Syndicated Islamic financing has developed over the years to create a niche market providing far more than just bridging finance. In many ways less complicated than the structuring of Sukuk or other products, syndicated Islamic finance has become an accessible and attractive option for short-term financing. REBECCA SIMMONDS considers the syndicated Islamic finance activity of 2013.
Regulatory landscape
The regulatory landscape for syndicated Islamic financing is recognized as being more straightforward than the regulations in place for Sukuk issuances. It is however, still more complex than the syndicated loan process experience in conventional financing, given the individual Shariah compliance needs of each bank involved in any deal.
The adoption of Basel III has also led to the introduction of more stringent legislation that may affect the way in which financial institutions approach syndicated finance. In Malaysia, the introduction of the Islamic Finance Services Act 2013 has placed a greater emphasis on Shariah compliance and as such, more extensive due diligence is being undertaken for syndicated financing deals. At the end of 2013 Bahrain introduced banking regulations requiring the public disclosure of the risk profile of, risk management and capital adequacy of financial institutions as a step towards the incorporation of Basel III measures to its regulatory guidelines. The IFSB also published guidelines on capital adequacy for Islamic financial institutions in December 2013.
Syndicated loans in 2013
As seen with the Sukuk market in 2013, there was a dip in both the volume of syndicated Islamic finance deals and their total value last year. Islamic finance syndication loans totaled US$21.4 billion in 2013 down from US$26.8 billion in 2012, according to Islamic Finance Information Service figures.
The financial sector was the most active within the syndicated Islamic loans market in both Europe, the Middle East and Africa (EMEA) and the Asia Pacific (APAC) regions according to Bloomberg, claiming 61.08% of EMEA and 23.49% in APAC. The top three mandated lead arrangers for Islamic finance loans in 2013 were HSBC, Abu Dhabi Islamic Bank and Standard Chartered Bank with the top three deals according to Dealogic, and Noor Bank heading the Bloomberg League Table rankings for EMEA Islamic Syndicate Book Runner and EMEA Islamic Syndicate Mandated Arranger.
GCC leader
Issuing over US$7 billion-worth of financing, the GCC led the market in 2013, with eight out of the top 10 deals of the year occurring within either Saudi Arabia or the UAE. The IFN Syndicated Islamic Finance Deal of the Year was awarded to Gulf Marine Services, a subsidiary of Gulf Capital, which secured a US$340 million loan arranged by 10 banks in June 2013. Advised by Abu Dhabi Islamic Bank, Gulf Marine Services secured the loan in order to re-profile existing debt into a multi tranche facility, fund a US$80 million dividend, finance expansion and meet ongoing working capital needs.
Honorable mentions were given to the loans arranged by CityCenterDC, which secured the largest ever domestic Islamic real estate financing for GCC investors, with a US$390 million deal arranged in May 2013 by JPMorgan Chase, and the deals secured by Astra Sedaya Finance and state-owned Saudi ARAMCO which signed a deal in June 2013 incorporating both syndicated finance and a US$2 billion Sukuk issuance.
Another top deal of the year was secured by Emirates Aluminium, which raised US$3.4 billion as part of a US$4 billion debt financing package with US$475 million issued by Islamic financiers; the total deal involving 22 banks. The Investment Corporation of Dubai also agreed a US$2.55 billion equivalent dual currency syndication deal facilitated by Dubai Islamic Bank.
Most recently the Saudi-based Al Bayan Group Holding Company signed its first syndicated Islamic loan agreement for the amount of US$70 million with ABC Islamic Bank acting as mandated lead arranger and bookrunner. AK BARS Bank, followed its 2011 US$60 million Murabahah deal with a US$100 million Murabahah syndication facilitated by 11 banks in December last year, which Islamic Finance news reported on exclusively (see A new frontier: Former Soviet Union forges ahead with Islamic finance, Volume 11, Issue 04). According to reports the International Bank of Azerbaijan recently indicated an interest in forming an Islamic banking business and using syndicated Islamic finance to fund this, following the signing of a US$130 million syndicated Islamic loan last year.
Challenges and opportunities
With the adoption of Basel III due to roll out between now and 2015, Islamic financial institutions will be required to maintain even higher levels of liquidity which could affect the number of banks needed for a syndicated loan and the resulting terms offered by banks for those loans. The market for syndicated Islamic finance slowed in 2013 following the slump in the Sukuk market, but as the UAE and Qatar gear up for increased infrastructure spending between now and 2022, the syndicated finance market is expected to pick up pace, with the GCC predicted to be the most active syndicated loan market again this year.
Outlook
The outlook for syndicated Islamic finance is positive with opportunities rampant in the GCC in particular. Whilst the top banks for syndicated Islamic loans in 2013 were those from Asia and the Middle East,with the continuing recovery in the developed world and western banks once again looking for new opportunities, the syndicated Islamic finance market looks set to grow.