Eurozone crisis spurs growth of Islamic finance

The continuing volatility in bond and equity markets combined with the uncertainty surrounding the Eurozone has opened up the Islamic finance industry to a new segment of potential investors looking to diversify away from their traditional investments.

High net worth investors and their wealth advisers are primarily concerned in the current environment with wealth preservation, and many are looking to reduce their exposures to the Eurozone and to conventional financial institutions. 

The Islamic finance industry currently stands at an estimated $1trn with Deutsche Bank  forecasting that the Islamic market will almost double in size over the next four years to $1.8trn in assets. There are several drivers contributing to this growth; the sukuk (Islamic bond) market and the Takaful (Insurance) industry. We also expect to see the Islamic finance market continue to mature and expand on the back of increased awareness among investors of the benefits of Islamic finance. This increased awareness is particularly evident in the high net worth individual and advisor community, so Islamic wealth management will be a particular area to watch.  

According to Zawya, the leading online business intelligence platform focusing on the Middle East & North Africa, there was a record number of sukuk issues in November 2011, totalling $8.86bn. 2011 was therefore a record year for the sukuk market with over $79.5bn issued in the first 11 months of the year.  

2012 has had an equally strong start and is set to be another bumper year for a number of reasons. The first reason is the need to refinance the $7bn of existing issuance due to mature in 2012. Not all of this debt will require refinancing of course, as some will be repaid from available resources, but much will need to be rolled-over. 

Over the course of the first half of 2012, sukuk have outperformed most conventional bonds and have become an increasingly attractive investment and fund raising tool for both conventional and Islamic institutions. According to market reports, the most recent sukuk issues by First Gulf Bank, Emirates Islamic Bank, Majid Al Futtaim, which totalled $1.4trn, were oversubscribed by at least four times, a strong indicator of the level of demand for sukuk currently. 

Finally, many corporations are looking to take advantage of the investor demand for US Dollar Sukuk. In May 2012, Saudi Electricity Company issued a $500m five year sukuk and $1,250m 10 year sukuk. This is the first Saudi corporation to issue a US dollar denominated sukuk with a term in excess of five years. These corporations are finding sukuk an attractive alternative to conventional funds as the credit markets continue to tighten, increasing the need for businesses to diversify and expand their funding streams. Sukuk has therefore proven to be an effective source of funding for both conventional and Islamic institutions in recent years in particular.

It is also important to recognise how the sukuk market has recovered after the Dubai debt crisis in 2009. At the time there were concerns that many Sukuk would not be repaid. However recent events suggest otherwise and have further buoyed the market. One such issuance was Dar Al-Arkan, which recently announced that having sold land to Saudi Basic Industries Corp (SABC) for 742 million riyals it had sufficient resources to repay its sukuk in full. In June we also expect to see other sukuk mature and repay in full that had previously been trading significantly below par due to fears surrounding its ability to repay. 

Due, in part to the performance of the Sukuk market, there has been increased interest in sukuk funds such as BLME’s High Yield Fund that contains approximately 90% Sukuk and US $ Income Fund, which is comprised of just over 50% sukuk. 

The sukuk market is only half of the story when it comes to growth of the Islamic finance industry. The Takaful, or Islamic insurance, industry has seen unmatched growth in recent years and has expanded significantly, continuing to grow in the GCC as well as in new markets such as Egypt, Jordan and Lebanon.  

Ernst and Young predicted that the takaful industry would reach $12bn by the end of 2011. This is in comparison to 2009 when Takaful contributions were $7bn. In this report they also forecast the global Takaful market to reach $25bn at the end of 2015. While arguably ambitious, the growth projections again serve to demonstrate the demand for Islamic products and moreover suggest that the Takaful industry will remain a powerful growth catalyst for the Islamic asset management over the next decade.

Nigel Denison is head of treasury and wealth management and Bank of London and the Middle East

http://www.international-adviser.com/profiles-and-analysis/analysis/eurozone-crisis-spurs-growth-of-islamic-finance

Islamic banks have golden opportunity to grab larger share of global banking market

The Eurozone crisis, combined with public anger over the excesses of conventional banks, has presented Islamic banks with a golden opportunity to take a greater share of the world’s banking industry, according to Hussain AlQemzi, GCEO of Noor Investment Group and CEO of Noor Islamic Bank.

Speaking at the World Islamic Banking Conference Asia Summit, in Singapore, AlQemzi said Islamic banking has the potential to overtake conventional banking, and establish itself as the world’s preferred banking system. However, to do so, he said, Islamic banking must offer a real alternative to the conventional banks.

“The world is crying out for a better, more ethical way of doing business. Now is the time to position our industry as a global alternative financial system; one which can safeguard against the excesses and perceived greed of conventional banks and bankers,” Al Qemzi told delegates.

‘But it is simply not enough to say to people that Islamic finance offers a better way of banking. Nor should our appeal be just to Muslims.  We need to offer a real alternative to both Muslims and non-Muslims.

“At present the differentiation between Islamic and conventional banking isn’t very visible. A major contributor to this perception is the fact that the Islamic finance industry has been slow to move beyond replicating products and services offered by conventional banks,” Al Qemzi added.

“For the Islamic finance industry to reach its full potential, there needs to be a greater diversity of products and services. But where are these new products?  We have to face up to one simple fact; the pace of innovation is too slow.”

In order to ensure an orderly evolution of Islamic finance from a niche segment into the mainstream international financial markets, Al Qemzi told delegates it is vital to further enhance the industry’s capabilities for cross-border activities, which in turn will encourage innovative product development, robust and standardised regulatory frameworks and the long term stability of the industry.

”What the industry lacks at the moment is the breadth and depth that investors enjoy in the conventional market. An inter-linkage between the key Islamic financial centres, especially the Gulf and South East Asia, will facilitate investor access to a wider range of Shari’a-compliant products beyond those available in domestic markets,” Al Qemzi said.

According to AlQemzi, the retreat of European banks from project financing, in the Middle East, opens the door to the region’s Islamic banks to provide the estimated US $800 million that will be invested in GCC infrastructure projects over the next five years. But in order to take advantage of the opportunities that are emerging, Al Qemzi added, Islamic banks must cooperate more, and compete less, to build the scale necessary to drive the industry forward.

“Noor believes Islamic banks can expand  internationally through utilizing their intellectual talent. For example, at Noor we are facilitating and bridging capital and funding requirements across continents using our unique know-how of markets, which we have acquired, along with flexible Sharia'a legal documentary structures, thereby enabling cross-border utilization of capital to fund various private and public funding,” Al Qemzi told delegates.

“Similarly, we believe in the huge opportunity of adopting the digital, mobile and social media opportunities unfolding across the globe. These behavioural changes across markets and social stratosphere, provide a unique opportunity to connect with people, gauge instant feedback, customize the experience clients expect, based on segments, and a truly client centric business model.

“And our efforts on mobile and now social media, both internally and externally, are a step towards engaging our clients in what we do, and for them to share with us what they are looking for from a next generation bank,” Al Qemzi concluded.

About Noor Islamic Bank

Established in 2008 in Dubai, Noor Islamic Bank is a full service bank delivering the broadest range of products for its customers, with an emphasis on unique and personalized services. Noor Islamic Bank’s products and services are governed by a Shari’a Board, comprising leading Islamic scholars with extensive experience and expertise in legal, financial and banking-related matters.

Noor Islamic Bank has locations across the UAE in the Emirates of Abu Dhabi, Dubai, and Sharjah. Noor Islamic Bank is 50% owned by the Dubai government and 5% owned by the Emirates Investment Authority; the remaining 45% is held high net worth individuals in the UAE. 

http://www.bi-me.com/main.php?id=58084&t=1&c=33&cg=4&mset=

Muslims Caught Between Islam, Wall Street

Making inroads into America’s financial hub of Wall Street, Muslims are caught in practices that run counter with their religious teachings.

“Wall Street is basically blind to religion,” Rushdi Siddiqui, global head of Islamic finance at Thomson Reuters, told The New York Times on Sunday, April 15.

“What it’s concerned about is deal flow, assets under management and transactions.”

Rushdi is one of many Muslims taking executive positions in banks on Wall Street, who are facing many hurdles to abide by their religious teachings.

Seeking Lawful Earnings Islamic Economics Tips for Keeping a Balance in Life Interest, Unlawful – Profit Making, Lawful … Why?

For instance, they do not have dedicated prayer rooms at work to perform prayers.

They also have to deal with interest (Riba), which is banned under Islam.

“We have a concept called law of necessity,” Rushdi said.

“You have to, at one level, abide by the laws of the land that you happen to reside in, whether it’s the formal laws or the unwritten laws.”

Aisha Jakaku, a former health care analyst at Goldman Sachs and a freelance financial consultant, also faces difficulties in abiding by her religious teachings.

Jukaku, who dons a hijab since she was 11, avoids physical contact with men outside her family.

She makes exceptions for handshakes extended to her in a business setting that would be awkward to decline.

“It’s not something I want to do,” she says of shaking hands with men.

“But that’s the common American way of doing business.”

Right or Wrong?

For Ali Akbar, a Pakistan-born managing director at RBC Capital Markets, it is almost difficult to perform his five daily prayers on time.

“You can’t just get up in the middle of a deal and say, ‘I have to go spend two hours in a mosque,’ ” Akbar, 34, said.

Despite the difficulties, Muslim bankers see their religion as an asset in their career advancement.

“Rightly or wrongly, if you’re religious, you’re considered to have a reasonable degree of integrity,” said Sohail Khan, a managing principal at StormHarbour Securities and former trader at Citigroup.

Having less business expenses than colleagues, Khan considers his lifestyle an asset in negotiating deals.

“When you’re the only guy at the table that’s not drunk, it’s a great weapon,” he said.

“You know more than anyone else at the table the next morning.”

Akbar of RBC agrees.

“Being a good Muslim helps you be a good banker,” he said.

He, however, acknowledges that the union of his religious beliefs and his work in finance has been less than perfect.

“When I made a decision to pursue a career on Wall Street, there were certain things I knew I would have trouble reconciling with my faith,” he said.

“I did some research, and I gained comfort that God is all-forgiving.”

To ease these challenges, three Muslim young men formed an organization, Muslim Urban Professionals, nicknamed “Muppies,” in 2006 to help fellow young professionals negotiate issues that arise.

The Muppies fill an “amazing need” in the community, said Iftikar A. Ahmed, a general partner at the venture capital firm Oak Investment Partners.

“It’s telling them that you can follow an American way of life while not denying the fact that you happen to be a Muslim.”

www.onislam.ne

Industry specialists debate impact of global financial crisis on Islamic finance

Five UK specialists shared their perspectives on the impact of the global financial crisis on Islamic finance and highlighted the partnership opportunities between the GCC and UK during a roundtable discussion at the 15th World Islamic Banking Conference (WIBC) today.

Organised and hosted by UK Trade & Investment in the UK Pavilion, the speakers from the London Stock Exchange, HSBS Amanah Bahrain, North Rose LLP, Bank of London Middle East and KMPG discussed:

* If Islamic finance is immune from the credit crunch and whether GCC investors should still consider the UK a safe place to invest their funds;

* Whether the City of London and UK is in a unique position to move Islamic finance from the niche to the global mainstream market;

* What are the advantages are of setting up Islamic finance operations in the UK; and

* What role the UK can play in developing financial infrastructure in the Gulf.

The session was opened by British Ambassador to Bahrain Jamie Bowden who said:

"In the current economic climate global dialogue and discussion become increasingly important. The World Islamic Banking Conference provides an excellent opportunity to bring together specialists from the UK, one of the world leaders in Islamic Finance, Bahrain and the rest of the world to share experiences.

"I am certain this round table will not only tackle some challenging questions about the current financial crisis but will show potential paths for continued success on Islamic financial services."

The roundtable was part of a wider UK presence at WIBC that included a pavilion showcasing some of the best of what UK-based companies have to offer those looking for a global partner in Islamic finance.

UK Trade & Investment Chief Executive Andrew Cahn said:

"Islamic finance is becoming part of the mainstream international finance market and currently seems to be relatively unaffected by the global financial crisis. It's more important than ever that we demonstrate the UK's strengths and capabilities in this sector.

"There are still vast opportunities in Islamic finance - currently worth over £250 billion. It has an estimated annual growth of between 10% to 15% for the next few years.

"With a number of the UK's most prominent conventional banks long since offering Sharia'a compliant financial services, the UK is the leading western centre for Islamic finance and 8th globally. The UKTI panel discussion will help showcase why we hold this position."

Moderated by BBC World Middle East Business Report Nima Abu Wardeh, the speakers were:

* Darko Hajdukovic - London Stock Exchange International Product Manager

* Khalifa Al Harmasi Al Hajeri - HSBC Amanah Bahrain Head of Islamic Finance

* Neil Miller - Norton Rose LLP Global Head Islamic Finance

* Humphrey Percy - Bank of London and the Middle East CEO

* Darshan Bijur - KPMG Director Islamic Finance & Investments

Due its importance on the calendar of events in the Islamic finance world, the 15th World Islamic Banking Conference provides an excellent opportunity for UK and Islamic finance representatives to build strong partnerships that will create genuine, global opportunities for the long term development of this growing and increasingly important sector. 

http://www.egovmonitor.com

Let’s bank the Muslim way?

Do you recognise the headline? I imagine many will. "Let's bank the Muslim way?" was a slogan that appeared on a protestor's placard last month. The image has appeared in many places on the internet and in print around the world. The ‘Occupy Wall Street' movement started outside the New York Stock Exchange, spread to cities across the US and indeed to financial centres elsewhere, notably the City of London. The movement started as a modest protest in New York's financial district by demonstrators opposed to the apparent greed of bankers.

Will this protest movement actually change anything? Frankly, almost certainly no but is there something satisfying about seeing such a call? I guess there is. Not least for the implicit suggestion in the placard that Islamic banking will be understood by the potential viewers of the protest and of the image, where it has been reproduced, to be a recognised alternative to conventional finance. Indeed we have not one but two major reports recently published on the prospects for Islamic banking: Ernst & Young's annual World Islamic Banking Competitiveness Report and Deutsche Bank Global Market Research's Global Islamic Banking - No longer unconventional. You can read in-depth commentary on what both had to say elsewhere in this issue.

Suffice to say at this point that Deutsche Bank's researchers note that over 2006-2010, Islamic banks have outgrown conventional banks by 55 per cent in loan growth and 59 per cent in deposit growth on aggregate. This growth is set to continue with Islamic banking assets rising to $1.78 trillion by 2016. Ernst & Young's report is a touch more cautious, forecasting that Islamic banking assets will reach $1.13 trillion next year. For the record, Deutsche Bank's forecast for 2012 is $1.22 trillion.

So let me return to "Let's bank the Muslim way?" As Deutsche Bank's report says, "That every person on the planet may be a candidate for Islamic finance may be stretching the facts, but it is conceivable that, other things being equal, every Muslim could be a customer." As a prospect for Islamic banking this is surely encouraging but (you knew there had to be a ‘but') what is Islamic banking? What is ‘the Muslim way'? There isn't one, there are several!

Will the growth of Islamic banking be derailed by the multiplicity of interpretations and practices? Derailed? No I don't believe so, but will opportunities be missed and will growth be slower than it could have been if the challenges facing regulators and financiers are not addressed? Almost certainly, yes! I would draw your attention to another article in this issue, our review of my friend Amr Mohamed El Tiby's book Islamic Banking: How to Manage Risk and Improve Profitability. As a Vice President of a UAE-based bank, he is not an ‘ivory tower' academic but is active in the business of banking. So, "Let's bank the Muslim way?" Indeed, let us do so. But can we first agree on what it is?

Robin Amlôt, Managing Editor CPI Financial

http://www.albawaba.com

Are Islamic bonds or sukuks now dead and buried?

The enormous bad publicity surrounding Nakheel’s $3.5 billion sukuk or Islamic bond repayment this month has exposed these debt instruments as nothing more than unsecured commercial bonds, with no recourse to underlying assets in the event of a default.

There is, of course, an irony in that Nakheel actually repaid its sukuk in full and on time thanks to the last minute intervention of the Abu Dhabi Government which dropped the Dubai Government a $10 billion lifeline.

Bond replaces sukuk

Actually it was a $10 billion conventional bond with interest of four per cent payable over five years. Abu Dhabi did not want another Islamic bond. Traditional bond finance is good enough for the richest city in the Gulf.

This does make it very easy to understand the rights and obligations of the parties. Sukuk come in a confusing number of varieties dressed up in an exotic language only understood by Islamic scholars and they seldom agreed on anything (see the ‘Diminishing musharakah’ above).

Yet in the Oil Boom of the 2000s such was the rush to invest in the Gulf States that nobody worried too much about the small print or the niceties of sukuk. Western bankers were assured that sukuk are just bonds under another name. They took the word of the sellers and ignored any protests from their lawyers.

After the Nakheel bond debacle a great many more questions will be asked about sukuks by both local and international lenders. For anybody trying to actually borrow money they will likely be more of a curse than a blessing, and a reversion back to more conventional financial instruments is clearly going to follow.

There will be exceptions to this rule. Saudi Arabia is the kingdom of the sukuk where all banks are Islamic, and not paying interest is highly profitable when your customers accept it, although the rental payments on sukuk should in theory amount to the same thing.

Financial innovation

Otherwise, it is perfectly normal after a boom period and what might be described as ‘financial innovation’ for there to be a swing back to more conservative banking practices. Lenders will be very particular in their due diligence on sukuk.

Confusingly and very significantly sukuk are asset-based but not asset-backed, so unlike a mortgage-backed security, for example, investors have no security over the asset if the issuer gets into financial difficulties and can not pay up.

No doubt sukuk will continue as a part of Islamic finance but their role in larger scale financing may now be sharply reduced.

Link: http://arabianmoney.net/2009/12/22/are-islamic-bonds-now-dead-and-buried/

Dubai Crisis: Islamic Bonds the Problem? Before and After the Bailout

By Dr. Zubair Hasan

Professor of Islamic Economics and Finance -( INCEIF ) Malaysia

The government of Abu Dhabi and the UAE Central Bank stepped in with a $10 billion bailout offer for the state-run Dubai World, which has recently been in debt.

Out of the allocated amount, $4.1 billion is meant to take care of the World's immediate debt obligations comprising Shari'ah-compliant bonds (sukuk) of the Nakheel, the property development arm of the company, which was due on December 14, the announcement date.

The company announced to meet its obligation within the next 14 days. The remaining $5.9 billion of the bailout will help meet the obligations to trade creditors and contractors of the Dubai World.

Though it was not an unexpected step, many, including the International Monetary Fund (IMF), hailed the UAE move to address the crisis.

Dubai World had suddenly asked for time from its creditors until the end of May 2010 to repay their loans of about $59 billion.

The announcement caused a quiver in global financial markets. The reason in part was a failure to distinguish between delay and default.

The Bailout

The debacle started with Dubai's booming real estate industry going bust at the start of 2008.

The bailout announcement came in time. It has calmed the nerves, reassuring investors, financial and trade creditors, employees, and common people that the government will always act to uphold the market principles and globally acceptable business practices.

Stock markets have since turned their tails up. The US dollar looked up against the Yen; the Euro rode on the back of both.The yen fell sharply against other currencies on the news, and the dollar shot up to 88.90 yen and the euro also jumped to 130.43 yen. Asian credit default swaps tightened after the news, and risk appetite got boosted.

When Dubai World declared postponing payments on $26 billion in debt, the Dow Jones Industrial Average fell 155 points, or 1.5 percent, European stocks dropped, and oil prices plunged.

Dubai economy was initially raised on petrodollars, but the fast-dwindling reserves of the Emirate helped it to diversify its economy.

The Emirate (Dubai) decided to develop service and tourism sectors, and it has positioned itself as an international finance, trading, and sports center.

High-rise buildings, grand hotels, and luxury resorts soon dotted the land all around.
Property prices were at a full gallop until the close of 2006. Then the tide of global crisis has also reached this tiny outpost.

The debacle started with Dubai's booming real estate industry going bust at the start of 2008.

In an exuberant market, competition created excess supply, property prices crashed — the average fall being around 40 percent of their value in 2009 alone, takers are thinning, and profit margins are vanishing.

The abrupt declaration on November 26 by Dubai government asking the creditors to reschedule repayment made the financial world panic, and shares went tumbling across the world.

The reaction was sharper in the West as boom Dubai was heavily financed by foreign funds, especially from the European banks like the Royal Bank of Scotland (RBS) and Standard Chartered.Four British banks( HSBC, Lloyds, RBS, and Standard Chartered) are said to have exposure of $5bn to Dubai World.

Developing countries did not express much concern. India feared the unemployment that the crisis could cause to its workers in Dubai, but the overall feel was that mountain was being made out of molehill.

The Rupee amount involved was small, and the exposure of the Indian banking system to Dubai was limited.

Sukuk's Security

Dubai was in part a victim of global meltdown and was in part overtaken by unguarded optimism and mismanagement.

Sukuk have been under cloud since the time Taqi Usmani, a prominent scholar on Islamic economy, questioned that their Shari'ah compliance in most cases (85 percent) slows down sukuk's popularity.

One consequence is that experts tend to tell about whatever adversity they find in sukuk. Dubai crisis has been no exception. Most comments, including some coming from the more sober academic world, contained disproportionate voicing of alarm and warning on the role of the Islamic bonds in Dubai turmoil.

The reason why sukuk attracted in the crisis the attention of the market was that their payment due on December 14 was the center of time-resetting negotiations; Islamic bonds, so to say, triggered the crisis.

The government announcement of its intention to enforce payment rescheduling immediately led both Moody's and Standard services to heavily downgrade the bonds — let alone sukuk — of various government-related entities in Dubai.

A more realistic approach could not have missed the point that the amount due was no more than 6 to 7 percent of the total money involved, and failure has not yet taken place.

Rating agencies could have shown little restraint in their decisions. They wield enormous power in the global bond markets, and they can literally force any government regarding debt issues.

There are increasing murmurs as to why these agencies are allowed to continue rating debt issues.

As bond issuers themselves have to pay for the evaluation exercise, there candidly is scope for the ratings moving in tandem with the payments.

It is not very clear what rules of conduct these agencies follow, who design these rules, and who oversees their observance. There is presumably a case for setting up regulatory frameworks for the rating agencies even for establishing separate ones for Islamic bonds.

Important Aspecsts

Sukuk was not so much the issue in Dubai crisis as some have tried to make it.

Some analysts see the Dubai fiasco from a historical angle; to them, the causes of Dubai turmoil were noticed the moment Sheikh Mohammad Al-Maktoum, its ruler, took the decision to invest his, as also the Emirate's, wealth in US real estate markets through the foreign arm of Emaar; the second largest property developer in Dubai.

The company ultimately went bankrupt, extending the US subprime crisis to the Emirate.
The Washington DC and Abu Dhabi connection has pressured Dubai to join the "international community" in taking a tougher stance against Iran,which is one of the main trade partners of the Emirate.

Dubai has also decided to enact an insolvency law on the US-British model to provide protection to local companies, like the World, from its creditors.

Abu Dhabi may also be looking for some concessions from Dubai in return for its bailout. It may, for instance, seek concessions on trade with Iran and on the future of the Emirates Airline.

Sukuk was not so much the issue in Dubai crisis as some have tried to make it. Sukuk market remained calm and unaffected across countries, including the leading market of Malaysia. Dubai was in part a victim of global meltdown and was in part overtaken by unguarded optimism and mismanagement.

The crisis has compromised Dubai's reputation as an economic power house in the region it may find difficult to retrieve. It still faces the daunting task of restructuring the remaining $22 billion of Dubai World's debts.

Important the issue is what is going to be the fate of Dubai's huge investments sunk in high-value property mostly in anticipation of foreign demand, especially from the West.

The future is quite uncertain, if not bleak. The Emirate must proceed with caution.

Link: http://www.islamonline.net/servlet/Satellite?c=Article_C&cid=1260258086411&pagename=Zone-English-Muslim_Affairs%2FMAELayout

Dubai 'crisis over; emirates united'

The economic crisis in Dubai is over, the United Arab Emirates foreign minister Sheikh Abdullah Bin Zayed al-Nahayan said on Thursday. The $10 billion aid package this week from Abu Dhabi to Dubai had proved the unity of the UAE, he added.

Speaking to Reuters during a visit to the Israeli-occupied West Bank, he said the UAE government was 'committed to dealing with the effects of the global crisis' for all UAE members. 'The economic crisis in Dubai is over,' he said.

The lifeline to fellow-member Dubai 'is proof that the UAE is united politically and economically', Sheikh Abdullad added. 'It is also proof that UAE remains committed towards local government to deal with effects of the global economic crisis.

'I believe the (global) crisis will be behind us once the United States recovers, and we believe the US is recovering, which will reflect on other countries.'

Dubai World rocked global markets on November 25 when it asked creditors for a standstill in debt mainly linked to its two property firms, Nakheel and Limitless World.

Abu Dhabi came to the rescue of Dubai on Dec. 14, several days after state-owned conglomerate Dubai World asked creditors for a delay on payments of debts totalling some $26 billion.

The UAE safety-net, in the form of bonds to head off a bond default, cheered Gulf and global markets but raised questions about the undisclosed terms.
Link: http://www.tradearabia.com/news/newsdetails.asp?Sn=BANK&artid=171994

Dubai World's debt manageable: experts

British banks' exposure to the UAE has reached $49.9 billion (Dh183.13 billion), according to the Bank for International Settlements (BIS) data, including $29.3 billion owed to HSBC and Standard Chartered Bank.

HSBC's exposure, according to BIS data, stood at $17 billion while Standard Chartered Bank's claim is expected to be around $12.3 billion to Dubai World — a minuscule amount compared to their global businesses.

Dubai World is currently in discussions with the banks to restructure about $26 billion of its debts.

HSBC's Middle East business represents only two per cent of its global operations.

Michael Geoghegan, HSBC Group CEO, said in a recent statement, "Although our business on the ground in the Middle East represents only 2 per cent of the group's balance sheet, it's an important and high-potential part of HSBC's international business mix and a region we are completely committed to.

"I am confident that the leadership of Dubai and the UAE will overcome any short-term issues they face, which appear to have been somewhat sensationalised, and continue to lay the foundations for sustainable growth."

Interest in the exposure of British banks to UAE debt has been sparked by a request by Dubai World for a ‘standstill' on the repayment of $3.52 billion sukuk by nearly six months to May 30, 2010, while the company is restructured to ensure its future commercial success.

Dubai World, which is seeking to restructure $26 billion in debt, is preparing to meet its creditors this week once they have nominated a negotiator.

Better position

Analysts point out that at such levels, the global banks' exposures are easily manageable.

"The standstill period for negotiating the debt and restructuring of Dubai World and Nakheel could potentially leave the Dubai government in a better position to support its other government-related companies," John Tofarides, banking analyst at Moody's in Dubai, said earlier.

A strategy note by HC Securities and Investment said the global banks' exposures are "a drop in the ocean compared to the toxic assets wiped out during the global crisis".

"When liquidity was tight, the risk of default was high. However, with lots of liquidity in the market and a greater acceptance of the market to take risk, especially when loans can be secured against tangible assets, we find it very unlikely that the bond holders will vote to force a company into liquidation."

Debt holders will pocket fees for breach of covenants and agree to refinance on better terms for borrowers rather than engage in a lawsuit and receive assets that are worth less, it said.

Link: http://gulfnews.com/business/banking/dubai-world-s-debt-manageable-experts-1.547198

Qatar Islamic has $15m exposure to Dubai World

Qatar Islamic Bank said on Thursday it had exposure to a Dubai World Islamic bond maturing in 2017 worth QR54m ($14.84m).

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DUBAI DEBTS: Dubai's state-owned conglomerate is restructuring debts worth $26bn. (Getty Images - for illustrative purposes only)

The lender is the first Qatari bank to announce its exposure to the Dubai state-owned conglomerate, which is restructuring debts worth $26bn.

"The financial impact currently will affect the negative investment fair value reserve," it said. "QIB will keep observing the situation and its financial consequences which will be disclosed accordingly." ($1=3.638 Qatari Riyals)

Link: http://www.arabianbusiness.com/575170-qatar-islamic-has-15m-exposure-to-dubai-world

Oman banks have US$77m exposure to Dubai World

Oman's top banks said yesterday that they had a total exposure of US$77 million (US$1 = RM3.38) to troubled conglomerate Dubai World, sending their shares down nearly 6 per cent.

Government-owned Dubai World requested a payment standstill on November 25 for US$3.52 billion worth of Islamic bonds maturing this month as it looks to restructure US$26 billion worth of debt.

Bank Muscat, Oman's largest lender by market value, said it had US$50 million in exposure to a syndicated loan from the group, the biggest of three exposures, which was still fairly limited compared to other regional and international banks

Bank Muscat shares closed 6.2 per cent down at 0.77 rials a share, having traded as low as 0.75 riyals yesterday.
Bank Sohar declined 3.5 per cent after it said its exposure was US$4.3 million.

Both Bank Muscat and Bank Sohar said their loans were still being serviced.

National Bank of Oman, the country's third largest bank fell 5 per cent after it said it had US$22.6 million of exposure, while the fifth largest bank. Bank Dhofar, Oman's second largest bank, jumped 10 per cent on thin volume, after it said it had no exposure.

Oman International Bank and Ahli Bank also said they had no exposure.

Oman's central bank governor said yesterday there was no need to require local banks to book provisions for exposure to Dubai World debt as their exposure was not related to loans under restructuring.

The US$77 million exposure announced by the country's top three banks early yesterday represented "about the total" exposure of the sultanate's banking system, Hamood Sangour al-Zadjali told Al Arabiya television.

"There will be no surprises..." he said.

The debt was not part of the US$26 billion debt the group was restructuring, he added.

Link: http://www.btimes.com.my/Current_News/BTIMES/articles/omaex/Article/

Dubai debt crisis has limited impact on fund flows - EPFR

Risk aversion in the wake of Dubai's massive debt woes caused investors to slow their move into emerging market equity and riskier bond fund groups in the week ended Dec. 1, EPFR Global said on Thursday.

The Boston-based fund tracker said that investors did not completely run for safety after government-owned Dubai World requested a payment standstill on a maturing Islamic bond as it works out how to restructure $26 billion worth of debt.

Money market funds, the traditional safe-haven for cash, had a net outflow of $838 million, bringing its current outflow streak to eight weeks.

However, Middle East regional equity funds had net outflows for the sixth time in the past seven weeks with outflows hitting a 35-week high. Investors also pulled cash from Middle East and Africa regional equity funds, EPFR's statement said.

After the initial shock of the Dubai debt moratorium request, EPFR said investors looked to put cash into commodity and currency issues.

COMMODITY GAINS

Gold hit record highs during the reporting period and continues to do so while other precious and industrial metals gain ground as well.

EPFR-tracked commodity sector funds had net inflows of over $1 billion for the third straight week, with year-to-date inflows of $24 billion.

That helped EMEA (Europe, Middle East, and Africa), Latin America and the diversified global emerging markets equity fund groups to post inflows of $33 million, $34 million, and $687 million respectively.

"Daily flow numbers show some emerging markets funds groups regaining momentum towards the end of the week," said Cameron Brandt, senior global analyst at EPFR.

"Investors remain anxious to deploy money before the books close on 2009," he said.

Asia ex-Japan equity funds, however, had net outflows of $306 million.

"For this region, appreciating currencies raise questions about export competitiveness and increase the chances that governments will turn to capital controls," EPFR's statement said.

Dedicated BRIC (Brazil, Russia, India, China) funds had inflows for the 12th consecutive week.

Telecom sector funds had their best week since the second quarter of 2007. Healthcare/biotechnology stock funds recorded their first three-week inflow streak since September 2008.

DEVELOPED MARKET EQUITY

In the developed markets, U.S. equity funds were said to have a neutral week with safe-haven flows into large-cap exchange traded funds canceled out by redemptions from small and mid-cap funds.

European equity funds took in, on a net basis, over $2 billion for the third time this year.

But EPFR's Brandt offered the following caveat: "In both of the previous occasions the flows were reversed the following week, so we are viewing these flows as a tactical move by a few ETFs rather than a significant shift in sentiment."

Japanese equity funds suffered an 11th straight week of outflows, this time $271 million.

FIXED INCOME

Even though risk taking has helped push stock indexes up sharply this year, bond fund inflows have also proven robust.

U.S. bond funds had net inflows over $1 billion for the 21st week in a row and global bond funds have year-to-date inflows just shy of $30 billion, EPFR said.

Emerging market bond funds had inflows of $229 million, only a third of their previously weekly average for the fourth quarter of 2009. EPFR said local currency funds in the category "accounted for over two-thirds of all inflows into this fund group as the search for dollar hedges continued."

(Reporting by Daniel Bases; Editing by Phil Berlowitz)

Link: http://in.reuters.com/article/businessNews/idINIndia-44454220091204?pageNumber=3&virtualBrandChannel=0