Islamic trade finance is increasingly becoming a serious alternative within emerging rapid growth economies (RGMs), according to Ernst & Young’s Global Islamic Banking Center of Excellence. For businesses in Qatar, a country classified as an RGM, this will mean adjusting their strategies to reflect the increasingly regional pattern of world trade and starting to consider Islamic trade finance in a more concerted manner. Financial entities in Qatar, such as QInvest, are embracing the increasing prominence of Islamic finance and providing innovative financial solutions that comply with Islamic Shariah across the full spectrum of advisory, financing and investment activities.
The International Bank of Azerbaijan has launched a US$100 million syndicated Murabahah financing facility and in another impressive recognition for a Qatari financial entity, Barwa Bank has been selected to make up one part of four mandated lead arrangers and bookrunners for the deal. The facility holds a tenor of 18 months and carries a profit rate of 325bps per year over the relevant LIBOR. The International Bank of Azerbaijan aims to expand its Shariah compliant financing activities in the republic.
Barwa Bank’s investment banking division, The First Investor (TFI), has signed a joint venture agreement with Project Management & Development Company (PMDC) with a view to investing in income-generating expatriate residential compounds in Saudi Arabia. As the joint venture’s initial investors, TFI and PMDC have invested a total of US$30 million in the proposition, with an expectation that the first acquisition by the joint venture will be made in the second half of 2013. In Qatar, Barwa Bank has offered a QAR1.1 billion (US$274.6 million) facility to Qatar Petrochemical Company (Qapco), which will allow Qapco to secure more liquidity on demand, instead of utilizing the accumulated operational profit surpluses.
Qatar Islamic Bank (QIB) is seeking approval of the bourse’s administration to increase the number of its shares available to foreign investors to 25% of its market capitalization. The increase is expected to take effect in six to nine months. In the meantime, QIB has signed a US$100 million Murabahah facility with Qatar First Bank (QFB), previously known as Qatar First Investment Bank, which is Qatar’s first independent Shariah compliant financial institution authorized by the QFC Regulation Authority. The facility is a multiple Murabahah structured facility with a three-year tenor period and will be used to support QFB’s growth plans.
Outside of the Qatar Financial Center, QIB has launched the Family Shield Platinum, the bank’s latest premium Takaful product targeted at nationals and expatriates. The Takaful product can reach up to QAR10 million (US$2.74 million) with a premium that can be contributed annually or semi-annually.
QIB is not expecting to issue any Sukuk until 2014 due to high liquidity levels in Qatar. The last time QIB tapped the market was in October 2012 with a US$750 million five-year Sukuk as part of a US$1.5 billion Sukuk program. This decision mirrors a recent report by Fitch Ratings, which expects GDP growth in Qatar to reach 7% this year, driven by public sector spending. The report also projects that margins are increasingly being pressured due to the low interest rates afforded by government-related entities and heightened competition.
Inflation in Qatar climbed to 3.7% on an annual basis in April, the highest level since 2009, fuelled by rising rental costs. The IMF sees it edging up gradually to reach 5% in 2017-18. The governor of the Qatar Central Bank, Abdullah Saud Al Thani, has suggested that Qatar may change its peg to the US dollar when the economy becomes less dependent on hydrocarbons, from which receipts currently represent approximately 70% of the government budget income. With Qatar’s increasing integration in international trade, it may be that a higher degree of exchange rate flexibility is more desirable to ensure external stability and international competitiveness for Qatari exports.
Amjad Hussain is a partner at law firm K&L Gates’ corporate and finance practices. He can be contacted at
[email protected]
.