As yet another year rolls to a close, we take a look back at the past 12 months to see who were the big winners, who trailed behind, and what we can expect for 2012. Using exclusive data from our partners at Dealogic and EurekaHedge, Islamic Finance news brings you a yearly round-up of the key issues, controversial topics, hot deals and vital statistics of 2011, to give you a comprehensive overview of the industry in figures over the last year.
Bringing you the hottest topics
One of the biggest issues affecting the Islamic finance industry has been the Arab spring and ensuing political turmoil ricocheting through some of the leading hubs for Islamic finance in the Middle East and Africa: including Bahrain, Saudi Arabia and Egypt.
Following the launch of our celebrated new format in June 2011, the all-new Islamic Finance news featured its first cover story on the prospects for the Middle East Islamic finance industry following the political upheaval. In our usual genre-defining style, IFN focused on the positive aspects rather than jumping on the popular bandwagon of gloom, pointing out that the markets were still buoyant, Sukuk was still selling, and money was still moving.
We have continued to focus on supporting the industry throughout the year, with our recent December cover (Vol 8 Issue 48) exploring the surprisingly good state of the Bahrain markets following its year of crisis.
Other hot topics over the year have included the serious crisis in human capital for the industry; the urgent issues of risk management and tax reforms; the dangerous topic of derivatives and how the industry can hope to handle them; the prospects for sovereign Sukuk and the urgent need for more countries to start issuing benchmarks; the controversy surrounding commodity Murabahah; the new world of political risk insurance and its opportunities for Islamic finance; and the enduring popularity of property.
In country-specific reports, we have brought to the fore the strong potential of Turkey as a center for Islamic finance; the issues inherent for the sector in the US; the competing hubs of Europe (with the UK, France, and Luxembourg all dancing to be first); the impact of the Eurozone crisis on the industry; the increasing attractions of CIS countries such as Kazakhstan; and the challenges facing Iran as it struggles to deal with sanctions.
Malaysia dominates deals
In 2011 Malaysia was once again the biggest issuer of Islamic bonds by country by a considerable margin, accounting for 68.1% with a total deal value of US$15.46 billion. The UAE trailed behind a distant second with 11.2% and a total value of US$2.55 billion, less than a sixth of Malaysia’s total. Saudi Arabia came third with 6.6% of deals and a total deal value of US$1.49 billion, while Bahrain and Indonesia accounted for 4.6% and 4.4%, at US$1.05 billion and US$1 billion, respectively. The UK was the only European nation to appear in the top 10 with 2.2% of deals valued at US$500 million, while Turkey, Singapore and Kuwait rounded the list out with 1.5%, 1% and 0.2%.
CIMB Group was the leading bookrunner for Islamic bonds, accounting for 21% of 2011 deals to a value of US$4.75 billion from 32 transactions. Maybank Investment Bank was a close second with 28 deals amounting to US$4.4 billion, taking 19.4% of the market. HSBC completed the Big Three, taking 15% in 14 deals to a value of US$3.4 billion. Following behind these players came AmInvestment Bank with 8.5%, Standard Chartered with 7.4% and Citibank with 6.1%. Malaysian banks unsurprisingly dominated, although J.P. Morgan and BNP Paribas made it in at 9th and 10th with 2.5% and 1.9% respectively.
Corporates catch the big fish
Interestingly, despite the reports of depressed corporate Sukuk issuances this year due to the global financial crisis, sovereign bonds accounted for just four of the top 20 deals in 2011, highlighting the need for countries to issue benchmark deals to set standards for the industry, especially in up-and-coming jurisdictions (as discussed by Islamic Finance news in September: see Vol 8 Issue 35, ‘Sovereign Sukuk: Is it all just talk?’)
Having said that, three of the top 10 deals of the year were indeed sovereign issuances. The largest deal of 2011 was Malaysia’s sovereign Wakalah Global Sukuk in June for US$2 billion, arranged by CIMB and Maybank. Coming in fourth was Indonesia’s November US$1 billion Perusahaan Penerbit 144a/RegS Ijarah issue, while Malaysia’s US$985 million GovCo Holdings Sukuk Murabahah in February came in sixth and Bahrain’s US$750 million RegS Sukuk issuance on the 16th November came in 10th.
Malaysia accounted for 10 of the top 20 biggest deals in 2011, with the UAE issuing five, Saudi Arabia two, and the UK and Bahrain one each. The largest corporate deal came from Malaysia’s Pengurusan Air SPV in June, with a US$1.9 billion private placement; closely followed by Manjung Island Energy’s US$1.5 billion issuance in October. The only non-Malaysian corporate issuance in the top 10 came from the IDB, with its US$750 billion Sukuk in May. Aside from this, non-Malaysian corporates put on a relatively poor showing, with the largest deals coming from Bahrain with First Gulf Bank’s US$650 million Sukuk Wakalah in June, and the UAE with Emaar Sukuk’s US$500 million issuance in January. HSBC Middle East achieved the only European offering in the top 20, issuing a US$500 million Sukuk in the UK in May.
UAE top for loans
In contrast to Islamic bond deals, Malaysia trailed behind the UAE in 2011 when it came to Islamic finance-related loans, accounting for 23.6% at a total value of US$1.19 billion compared to the leading lender, the UAE, which captured 31.8% at a value of US$1.6 billion.
Demonstrating its impressive growth potential, Turkey was the next biggest lender with US$988 million-worth , or 19.6%, while Indonesia accounted for 9.9% with US$501 million and Indonesia for 8.2% with US$415 million. Distantly following these top five came some more surprising participants. China flexed its muscle, despite seeing relatively slow growth in its domestic Islamic finance indsutry this year, coming in sixth with US$93 million or 1.8%.
Kuwait and Pakistan also made the top 10 with 1.7% and 1.2% respectively, while the Russian Federation made its entry with 1.2% or US$60 million in loans. Bahrain, showing the effects of its political troubles, came in 10th with 0.9% or US$45 billion.
Saudi Arabia was home to the biggest transaction of 2011, with Maaden Bauxite & Alumina Co’s US$929 million loan in October, followed by the UAE with Dubai Ports World’s US$850 million loan in September.
Malaysia saw only one loan make it into the top 10 of 2011 with Pembinaan BLT’s US$822 million construction loan in July, while Turkey accounted for three of the top 10 loans: from AlBaraka Tϋrk, Bank Asya, and Turkiye Finans, demonstrating the strength and growing size of its finance sector.
Citi headed the loans bookrunners with 10.4% of the market, to a value of US$524 million, followed by Abu Dhabi Islamic Bank with 6.7% or US$340 million. In comparison HSBC was the biggest lead arranger, accounting for 11% of deals to a value of US$553 million, followed by Citi with 8.4% or US$425 million. Interestingly no Malaysian bank made the top 10 bookrunners this year for loans, while only Maybank crept into the top 10 lead arrangers, in joint ninth place with 3.3% to a value of US$164 million.
Fixed income funds shine
Islamic fixed income funds performed the best of all fund classes in 2011, with the Eurekahedge Islamic Fund Fixed Income Index showing a YTD return of 2.45% in December 2011; one of the few indexes which saw a positive return.
The Pakistan-based Meezan Tahaffuz Pension Fund — Debt Sub Fund from Al Meezan Investment Management saw the strongest performance, with a 9.45% return, while Malaysia’s Public Mutual also put on a strong showing with its PB Islamic Bond Fund returning 8.04% and the Public Islamic Bond Fund returning 6.83%.
Money market funds also put on a reasonable showing, which along with the strong fixed income performance suggests a flight to safety over the past year during the volatility of the global markets.
Equities unsurprisingly volatile
The equity space was unsurprisingly the worst overall performer, with the Eurekahedge Islamic Fund Equity Index seeing an annual 2011 return of -7.77%. However, this asset class also displayed (once again, unsurprisingly) the highest volatility, with some players making big gains while smaller funds struggled. Malaysia’s BIMB UNIT Trust Management brought in a return of 16.67% with its BIMB Growth fund, while Pakistan’s Atlas Management achieved 12.21% with the Atlas Pension Islamic Fund — Equity Sub Fund.
Some of the top performers also came from less predictable regions, with South Africa’s FutureGrowth Specialist Asset Management bringing in 6.24% with the Futuregrowth Albaraka Equity Fund, and US-based Azzad Asset Management seeing returns of 4.68% from its Azzad Ethical Mid Cap Fund.
Strong performance
Despite the relatively low average returns over the past year, and against the odds given the financial crises that have rocked the markets, performance has in fact been extremely positive compared to the conventional sector. According the Farhan Mumtaz, an analyst with Eurekahedge: “Islamic funds have performed exceptionally well in 2011. The average Islamic fund is down only 4.5% November year-to-date, while the MSCI World Index is down 9.57% over the same period — an outperformance of 5%.
“The returns also compare favorably to long-only absolute return funds which are down 13.67% and are comparable to hedge fund returns of -3.9%. These numbers show that the Islamic funds industry has developed significantly over the last two to three years and has attracted talented managers who can utilize the increasingly diverse range of products to deliver absolute returns, similar to hedge funds, but at a fraction of the cost. Going forward we expect the funds to attract greater attention from investors given their performance as well as increasing diversity in terms of asset classes and strategies.”
Happy new year
Islamic Finance news constantly strives to bring you the most relevant and cutting edge issues, covering the widest range and reported in the most detailed and independent way possible. We have brought you the best and brightest in Islamic finance news over the past 12 months, along with the most comprehensive and accurate market data in the industry, and we will continue to do so throughout 2012. We hope you have had a prosperous 2011, and we wish our readers all the best for 2012.