In 2006 the major developments involved Sukuk, with record new issuance in terms of both the number and value, greater geographical diversification of the issuers, with substantial offerings from the Gulf, including the largest ever from DP World and a highly significant offering by SABIC. Innovative structuring has also appeared, including Musharakah based and hybrid Sukuk.
Significant trading has also started in the Gulf through the Dubai International Financial Exchange (DIFX).
Islamic banks have continued to diversify their product offerings, reducing exposure to any single asset class, a welcome development, and clients sensible enough to place their investments in Shariah compliant global funds have fared better than those focused on volatile Gulf markets. The Takaful industry is also steadily and rapidy expanding, although its capacity beyond the retail level remains limited. This, however, may be what to watch out for in 2007.
PROFESSOR RODNEY WILSON
Director of Postgraduate Studies, Durham University
The outstanding achievements in the industry in my eyes have been as follows:
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Sukuk, because Islamic bonds are establishing the infrastructure for the development of the bond market, which is a must for an Islamic capital market. The three most important Sukuk stories have been:
• DP Ports Convertible Sukuk (now Nakheel Sukuk).
• Launch of the DJ Citigroup Sukuk Index.
• Khazanah Exchangeable Sukuk.
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A non- Shariah compliant, non-financial institution conversion, where PLUS (the largest toll operator in Malaysia), slated to become a Shariah compliant company (according to Dow Jones Islamic Market ( DJIM) screens), used a Musharakah Sukuk to refinance conventional debt and Bai Bithaman Ajil debt, and hence to appeal to a wider base of investors. This will be a case study for corporate conversions.
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Dubai Financial Market declaring itself to be an Islamic Stock Exchange. This is a promising development, but a number of other issues must also be addressed, including: listing of Shariah compliant products, parking of IPO cash proceeds not utilized in operations, “regulating” the behavior of buyers (leveraged lending, margin trading, etc), futures, options, and derivatives trading. Another set of obvious issues relates to the listing of companies in Muslim countries (like Malaysia) and deemed Shariah compliant by home country scholars, but not passing the DJIM (which is the present industry standard) screens.
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Statements made by Gordon Brown, Chancellor of Exchequer in the UK, about the country becoming the “Gateway” to Islamic finance, and the Economic Treasury making statements about leveling the playing field for Sukuk issues.
RUSHDI SIDDIQUI
Dow Jones Indexes
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