Islamic finance chiefs wait to see big picture



There was something of a pall over the Yas Marina Hotel last week, where industry figures had assembled to discuss what had been expected to be a bumper year for the Islamic finance industry.

The outbreak of political unrest in parts of the Mena region left financiers at the Global Financial Markets Islamic Forum in a difficult position.

Maturing debts for Gulf companies could total as much as US$70 billion (Dh257.11bn) this year, according to a recent research note from Standard Chartered.

Amid dampened demand from overseas, most companies would resort to cash drawdowns, bank syndications and private placements to service their debts, investors have said.

Samad Sirohey, the chief executive of Citi Islamic Investment Bank, the Sharia-compliant arm of Citigroup, said while no companies had cancelled issuances of debt or equity, many seemed reluctant to come to the market in the current trading conditions.

"The bigger theme is to see how things pan out in the next few weeks and months … issuers will wait to see how things stabilise."

Although banks remain well capitalised, lending is on the decline as demand for Middle East debt starts to dry up. "Credit lines are scarce today for all of us, not just Islamic banks," said Simon Eedle, the global head of Islamic banking at Credit Agricole.

The HSBC Nasdaq Dubai Middle East Total Return Index, which tracks a portfolio of regional bonds and sukuk, fell to 138.2 points last Thursday, down from a high of 141.4 before the Egyptian unrest began, as investors sought to reduce exposure to the region.

Lim Say Cheong, the executive vice president at Al Hilal Bank, said addressing these problems would require an overhaul of financial markets to reduce dependence on "hot money" from overseas.

"Over-reliance on international capital markets is extremely dangerous during periods of stress," Mr Lim said. "The market completely disappears. In the global financial crisis, the UAE entities were scrambling to look for funds."

Unrest in the Middle East has left Islamic private equity companies in a tricky position because of a lack of appetite for deals throughout the region, but executives in the industry insist opportunities remain for buyout firms.

"There's a lot of uncertainty and change and turmoil in the marketplace … that's an element of concern," said Aamir Rehman, a managing director of Fajr Capital, a Sharia-compliant firm that does not currently have exposure to the Middle East.

"If you're a global investor you think this is a good time to allocate outside of the Mena region. But if your mandate is Mena, you're in a bit of a fix."

Mr Rehman added private equity activity was limited last year, leaving a number of firms with unspent funds. "Capital is being accumulated and the pressure for a place to go is getting more acute."

But Raja Teh Maimunah, the global head of Islamic markets at Bursa Malaysia, formerly the Kuala Lumpur Stock Exchange, said the greatest difficulty facing Gulf companies seeking to raise money through Islamic finance remained the extra yield demanded by investors after major restructurings at companies that have used sukuk, such as Dubai World.

"Most investors are thinking of a risk premium on Islamic structures because of the high-profile defaults," Ms Maimunah said.

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Company Profile

Name: Direct Debit System
Started: Sept 2017
Based: UAE with a subsidiary in the UK
Industry: FinTech
Funding: Undisclosed
Investors: Elaine Jones
Number of employees: 8

MATCH INFO

Manchester City 4 (Gundogan 8' (P), Bernardo Silva 19', Jesus 72', 75')

Fulham 0

Red cards: Tim Ream (Fulham)

Man of the Match: Gabriel Jesus (Manchester City)

UAE cricketers abroad

Sid Jhurani is not the first cricketer from the UAE to go to the UK to try his luck.

Rameez Shahzad Played alongside Ben Stokes and Liam Plunkett in Durham while he was studying there. He also played club cricket as an overseas professional, but his time in the UK stunted his UAE career. The batsman went a decade without playing for the national team.

Yodhin Punja The seam bowler was named in the UAE’s extended World Cup squad in 2015 despite being just 15 at the time. He made his senior UAE debut aged 16, and subsequently took up a scholarship at Claremont High School in the south of England.

Western Clubs Champions League:

  • Friday, Sep 8 - Abu Dhabi Harlequins v Bahrain
  • Friday, Sep 15 – Kandy v Abu Dhabi Harlequins
  • Friday, Sep 22 – Kandy v Bahrain
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Console: PlayStation 1 & 5, Sega Saturn
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Company Profile

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Based: Dubai, UAE

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Investors: Privately/self-funded

MATCH INFO

Manchester United 1 (Rashford 36')

Liverpool 1 (Lallana 84')

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