Tamweel seeks new funding option

Cityscape Abu Dhabi: Tamweel, the Islamic home finance company plans to return to the debt securitisation market - with video.

From left, Philip Ward, the chief executive of Abu Dhabi Finance, Varun Sood, the acting chief executive of Tamweel, Masood al Awar, the chief executive of Tasweek Real Estate Marketing and Development, and Sundar Parthasarathy, the executive vice president of Abu Dhabi Commercial Bank at a panel discussion at Cityscape in Abu Dhabi yesterday.
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Tamweel, the Islamic home finance company, is weighing a return to the securitisation market as it hunts for longer-term capital to lend to buyers.

Varun Sood, the acting chief executive of Tamweel, said the company's mandate was "to get long-term funding" to avoid the problems the company had in the wake of the global financial crisis.

Dubai Islamic Bank (DIB) revived Tamweel last year when it acquired a 58.3 per cent stake in the company and provided new funds so it could begin issuing mortgages again. The bank paid almost Dh375 million (US$1.2m) for the stake, according to financial statements.

Mr Sood said two options were under consideration to raise new funds: issuing sukuk or other instruments in Malaysia, where there is a demand for Sharia-compliant assets; or securitising part of its existing mortgage portfolio.

"Securitisation is something that we have done before and it is clearly now part of our road map of funding," he said.

Tamweel completed one of the largest securitisations in the history of the UAE in 2007 when it raised $210m by taking 736 Sharia-compliant ijara mortgages and placing them in a special-purpose vehicle that then issued bonds and gave the money to Tamweel.

The home finance company also issued two sukuk prior to the recession in the regional property markets.

A standard securitisation is a pool of debts, such as mortgages or credit card debt, that are combined and sold on to investors in the form of bonds or other instruments. The interest and principal payments on the debts underlying the bonds is then paid out to investors on a regular basis. The set-up allows the issuer to raise money it can use in the short-term based on its long-term assets. Tamweel would provide a Sharia-compliant version. Analysts said yesterday that a similar structure to the $210m securitisation could be set up by Tamweel again now that the securitisation market - which is located predominantly in Europe and North America - had recovered after the financial crisis. While GCC investors are interested in sukuk, they have traditionally shunned securitisations.

Panelists at the Cityscape conference yesterday said the UAE's mortgage market had finally shown signs of recovery, but that challenges remained before it would be able to find healthy growth again.

Mortgage providers calculated interest rates in different ways and charged a range of fees, said Philip Ward, the chief executive of Abu Dhabi Finance.

"The whole focus of the mortgage market should be to make them easier to understand," he said.

Interest rates remained too high and property prices were still in flux, which was discouraging prospective buyers from entering the market, said Sundar Parthasarathy, the executive vice president of Abu Dhabi Commercial Bank.

"Today, there is a touch-and-feel approach from buyers," he said.

The UAE's biggest challenge was to create a long-term capital market that would allow banks to sell portfolios of mortgages to other investors. Alex Gemici, the managing director of Greenstone Equity Partners, pointed to the system in use in the US by the federal housing administration as a model for emerging markets. The UAE Government needed some system to help guarantee or insure mortgages, he said.

"I think the creation of a secondary market and the role of the Government is absolutely critical," Mr Gemici said. "Bank deposits are not enough to cover the demand for mortgages."

Another proponent of a federal mortgage body in the UAE over recent years is Dr Nasser Saidi, the chief economist of the Dubai International Financial Centre.

He advocated a model where residential mortgages were funded by bonds, creating a more liquid mortgage bond market.

Such a model could be introduced within 18 months and would "reduce the risk and exposure of real estate developers and lending institutions", he said.

There have also been calls for an Emirates mortgage guarantee corporation, which would insure institutions, banks and mortgage credit providers for a portion of their mortgage book.