.55% while the profit rate achieved for the 3-month Sukuk is 2.40% compared to the indicative pricing guidance range of 2.49% -2.55%,” explained IILM in a statement.

Purchases by Islamic Primary Dealers (PDs) in the primary auction amounted to 52% and 51% for the 2-week and 3-month Sukuk respectively.

In terms of geographical distribution, the allocation of GCC-based PDs stood at 68% and 56% for the 2-week and 3-month Sukuk respectively, whereas Asia-based PDs were allocated 32% and 34% respectively. The PDs based in other jurisdictions received 10% for 3-month Sukuk respectively.

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.

IsDB Board Approves US$325.3m of New Funds to Finance Various Projects in several Member Countries

Jeddah – The Board of Executive Directors (BED) of the Islamic Development Bank (IsDB) meeting at its 331st session at the Bank’s headquarters in Jeddah in July 2019

approved several projects worth US$325.3 million for Burkina Faso, Kazakhstan and Mozambique.

The projects approved for financing included: 

  1. A US$100 million facility to Kazakhstan towards financing the Big Almaty Ring Road Project. This project is a Public Private Partnership (PPP) project which aims to reduce the traffic congestion in Almaty and to create a by-pass for commercial vehicles. On completion, said the IsDB, the project will play critical role in the regional integration of Central Asian economies.
  2. A US$17.4 million facility to Burkina Faso for a Food Security & Agriculture Project. The aim of the project, according to the IsDB, is to reduce rural household poverty and food insecurity through increased irrigation, agricultural production, productivity and improve market access in Dangoumana areas beneficing 50,000 households.
  • A US$99.7 million facility to Mozambique towards financing the Temane Transmission Project. On completion, said the IsDB, the project will contribute to the economic growth of Mozambique by providing sustainable electricity supply, including increasing the overall access rate to electricity from 27% in 2018 to 100% by 2030.
  1. A US100 million facility to Pakistan to finance Phase III of the Polio Eradication Programme. The aim of the project is to support countrywide mass polio vaccination campaigns targeting more than 39 million children below five years of age. (US$10 million out of the US$100 million is a grant from the Lives and Livelihoods Fund-LLF.)
  2. A US$2.2 million technical assistance grant to Suriname to produce a feasibility study and a detailed architectural and engineering design for a new hospital to be constructed in the premises of the Academic Hospital.
  3. A US$6 million financing to Benin to construct a Waqf of 9-storey commercial buildings on land provided by the government to the Islamic Solidarity Development Fund (ISFD) in Cotonou.

Local REITs in Saudi Arabia Tap in to SR1.8bn of Murabaha Credit Facilities in July

Riyadh – Local REITs in Saudi Arabia continue to access Murabaha financing facilities to fund new acquisitions of income generating real estate assets. In July 2019, Al Rajhi Bank signed a SR400 million Murabaha facility agreement with Al Ma’athar REIT, which is managed by Osool & Bakheet Investment Company.

Al Ma’athar REIT provided Al Rajhi Bank with a promissory note and mortgage pledge on properties as collateral for the facility, which has a tenor of five years.  According to Osool & Bakheet Investment Company, the proceeds of the facility will be used to finance the expansion plans of the Fund through new acquisitions of income-generating properties, in line with the Fund’s investment strategy.

In another transaction, Swicorp recently signed a SR1.4 billion Murabaha financing facility with National Commercial Bank for its Swicorp Wabel REIT Fund. The facility has a tenor of seven years and Swicorp provided pledges on properties as guarantees for the financing facility.

In a disclosure to Tadawul, Swicorp explained that the proceeds from the facility will be used to finance the expansion plan of the REIT through new acquisitions of income-generating properties that are located mainly within Saudi Arabia (excluding Makkah and Madinah), whilst ensuring a diversified asset class exposure that is in line with the Fund’s investment strategy.

Indonesian Government Domestic Sovereign Sukuk Continue to Thrive in July as Total for First Seven Months in 2019 Reaches US$7bn

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 July 2019 raising IDR19 trillion in the process. Two of the issuances were done through the auction system of Bank of Indonesia and the third one was distributed through a private placement exercise.

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 the period January to July 2019, the Indonesian Ministry of Finance has raised IDR97.507 trillion (US$6.9 billion) in rupiah-denominated Sukuk and US$2.1 billion in US dollar denominated Sukuk.

The most recent issuances comprised an IDR8 trillion issuance with six tranches of various maturities on 23 June 2019 of Sovereign Shariah Securities (SSS) through the auction system of Bank of Indonesia for which total incoming bids were IDR16.478 trillion. This was followed by a similar auction of SSS on 9 July 2019 which similarly raised IDR8 trillion in six tranches of various maturities, for which total incoming bids were IDR36.438 trillion.

On 2 July 2019, the Government raised IDR3 trillion through a private placement of a single series of tradable Sukuk Negara SSS, which has a14-year tenor. The issuance carried a yield of 8.04 % and a fixed coupon rate of 8.375% per annum.

The response from local institutional investors was highly supportive, with bids totalling IDR55.916 compared to the IDR19 trillion allocated.

Qatar Latest Market to Adopt a Centralised Sharia’a Supervisory Board for the Islamic Banking Sector at the Central Bank

Doha – Qatar is harmonising its Shariah Governance Regulatory Framework for the Islamic banking sector, which includes establishing a centralised Sharia’a supervisory board in line with best global practice.

Qatar Central Bank (QCB) revealed in a statement that it has mandated a consultancy firm to prepare Sharia’a governance guidelines and standards for various Islamic banking products and transactions and their supervision and regulation. Currently, the Sharia’a governance structure of Islamic banking institutions in the country remains mostly decentralised. Individual banks have their own Sharia’a Supervisory Boards to oversee their operations and ensure their compliance with Islamic principles.

The establishment of a centralised Sharia’a supervisory body, added the QCB in its recently-published 10th Financial Stability Review, will help achieve greater market-wide consistency and credibility in Sharia’a governance.

Consortium Led by MUFG Arrange US$1.85bn Hybrid Conventional/Islamic Project Financing for Pertamina’s Jambaran-Tiung Biru Gas Project

Jakarta – Indonesia’s state-owned energy utility Pertamina signed a hybrid conventional/Islamic financing facility totaling US$1.85 billion to finance its Jambaran-Tiung Biru natural gas project. The conventional and Islamic tranches each have project finance facilities with 10- and 15-year tenors. The consortium of 12 banks participating in the financing was led by Japan’s Mitsubishi UFJ Financial Group (MUFG).

The Jambaran-Tiung Biru gas project has a production capacity of 192 million standard cubic feet per day (mmscfd), while the Jambaran-Tiung Biru field has 2.5 trillion cubic feet in reserves.

Government of Pakistan Signs its Third Consecutive Murabaha Syndication Facility Totaling US$500m With a Consortium of UAE-based Banks

Karachi – The Government of Pakistan went to the market again to raise a US$500 Million Syndicated Term Loan and Murabaha Financing Facility on 25 July 2019. The global syndicated Facility attracted an oversubscription of more than 40%, driven by strong demand from local, regional and international investors.

Emirates NBD Capital acted as the Global Coordinator on the Facility. The transaction was fully subscribed by 12 banks including Commercial Bank of Dubai, Emirates NBD, Noor Bank, Allied Bank, Dubai Islamic Bank, First Abu Dhabi Bank, Mashreq Bank and Sharjah Islamic Bank, who acted as the Initial Mandated Lead Arrangers and Bookrunners.

Samba Financial Group acted as a Lead Arranger, and Bank of Jordan, Habib Bank Limited and Union De Banques Arabes Et Francaises as Arrangers.

This is the third Murabaha syndicated facility in consecutive months that Pakistan has accessed. In June Pakistan signed a US$375 million syndicated facility with banks in the United Arab Emirates in June made up of conventional and Islamic Murabaha financing tranches.

Similarly, in May 2019, UAE-based Ajman Bank arranged a 1-year syndicated Murabaha financing of US$275 million for the Government of Pakistan. The facility saw the participation of a consortium of banks.

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