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Islamic Finance & Capital Market Activities 24 January 2012 Oman First Islamic Finance & Banking Conference Emad Al Monayea Vice Chairman, MD & CEO Liquidity Management House A KFH Subsidiary

Islamic Finance & Capital Market Activities

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Oman First Islamic Finance & Banking Conference. Islamic Finance & Capital Market Activities. 24 January 2012. Emad Al Monayea Vice Chairman, MD & CEO Liquidity Management House A KFH Subsidiary. Agenda. Resilience of Islamic Finance to Crises - PowerPoint PPT Presentation

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Page 1: Islamic Finance & Capital Market Activities

Islamic Finance & Capital Market Activities

24 January 2012

Oman First Islamic Finance & Banking Conference

Emad Al Monayea

Vice Chairman, MD & CEOLiquidity Management HouseA KFH Subsidiary

Page 2: Islamic Finance & Capital Market Activities

2

Agenda

1. Resilience of Islamic Finance to Crises

2. Developments of Sukuk Market and the Potential for growth

3. Credentials

Page 3: Islamic Finance & Capital Market Activities

Resilience of Islamic Finance to Crises

3

Page 4: Islamic Finance & Capital Market Activities

4

Impact of Crises

Avg. ROA Avg. ROE0%

5%

10%

15%

20%

25%

30%ConventionalIslamic

Source: IMF Working Paper 2010. Based on a study of the banking sector in the GCC (excluding Oman), Jordan, Malaysia and Turkey

Before the Crises

The Islamic Banks were relatively more profitable than their conventional peers.

Profitability Credit Assets-40%

-30%

-20%

-10%

0%

10%

20%

30%

ConventionalIslamic

Source: IMF Working Paper 2010

Initial Crises Effect

Initial crises effect on Islamic Finance was largely subdued as they were not exposed to complex instruments that were affecting conventional finance industry

Pre-Crises Levels of ROA and ROE

Change in Profits, Credit and Assets from 2007 to 2008

Page 5: Islamic Finance & Capital Market Activities

5

Impact of Crises

Profitability Credit Assets-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

ConventionalIslamic

Source: IMF Working Paper 2010

Deepening Crises Change in Profits, Credit and Assets (average 2007- 2009)

The effect of financial crises was no longer limited to the west

Its effects were being felt across economies which had led to global economic slow down

Islamic banks average profitability decline for the period 2007-09 was only marginally higher than their conventional counterparts

However, despite this decline, Islamic Banks expanded credit and saw an increase in its assets relative to conventional banks

Page 6: Islamic Finance & Capital Market Activities

6

What makes Islamic Finance Resilient?

Prohibition of Shariah on excessive leverage: In many cases there is a clear leverage threshold of 33% of equity defined. Islamic investors or companies who broke this rule had to suffer major losses and in some case are on verge of bankruptcies

Prohibition on Certain Sectors: By having strict definitions on the sectors that it should not invest and by having guiding moral principles that needs to be considered while investing, Islamic finance forms a good blend of socially responsible investing

Prohibition on excessive risk taking: By avoiding credit derivative instruments like CDOs, CDS, Islamic Finance has largely stayed away from the destructive effects of complex conventional financial instruments

Conventional Finance

NGOs(Non Governmental

Organizations)

Islamic Finance

Page 7: Islamic Finance & Capital Market Activities

Developments of Sukuk Market and the Potential for growth

7

Page 8: Islamic Finance & Capital Market Activities

8

Position of the Sukuk Market

Equity

Trade finance

RE

Private equity

Islamic wealth management

CommodityMurabaha

trades

Leasing

The global Islamic landscape by asset value depicts potential growth for Islamic structured products, in particular Sukuk, to cater for huge demand from the Middle East and Asian investors

The total size of the Islamic Finance Industry is in excess of $ 1 trillion

Sukuk

Islamic structured products

Siz

e of

mar

ket a

s %

of t

otal

ass

ets

Industry demand

Page 9: Islamic Finance & Capital Market Activities

9

Development of Sukuk Market

The year 2011 was a record year with Global Sukuk issuance jumping to USD84bn, a 61% year on year increase

The Sukuk Issuance has grown at the rate of 56% annually since 2001

The trend has now shifted to sovereigns tapping the market. Total share of sovereign in 2011 was 78% of the Sukuk issuance

A total of more than USD180bn Sukuks are outstanding

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

1 1 6 8 12

30

49

1826

52

84

Global Sukuk Issuance (USD Billion)

Effect of Financial Crises

CAGR: 56%

Source: Zawya

78%

8%

14%

SovereignQuasi-SovereignCorporate

Issuer Type (2011)

90%

10%

DomesticInternational

Market Type (2011)

Source: Zawya Source: Zawya

Page 10: Islamic Finance & Capital Market Activities

10

Sukuk Issuance by Domicile, Currency and Structure

A number of new countries opened to the Sukuk Market, among them Saudi Arabia, Kuwait, Jordan, Iran, Gambia and Yemen

Malaysia is still dominating the Sukuk landscape with its Sovereign issues in its local currency Ringgit

Although Murabah seems to be the dominant structure, a careful analysis reveal that excluding Malaysia, Ijarah remains the preferred choice among issuers comprising 70% of the issuance

The Wakalah structure received strong attention this year, being the choice for many international issuances due to its acceptability and ability to securitize untradeable assets

79%

11%

6%4%

3%3% 2% 1% 1% Malaysia

Qatar

UAE

Indonesia

Saudi Arabia

Bahrain

Pakistan

Kuwait

Turkey

Issuance by Domicile (2011)

66%

11%

11%

3%2%2%

2% 4%

MYR

QAR

USD

IDR

SAR

PKR

BHD

Others

Issuance by Currency (2011)

45%

25%

11%

8%

5%2% 1% 1%1% Murabaha

Ijarah

Bai Bithaman Ajil

Musharaka

Wakala

Wakala-Bei-Istithmar

Mudarabah

Salam

Others

Issuance by Structure (2011)

Source: ZawyaSource: Zawya

Source: Zawya

Page 11: Islamic Finance & Capital Market Activities

11

USD Millions Country Type Tenor (years)

Qatar Sovereign

Malaysia Sovereign

UAE Quasi-Sovereign

Indonesia Sovereign

Saudi Arabia Corporate

Pakistan Sovereign

Saudi Arabia Quasi-Sovereign

Bahrain Sovereign

UAE Corporate

Bahrain Sovereign

Notable Sukuk Issuance – 2011

Qatar Sovereign Sukuk

Malaysia Global Sukuk (T-1)

Nakheel Sukuk 4 (T-1)

Indonesia Global Sukuk II

Saudi Aramco Sukuk

Gov. of Pakistan (T-3)

Islamic Development Bank MTN (Series-7)

CBB Sukuk 3

First Gulf Bank Sukuk

Bahrian Ijarah Sukuk #17

9,062

1,200

1,035

1,000

1,000

775

750

750

650

530

Sovereign and Quasi Sovereign has dominated the top 10 issuers as well the overall global issuances. Only 2 corporate issuers in the top 10

Qatar Central Bank’s Sukuk issuance of QAR 33bn (USD 9bn) was the single largest Sukuk issuance till date This year started off with a the issuance of USD 4bn by the Civil Aviation Authority of Saudi Arabia

Source: Zawya

Series1

3

5

5

7

14

3

5

7

5

5

Page 12: Islamic Finance & Capital Market Activities

12

Dow Jones Citigroup Sukuk Index

Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-1180.00

90.00

100.00

110.00

120.00

130.00

140.00

Jan-11 Apr-11 Jul-11 Oct-11122.00

126.00

130.00

134.00

Performance in 2011

The DJ Sukuk Index has performed consistently well post 2009

A joint product of Dow Jones Indexes and Citigroup, provides a benchmark for investors seeking exposure to Sharia-compliant fixed-income investments.

To be eligible for inclusion, bonds must comply with Sharia law, the Bahrain-based AAOIFI, and meet minimum requirements for maturity, issue size and rating.

DJ Citigroup Sukuk Index

Index Value: 132.53

2011 Change: 5.5%

Source: Bloomberg

Page 13: Islamic Finance & Capital Market Activities

13

Potential for Growth

The Sukuk market is still dominated by Sovereigns and Quasi Sovereigns. A large number of corporate are yet to explore the primary Sukuk market for their funding requirements

Implementation of the financial master plans and government initiatives which will act as the backbone of growth throughout the coming years

The cumulative infrastructure projects and funding needs in both the GCC and Asian regions are expected to support the Sukuk market in 2012. Infrastructure spending has been one of the key drivers of economic growth in the GCC over the past decade

New emerging market players as well as new non-Islamic issuers are expected to tap the Sukuk market to tap in huge liquidity chasing the market

A significant potential exist in the western financial institutions and corporate in the US, UK, the EU and Central Europe who are likely to becoming more actively involved in this industry, and are interested to issue Sukuk to refinance existing corporate debt or to finance working capital and expansion activities, including acquisitions

Deeper secondary market activities are emerging with new players and appetites

Page 14: Islamic Finance & Capital Market Activities

Credentials

Page 15: Islamic Finance & Capital Market Activities

15

Overview

Sukuk – Origination, Structuring & Trading

Structured Finance – Corporate Finance and

Project Finance

Asset Management – Investment Funds &

Portfolio Management

Investment Treasury Services

Liquidity Houses leverages on the strategic strength derived from KFH’s brand name, distribution capability, and geographic coverage while offering its products and services to its clients

• Liquidity House is a wholly owned by Kuwait Finance House K.S.C. (“KFH”) and is a result of the spin-off of its International corporate finance activities. The company’s paid up capital is KD 100 Mn (approx US$ 380 Mn)

• Liquidity House’s objective is to be a principal player in the international Sukuk market and the Sharia compliant structured finance arena. It seeks to deliver exceptional values to its clients, stakeholders and the industry through focused and shared values driven by its parent entity, KFH. Liquidity House is licensed and regulated by both the Central Bank of Kuwait and the Capital Markets Authority.

Page 16: Islamic Finance & Capital Market Activities

16

Liquidity House Sukuk Achievements

FIC SukukKD 92 Mn

Restructuring advisor 2011

SIB SukukUS$ 400 Mn

JLM2011

KTPBUS$ 100 Mn

JLM and Bookrunner2010

GE CapitalUS$ 500 Mn

JLM and Bookrunner2009

Ras Al KhaimahUS$ 400 MnBookrunner

2009

IFCUS$ 100 Mn

JLM and Bookrunner2009

KTPBUS$ 350 Mn

JLM and Bookrunner2011

HBME SukukUS$ 500 MnCo-Manager

2011

ADIB SukukUS$ 750 MnCo-Manager

2010

Indonesia Sukuk IIUS$ 1 Bn

Co-Manager2011

Page 17: Islamic Finance & Capital Market Activities

17

Other Achievements

Aref Investment GroupKWD 290 Mn

Restructuring advisor 2011

Burgan CompanyUS$ 125Mn

Syndicated Ijara2009

CRCUS$ 155 Mn

Syndicated Murabaha2008

ALAFCO Murabaha on behalf of KFH

US$ 10 Mn2011

Ozon Giyim Sanayi Ve Ticaret A.Ş.

Syndicated MurabahaUS$ 65Mn

Mandated Lead arranger2011

GIH restructuringKWD 49.5 Mn

Restructuring advisor 2011

MALC Aviation FundLead Sponsor

US$800 Mn2003

KFH Oceanic PortfolioUS$ 250 Mn

Sole Arranger & Lead Sponsor

2008

Page 18: Islamic Finance & Capital Market Activities

18

Awards & Recognitions

Deal of the YearKTPB Sukuk

2010

Deal of the Year- TurkeyKTPB Sukuk

2010

Sukuk Deal of the YearKTPB Sukuk

2010

Best sukuk arranger2011

The best Sukuk Structuring House in KuwaitIREF ME Award

2010

Deal of the Year- KuwaitAref Investment Group

2010

Restructuring Deal of the Year

Aref Investment Group2010

Best Sukuk DealWorld Finance – Islamic

Finance Awards2011

Most Innovative DealKTPB Sukuk

2009

Sukuk Deal of the YearGE Capital Sukuk

2009

Best Sukuk DealGE Capital Sukuk

The best Sukuk Structuring House in

KuwaitIREF ME Award

2009

Wakalah Deal of the year IFC Hilal Sukuk

2009

Deal of the year – KuwaitBurgan Company

2009

Page 19: Islamic Finance & Capital Market Activities

Contact Information

19

Senior Oversight

Iqbal Mohammed Executive Vice President

[email protected]: (+965) 2225 7606

Ahmed Al-Kharji Senior Vice President

[email protected]: (+965) 2225 7604

Masroor Ahmed SiddiquiSenior Vice President

[email protected]: (+965) 2225 7607

Nawaf Al MenayekhSenior Vice President

[email protected]: (+965) 2225 7617

Liquidity Management House for Investment Co. K.S.C.C.Level 23, Baitak Tower, Safat SquareAhmed Al Jaber Street, Kuwait CityP.O.Box : 2650 Mishref, 40177 Kuwait

Telephone: (+965) 2225 7600  Facsimile: (+965) 2225 7618

Page 20: Islamic Finance & Capital Market Activities

Questions ?

Thank you.