Qatari corporates have been slow in joining the global Sukuk origination market, especially in the Gulf Cooperation Council (GCC) market. It remains a moot point whether this was due to uncertainty relating to sukuk structures from a Shariah-compliance point of view, or whether the economic impact of the financial crisis has paved the way for raising funds from the market, or whether it is merely an exercise in benchmark issuances to set the price for a Qatari risk at least in the Islamic capital market space.
The fact that the QIB issuance was oversubscribed to the tune of $6 billion indicates huge latent demand for "A" rated sukuk. The QIB issuance, which was jointly lead arranged by QInvest, HSBC and Credit Suisse, is the first international issuance by QIB and the first sukuk by a Qatari financial institution. The three institutions were also the book runners, while the Islamic Development Bank and National Bank of Abu Dhabi were the co-managers.
Now it is the turn of QInvest, in which QIB has a 35 percent equity stake. QInvest was licensed by the Qatar Financial Centre Authority as an investment bank in April 2007 and has authorized capital of $1 billion and paid up capital of $750 million.
Recently QInvest also launched its debut Shariah-compliant enhanced yield note which the bank stresses was significantly oversubscribed. No details were released regarding the size of the Note issuance, nor the underlying Shariah structure.
“The subscription for the note has been closed. We have seen an overwhelming response from the market as investors look to maximize returns whilst maintaining capital protection. The reaction of clients shows they were delighted with the risk/return balance that the enhanced yield note achieved and reflects our belief that there is increasing client appetite for innovative products that comply with Shariah,” said QInvest CEO Shahzad Shahbaz in a statement.
Both QIB and QInvest stress that the above originations are the first in a series of Islamic commercial papers they plan to launch over the next year or so. QInvest is particularly keen also to structure and lead arrange sukuk for other issuers both in Qatar, the GCC and beyond in countries such as Turkey and Egypt.
While sovereign Qatar has issued a sole $700 million Sukuk Al-Ijarah in 2003, of which part of the proceeds went to finance the construction of the athletes’ village for the Asian Games in 2006, corporate issuances have lagged in the emirate compared with markets such as Saudi Arabia, the UAE, Bahrain and Malaysia, which have a very active Sukuk origination market. The Qatar Central Bank also has an active conventional bond program. This leaves Malaysia and Bahrain as the two most dedicated and supportive issuers of both domestic and international sukuk in the world. With due respect to both Kuala Lumpur and Manama, this is hardly the stuff a functioning and sustainable global sukuk market can be based on.
At the same time, QInvest has also recently ventured into the Islamic asset management sector by partnering with Ambit, one of India’s premier financial services group, to launch the Ambit QInvest India Fund, an open ended Shariah-compliant Indian equities fund.
According to QInvest, the fund is the region’s first and India’s largest Shariah-compliant equity fund with an investment strategy that will combine dynamic equity allocation to generate returns.
The reality is that India with a Muslim population of some 200 million is potentially a major market for Islamic funds and other investment products. Not surprisingly, a potential niche market that has been identified and acted upon by rival Indian asset management companies.
In late October, for instance, India’s Tata Group launched its debut Tata Indian Shariah Equity Fund (TISEF) through its Tata Asset Management (Mauritius) Private Limited (TAMM), which is also the fund manager. This follows the establishment by the rival Reliance Anil Dhirubahi Ambani Group of a dedicated Islamic asset management company in Malaysia, Reliance Asset Management Malaysia Sdn Bhd, a subsidiary of Reliance Capital Asset Management (RCAM), in late 2009 to spearhead its global Islamic asset management activities. RCAM has embarked on a global Islamic asset management and fixed income strategy which will see the launch over the next few months of five Shariah-compliant funds — a global equity fund, an India country fund, a BRIC fund, a money market fund and a global Sukuk fund.
“Our Malaysian company will be the flagship venture in the Islamic asset management business and a global hub for Shariah-compliant products. The long-term objective is to target the retail Shariah market in the region. This is also in line with the strategy to expand our fund management footprint across key global markets,” explained Mazahr Alam, regional head of GCC Islamic Business at Reliance Capital Asset Management (UK) PLC, which is also a subsidiary of RCAM.
Reliance also has an agreement with SFM in Luxembourg to access its Umbrella Fund Structure domiciled in Guernsey, which has conventional and three Shariah-compliant funds. In fact, RCAM was appointed as the investment manager for SFM’s Islamic Global Equity Growth Fund that was launched in May 2010 with $20 million.
GCC investors are slowly recognizing the potential of the Indian market, despite concerns over the country’s financial regulatory bureaucracy and the painstakingly slow legal system. According to QInvest CEO, Shahzad Shahbaz, “The Indian equity market provides investors with a highly attractive opportunity to invest in a diversified range of Shariah-compliant equities. The market capitalization of Shariah-compliant companies within the Nifty, stock market index, is nearly 60 percent. Back-tracked, the Ambit QInvest India Fund’s performance in the last three months, since inception, is 10.4 percent.”
With over 6,000 listed companies with a market capitalization in excess of $1.3 trillion, the Indian stock market has been ranked as one of the best performing among emerging markets. And while China has outperformed on economic growth, India has provided consistent returns to stock market investors in the last 5 years in overall terms.
Andrew Holland, equities CEO at India’s Ambit Capital Pvt. Ltd., in which QInvest has a 25 percent equity stake, is confident that there are good opportunities for Shariah-compliant investment in key growth sectors in the Indian economy including power, roads, automotive, pharmaceutical and consumer staple and non-staple products.
Many global equity and pension funds are increasing their India stock weightings. “We see the Sensex, Indian stock market index, at 23,000 by March 2011. The Indian economy should see robust growth and given that valuations remain attractive, investors are looking to reallocate capital away from more developed equity markets, where their confidence is lower,” explained Holland.
