(MENAFN - Arab News) The issuance by Al-Rajhi Cement Jordan of its debut Sukuk Al-Ijarah in late April 2011 opens up yet another new market for sukuk origination in the Middle East and North Africa (MENA) countries. The domestic JD85 million (about 119 million) corporate sukuk offering, while symbolically important and widely welcomed by the market, however betrays a dogged refusal by successive Jordanian governments of issuing a debut sovereign sukuk.
This is ironic given that Jordan is one of the first countries to authorize an Islamic bank in the contemporary movement, the Jordan Islamic Bank for Investments (JIB), which was established in 1978 and which is part of the Bahrain-incorporated Albaraka Banking Group (ABG).
Yet the Central Bank of Jordan (CBJ) regularly auctions the sale of conventional Treasury bills and bonds. In fact, the CBJ held its latest bonds auction for the amount of JD50 million on April 25. The 1.5-year bond was oversubscribed to the tune of JD85.1 million and is paying a coupon of 4.733 percent.
If there is a clear appetite for conventional Jordan sovereign bonds, surely given the same country risk dynamics, there would also be investor appetite for Jordan sovereign sukuk. Pricing, yields, timing and quality asset pools (in the case of Sukuk Al-Ijara especially) are all important, but these no longer can serve as an excuse for the lack of political will and policy, especially if Islamic finance (in this case at the government level) may be seen as a form of political appeasement of Islamists, of which there are several in the Jordanian Parliament.
The relatively new governor of CBJ, Faris Sharaf, perhaps could convince his political masters, the Treasury and Ministry of Finance, that a debut sovereign sukuk issuance could benefit the country in several ways, including diversifying the way the government raises finance for its public borrowing requirement.
Sharaf's predecessor, the experienced and well-respected Umayya Toukan, worked hard during his tenure to facilitate the regulatory environment for sukuk origination in the Kingdom.
Several times in the past before his departure in November 2010, he confirmed that Jordan is "considering issuing a sukuk. But as you know it would be the Ministry of Finance that would be the issuer, and the central bank would be the financial adviser and manager to the issuance. The central bank has concluded a consultation on this. But other events unfortunately interrupt this process. In my personal opinion Jordan should have already issued a debut sovereign sukuk. I believe we will issue a sovereign sukuk, when the market conditions are right."
It is all too easy to blame central banks or regulatory authorities for being too slow to develop a domestic Islamic capital market or promote the issuance of sukuk. But almost always they are held hostage by their political masters through the latter's inertia, lack of policy, political agenda or sheer incompetence.
Nevertheless, the Jordanian government in 2010 did approve the issuance of a sukuk by Saudi Arabia's Al-Rajhi Group on condition that the Shariah structure and compliance be approved by the General Ifta' Department (akin to a National Shariah Council) and that the sukuk should be put for subscription by locally-incorporated banks.
The Al-Rajhi Cement sukuk follows a number of debut corporate issuances in the MENA region in recent months, including the first cooperate sukuk in Turkey, a 3-year 100 million Sukuk Al-Ijarah issued by Kuveyt Turk Participation Bank, which according to CEO Ufuk Uyan, is planning a second issuance, a 500 million sukuk later this year. However, the tenor will be 5 years.
Similarly, in March 2011, the local airline Mahan Air in Iran issued a 291 billion Iranian rial Sukuk Al-Ijarah, which was ratified by the Securities and Exchange Organization of Iran (SEO) and is listed and traded on Farabourse, Iran's OTC (over the counter) market.
Already other potential issuers in Egypt, Turkey, Jordan, Iran and even Iraq are exploring the possibility of issuing sukuk to raise funds to finance expansion or for balance sheet purposes.
The Al-Rajhi Cement sukuk, which was managed by Capital Investments, the investment banking arm of Capital Bank, is important also because it has a 7-year tenor. This is important especially if banks are raising finance through sukuk issuance. Very often Islamic banks like others have a mismatch between short-term deposits and longer-term liabilities.
Turkish participation banks, for instance, have hitherto relied on Murabaha syndicated facilities to raise longer-term funds from the international markets to finance trade, projects and SMEs. But with the success of the Kuveyt Turk Participation Bank Sukuk, several banks including Albaraka Turk Participation bank and Turkiye Finans are also lining up to issue sukuk for the same purpose.
Capital Investments' CEO Omar Al-Wir stressed at the sukuk launch ceremony that is was his hope that "this alliance (with Al-Rajhi Group) will pave the way for future successful Islamic finance transactions in the Kingdom. This issuance corresponds to the growing interest in and appetite for Islamic financing instruments in the local market, and reflects the readiness of the Jordanian economy to accommodate developments in the regional and international markets, and the growing Islamic finance segment in particular."
Al-Rajhi Cement Jordan, is a subsidiary of Al-Rajhi Cement Holding (ARCH), which was incorporated at the Dubai International Financial Centre (DIFC) in July 2007, and whose main shareholder is Omar Al-Rajhi For Commercial Development and Investment Holding Co. of Saudi Arabia. Al-Rajhi Cement Jordan also operates a cement manufacturing plant in Al-Mafraq, Jordan, which started distribution in the local market during 2010.
The investment objective of ARCH "is to invest in the cement industry shares of various cement companies globally," and to develop cement assets in the region using a new approach to financing and laying the grounds for a strategic financing plan based on Shariah-compliant financing that will support the company's growth. ARCH indeed is not stranger to accessing the Islamic finance market. In 2008, ARCH closed a 60 Million Murabaha facility, funded by Noor Islamic Bank in the UAE and arranged by Siraj Capital.
The JD85 million Al-Rajhi Cement Jordan sukuk structure was approved in terms of Shraiah structure and compliance by the General Ifta' Department of the Jordanian Government which is headed by Al Mufti Abd Karim Al-Khasawneh.
The 7-year issuance was subscribed by a number of leading local Islamic and commercial banks, including Capital Bank, Cairo Amman Bank, Islamic International Arab Bank, Union Bank, Jordan Kuwait Bank, Bank of Jordan, and Arab Islamic Bank. The notable absentee is Jordan Islamic Bank, one of the oldest Islamic commercial banks in the world.
By MUSHTAK PARKER
