Qatar Islamic Bank (QIB), one of the five largest largest Islamic banks in the world, has successfully increased the number of shareholders in the subsidiary Al Jazeera Islamic Company (AJIC). This has been achieved by the successful conclusion of a strategic shareholding partnership in AJIC. QIB offered six million shares to potential investors at QR65 per share, including a premium of QR55 per share, which delivered QR330million profit. Qatar Central Bank has approved the list of the shareholders and has also granted its consent for the restructuring of AJIC as a regulated finance company.
“This is a first step for a new and brighter future for Al Jazeera Islamic Company,” said QIB CEO Salah Jaidah. “Our aim is to unlock the productive potential of AJIC and streamline the enterprise to promote quality of service, efficiency, revenue generation, economic development and employment, as well as competition in the market place.”
When QIB first announced its plan to open up the share holding of Al Jazeera Islamic Company, it said the objective was to sell to potential investors and increase the number of shareholders from two to 10, as per Qatar Central bank requirements. Now this has been achieved, QIB has kept a leading position with 30 percent of Al Jazeera company shares with Al Awkaf (previous partner) keeping 20 percent and the balance sold to strategic partners.
Salah Jaidah declared: “We are proud of the high level of interest that strategic partners had in Al Jazeera Islamic Company and the faith they had put in our future plans. We have completed this project in a short period of time and are delighted with the high level of partners we now have on board’.
In fact, the new shareholders in addition to QIB and Al Awkaf are prominent institutions from both the local and the regional market. They include Qatar National Bank, Qatar Insurance Company and Kuwait’s Global Investment House. Salah Jaidah pointed out: “The new set-up with 10 shareholders is as per the QCB requirements and we will now be able to operate Al Jazeera Company as a regulated financing company”.
With the number of expatriates increasing and the current economy boom, the financing companies’ volume of business is significantly growing and this change in AJIC was made to address the market needs. Al Jazeera Islamic Company will be targeting consumers and small and medium enterprise financing, two sectors showing exponential growth.
Salah Jaidah added: “In addition to the changes in the shareholding, we are also planning an expansion in terms of branches and employees.”
This exciting development follows the signing by QIB of a $300m bridge murabaha and a sukuk mandate. QIB has funded the bridge murabaha for a maximum period of 12 months, financed by ABN AMRO and Standard Chartered.
Salah Jaidah said the bridge murabaha was part of the asset and liability management strategy of QIB. “Both ABN AMRO and Standard Chartered have funded this bridge on a 50/50 basis and I am very pleased with the highly competitive rate given to QIB, which is a sound proof of the trust international banks have in us and our long term vision,” he added. Over the past 12 months, QIB has been upgraded from BBB+ to A- by both Fitch and Capital intelligence.
Salah Jaidah added that the sukuk was one of the financing instruments that the bank was keen on developing. “The large number of projects and companies in need of financing, along with the large amount of liquidity available in the GCC, makes sukuk the perfect Islamic product to use,” he said. “In the last week of November (2007) we launched the marketing of a $150m sukuk musharaka in Doha, Manama and Dubai for our customer Salam Bounian and we are now preparing to embark on a new sukuk for QIB this time, within the next six to 12 months.”
In addition to the bridge financing, the two banks are also mandated for a sukuk issuance on behalf of QIB. This sukuk is planned to be issued this year and part of it will be used to reimburse the bridge financing. In December 2007, Qatar Islamic Bank organised a workshop on Sharia’a compliant financing instruments at the Euromoney Middle East Debt Markets Conference, to discuss the nascent debt markets of the Middle East, and specifically the GCC.
The conference, held at the Four Seasons Hotel in Doha, Qatar, was opened by his EE Yousef H. Kamal, Minister of Finance and Acting Minister of Economy and Commerce, and brought together some 250 high-profile delegates from around the GCC and international markets, most of them representing financial institutions that are issuers of debt securities in the Middle East, investors in such securities or intermediaries with a significant presence in the market.
QIB took the opportunity to address the very relevant subject of sukuks in their workshop. Sukuks are the Islamic equivalent of bonds that are quickly gaining popularity in the region. “Since conventional, fixed income, interest bearing bonds are not permitted under Islamic law, Sukuks are specifically designed to be compatible with Shariah law,” explained Jean-Marc Riegel, General Manager of Investment Banking & Development Group, QIB. “They have become a force to be reckoned with, and we thought it was time we brought the discussion to the table.”
Structures and regulations
The workshop touched upon an array of related topics, including the structures and regulations for financial institutions, companies and bonds, project financing and Islamic financing.
According to Euromoney, the conference was organised “to promote the benefits of debt capital markets to potential and current issuers within the region and to develop the region’s debt capital market structures, legislation and investor base.” The conference featured keynote addresses by leading regional and international finance experts, but the majority of the time was devoted to interactive Davos-style panel discussions and workshops mandated and moderated by Euromoney. The workshops were organised by such renowned financial institutions as Goldman Sachs, QIB and the Qatar Financial Center (QFC).
The phenomenal growth in the GCC and the Middle East in the past few years has provided local & international investors with great investment opportunities in the government as well as private sectors. This growth is expected to continue unabated, and along with it the demand for financing. “The increasing appetite within the region for Islamic financing via sukuks has played a vital role in matching the needs of borrowers and investors, thus establishing their place in the global capital debt markets” said Jean-Marc Riegel. “Besides, the countries in the Middle East have also realised the importance of global markets, and privatisation has played a pivotal part in the process.”
The global market for Islamic financial products is currently worth around $80billion and, according to some projections, could reach up to $500billion in the years to come as more and more institutional and private investors see Islamic financing as a means to providing liquidity, diversification and sustainable returns.
The added value that sukuks offer to the global capital debt markets is expected to drive their growth, and they might eventually even come to match the existing modes of financing in the conventional debt markets.
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