Brexit Britain set to lose EU builders

A campaigner holds fake £350 million notes featuring the face of Britain’s Foreign Secretary Boris Johnson as EU advocates launch the Brexit Facts Bus and kick off a new initiative against Brexit. Recruitment firm Hays expects that the UK’s departure from Europe will encourage builders from EU countries to leave. (AFP)
Updated 22 February 2018
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Brexit Britain set to lose EU builders

LONDON: British construction sites are starting to see a labor shortage as Eastern Europeans, who have traditionally filled the bulk of on-site jobs, have stopped taking positions after Britain’s decision to leave the EU, recruiter Hays said.
CEO Alistair Cox said there was “less appetite” for non-British workers to take jobs following the Brexit vote and some European Union citizens had quit jobs in Britain, with the immediate impact being felt on construction sites.
“We are starting to see skill shortages in a number of areas there because of a lot of the traditional supply, much of which has come from Europe has dried up,” he told Reuters.
Cox’s comments are the first indication that firms may struggle to fill jobs after Brexit. So far, staffing companies had said employers in Britain had frozen new job investments and were only hiring replacements for jobs being vacated.
The concern remains that Brexit could cause a mass-exodus of jobs to other countries with large European agencies vacating their British headquarters and financial companies detailing plans to transfer jobs to keep servicing EU clients.
Finance firms had begun moving “some small areas of the business” with “relatively insignificant numbers” of jobs to other European countries, Cox said, declining to name the companies or the functions of jobs moved.
But he said there had not been any moves of larger departments or “hundreds or thousands” of jobs and said finance firms were not only hiring replacements for those leaving but also making fresh hires for risk, compliance and audit.
Hays said the wider British market, which along with Ireland accounts for about a quarter of the group’s net fees, remained subdued but stable. Cox also said that wage inflation remained subdued at about 2 to 2.5 percent a year.
Profit from Britain and Ireland rose 24 percent to £22.6 million in the six months ending Dec. 31, helped by cost controls. Like-for-like net fees grew 1 percent.
This improvement and international growth pushed Hays’ profit up 16 percent to £116.5 million ($161.7 million) beating consensus of £115.6 million.
Three analysts said they expected full-year profit consensus of £239.8 million to rise by low single digits, but Hays’ shares, up about 12 percent this year, fell 5 percent at 194 pence in early trade, a steeper fall than the midcap index.
“Shares have been strong coming into the earnings and probably are already pricing in the upgrades,” Morgan Stanley analysts wrote.


Liquidity squeeze hits sukuk sector

Updated 12 December 2018
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Liquidity squeeze hits sukuk sector

  • US interest rate rises and the end of the Federal Reserve’s quantitative easing program have lessened dollar availability
  • Investors from developed markets are more reluctant to park their money in assets from further afield because the returns they can achieve nearer to home are increasing

BARCELONA: Shrinking liquidity as central banks rein in years of ultra-loose monetary policy is crimping both demand for sukuk as well as supply.
Last year, issuance of Islamic bonds, or sukuk, reached a record high of $95.7 billion, up from $68 billion in 2016, according to S&P Global Ratings, which forecasts 2018 issuance will total up to $80 billion.
US interest rate rises and the end of the Federal Reserve’s quantitative easing program have lessened dollar availability, while the European Central Bank’s decision to lower and then stop its own bond-buying program in December is exacerbating liquidity constraints.
“Liquidity that used to be channelled to the global sukuk market is becoming scarcer and more expensive,” said Dr. Mohamed Damak, senior director and global head of Islamic Finance (Financial Services Research) at S&P Global Ratings, who estimates Europe and the US provide 20-40 percent of sukuk investment.
“That will impact the capacity of sukuk issuers to the tap the sukuk market over the next 12 months.”
Investors from developed markets are more reluctant to park their money in assets from further afield because the returns they can achieve nearer to home are increasing in line with higher rates and a strong dollar.
“Whereas before when there was so much liquidity, investors were almost desperate in the hunt for yield and sukuk. Now, they’re a bit more discerning and spreads on emerging markets, including sukuk instruments, have started to widen,” said Khalid Howladar, managing director and founder of Dubai’s Acreditus, a boutique risk, ratings, regulatory and Islamic finance advisory practice. “You’ll see more discrimination coming into sukuk pricing.”
In the first nine months of 2018, sukuk issuance in Gulf Cooperation Council (GCC) countries totalled $26.9 billion, down from $39.8 billion in the prior-year period, according to S&P. GCC sovereign issuance fell by nearly half over the same period to $14.8 billion from $27.9 billion, although issuance by regional corporations rose 2 percent to $12.1 billion.
The decline in government sukuk issuance is partly due to the rebound in oil prices, analysts said, with crude now trading at more than $70; Gulf governments had historically funded their spending through energy receipts and conventional bank lending, with little need to issue debt, but the slump in oil prices from mid-2014 forced a rethink.
Saudi Arabia began issuing debt for the first time since the 1990s after falling into deficit and has now sold $11 billion of sukuk — $9 billion in April 2017 and $2 billion in September 2018, plus $41 billion of conventional bonds since 2016, according to Reuters. These have helped Saudi Arabia fund its budget shortfall, while the Kingdom has also spent some of its foreign reserves, which fell from 2.75 trillion riyals at 2014-end to 1.90 trillion riyals in September 2018.
Although now less of a necessity, Saudi Arabia and other Gulf governments may issue more sukuk do so in order to support their fledgling Islamic capital markets.
“Bahrain, Oman and to a lesser extent Saudi (Arabia) are still facing deficit pressures,” said Howaladar. “But nonetheless, the pressure is less and so that borrowing urgency has diminished.”
Bank lending has always dominated the market, but the private sector is increasingly keen on diversifying its funding sources so as to not be as dependent on banks, he said. “Globally, Islamic banks are growing faster than their conventional counterparts, so whether you want to do a sukuk or Sharia-compliant financing the bank market is still open,” added Howaladar. “Bond and sukuk markets get more attention, but banks are still able to offer Sharia-compliant financing for their customers.”
UAE sukuk issuance has grown in 2018, rising to $6.4 billion as of Sept. 23, versus $3.3 billion in the prior-year period, according to S&P. The country’s markets regulator this year issued new sukuk regulations that have helped bolster supply, said Raffaele Bertoni, head of fixed income investment at Kuwait-based Gulf Investment Corporation, a supranational financial institution co-owned by the six nations of the GCC.
A large part of the UAE’s 2018 issuance is from real estate companies seeking to optimize their financing structure with a better mix of sukuk and bank debt ahead of Dubai hosting the multibillion-dollar Expo 2020, he said.
“Several new real estate projects are in the last phase of completion, and sukuk represents an efficient and more convenient financing structure compared to conventional bonds or even bank loans,” Bertoni added.
Corporations that prefer sukuk funding due to religious considerations will continue to issue Sharia-compliant debt despite the growing expense, said Sharjil Ahmed, a Dubai-based Islamic finance specialist and fintech strategist.
“But other issuers who opted for sukuk because of attractive pricing may shift to wherever they can obtain cheaper funding,” he said.
As well as tightening liquidity, a lack of standardised Sharia regulations and geopolitical concerns have slowed sukuk issuance in 2018.