Since Sheikh Mohammad Rashid Al Maktoum’s call to make Islamic finance a priority in the emirate’s financial market, the mood on the ground has been nothing short of enthusiastic. According to industry players, Dubai-based financial institutions, banks and law firms are working fervently to make their ruler’s vision a reality; something which most would agree is not at all impossible.
In the thick of all this is the Dubai Financial Market (DFM) — a key player in creating a sustainable and attractive market for Islamic finance in the emirate. Recognizing the value of Islamic finance to the growth of the emirate’s financial landscape, the DFM has been actively involved in the sector, with its latest effort aimed at creating more assurance to Sukukholders and traders in terms of structures and permissibility of instruments through the publishing of Sukuk standards. Earlier this year, the DFM drafted its standards for Issuing, Acquiring and Trading Sukuk and had called for feedback from market players. According to those in the know, the final standards are set to be published anytime soon.
Background
The Dubai Financial Market was established as a public institution with its own independent corporate body under Resolution no.14 2000 issued by the Ministry of Economy. It was subsequently set up as a Public Joint stock company at the end of 2005, with a paid up capital of AED8 billion (US$2.17 billion) allocated over eight billion shares; at a par value of AED1.6 (US$ 43 cents) per share. 20% of the DFM’s shares were offered to the public in the form of an IPO, which generated more than AED201 billion (US$54.72 billion) in orders, and was massively oversubscribed.
At present, Borse Dubai owns 80% of DFM’s shares, while the Investment Corporation Dubai (ICD), a Government of Dubai entity, owns 90% of the parent’s shares. DFM currently has a majority stake in NASDAQ Dubai, at 67%, and has made clear its support towards the growth of its subsidiary. According to the DFM’s recently released annual report for 2012, the company is a 100% Shariah compliant licensed trader of financial instruments, and also acts as a commercial, industrial and agricultural holding and trust company, financial investment consultancy, and brokerage in local and foreign shares and bonds. It said: “In accordance with its Articles of Association, the Company complies with the provisions of Islamic Shariah in all its activities and operations and invests its funds in accordance with these provisions.”
Islamic activity
As at the 31st December 2012, the DFM recorded AED9.4 million (US$2.56 million) in non-Shariah compliant income, which will be donated for charitable purposes based on the onus of the respective shareholders, as agreed upon by its Shariah supervisory board. The report further added that in 2012, the company’s Shariah and Fatwa supervisory board were responsible for: preparing the latest exposure draft of the “DFM Standard for Issuing, Acquiring and Trading Sukuk” for a hearing session with experts and stakeholders, supervising all procedures by the ‘Shariah section’ at the DFM to address listed companies to obtain additional data for their classification according to market standards and stock ownership and trading. The Board also followed up with, and evaluated DFM activities in terms of compliance with Shariah, and provided Fatwas on the subjects presented.
Status Quo
At present, the DFM has seven Sukuk listed for trading, with five being issuances by the Dubai Department of Finance. Its subsidiary, NASDAQ Dubai is also aggressively pursuing the listing of international issuances, and is said to be looking to overtake the London Stock Exchange as the largest market for Sukuk listings. At present, Dubai has a total of US$10 billion in Sukuk listed on its exchanges.
NASDAQ Dubai has seen a spate of activity during the first three months of this year, with the listings of Dubai Electricity and Water Authority’s US$1 billion Sukuk, and airline carrier Emirates’ Sukuk, also worth US$1 billion. Essa Kazim, the CEO of DFM commented: “Dubai’s capital markets are growing rapidly in scope and sophistication, with Islamic finance playing a leading role. The issuance of the Emirates Sukuk and its listing on NASDAQ Dubai demonstrates the strength of Dubai’s financial market’s architecture and its ability to serve leading international companies.”
It seems, everyone from the Dubai Economic Council, DFM and NASDAQ Dubai are keen to make their ruler’s vision a reality, and as the DFM matures and becomes the destination of choice for domestic and international Sukuk issuances, the emirate’s Islamic finance industry is sure to flourish. — NH