14 March 2013
Muscat: Oman is contemplating to issue about OMR200 million of conventional bonds and sukuk in line with its budget financing needs, said Hamoud Sangour Al Zadjali, executive president of the Central Bank of Oman (CBO). It is going to be the Sultanate's first sovereign sukuk issue, as the country is now launching an Islamic finance industry.
He did not specify the timing or other details, beyond saying that the sukuk, denominated in rials, were likely to be issued towards the end of 2013 or at the start of next year. "We are talking with the government to issue sukuk because this is also one of the important instruments to invest excess liquidity. However, this will take some time," added Al Zadjali.
"The government needs some time to structure these sukuks to be in line with the Islamic sharia law."
"There is no timetable set yet for the time being. There will be a committee established in order to study this matter and to see how this sukuk will be issued, because there are some fundamental factors we need to put in - this will have to be asset-based or asset-backed, the maturity of it. We are new in this market," he noted.
Tilal Development Company (TDC) earlier said that it is planning to float a OMR50 million issue, which will be floated this year. Al Madina Financial and Investment Services is the lead arrangers of sukuk issue for TDC, which will use the proceeds of the issue for funding the expansion of its complex at Bausher.
Excess liquidity
Islamic banking experts earlier said that the market regulators should develop a vibrant sukuk market for helping the proposed Islamic banks to invest their funds and the government to raise debt funds for infrastructure projects.
In the initial period of operation, the deposit growth (or growth on the liability side) of Islamic banks will be much higher than the anticipated growth in asset side and the Sharia-compliant banks will find it extremely difficult to invest their deposits, if there is a lack of Islamic debt instruments like sukuks in the financial system.
"In the initial years, the deposit growth will be phenomenal and a lot of money will come to Islamic banks, and they will be burdened with the challenge as to where to invest that fund.
The availability of products where the banks will be able to invest immediately is rather limited. The growth will happen on the liability side much faster than on the asset side and there will be a problem in managing excess liquidity," Khalid Yousaf, director, Islamic Finance advisory services of KPMG in Oman, said.
Earlier, Yousaf said that capital market debt instruments like sukuk and Islamic banks should grow side by side. Developing a vibrant sukuk market is also important for government to raise money for funding infrastructure projects in a Sharia-compliant manner.
"The government of Oman has got commitment to infrastructure projects in excess of $35 billion, which is more than 50 per cent of the country's gross domestic product (GDP). So far, the government has been able to meet those commitments through its own resources, thanks to high oil prices. Of course, the oil production has also been increasing over the years.
Now, what is available to the government (for funding these projects) is sukuk instrument. They can help divert liquidity available from Islamic banks into these infrastructure projects. By channelising the domestic money into infrastructure projects, the government can have a much more comfortable position in the market by having a reasonable leverage against the debt in a Sharia-compliant way."
Muscat: Oman is contemplating to issue about OMR200 million of conventional bonds and sukuk in line with its budget financing needs, said Hamoud Sangour Al Zadjali, executive president of the Central Bank of Oman (CBO). It is going to be the Sultanate's first sovereign sukuk issue, as the country is now launching an Islamic finance industry.
He did not specify the timing or other details, beyond saying that the sukuk, denominated in rials, were likely to be issued towards the end of 2013 or at the start of next year. "We are talking with the government to issue sukuk because this is also one of the important instruments to invest excess liquidity. However, this will take some time," added Al Zadjali.
"The government needs some time to structure these sukuks to be in line with the Islamic sharia law."
"There is no timetable set yet for the time being. There will be a committee established in order to study this matter and to see how this sukuk will be issued, because there are some fundamental factors we need to put in - this will have to be asset-based or asset-backed, the maturity of it. We are new in this market," he noted.
Tilal Development Company (TDC) earlier said that it is planning to float a OMR50 million issue, which will be floated this year. Al Madina Financial and Investment Services is the lead arrangers of sukuk issue for TDC, which will use the proceeds of the issue for funding the expansion of its complex at Bausher.
Excess liquidity
Islamic banking experts earlier said that the market regulators should develop a vibrant sukuk market for helping the proposed Islamic banks to invest their funds and the government to raise debt funds for infrastructure projects.
In the initial period of operation, the deposit growth (or growth on the liability side) of Islamic banks will be much higher than the anticipated growth in asset side and the Sharia-compliant banks will find it extremely difficult to invest their deposits, if there is a lack of Islamic debt instruments like sukuks in the financial system.
"In the initial years, the deposit growth will be phenomenal and a lot of money will come to Islamic banks, and they will be burdened with the challenge as to where to invest that fund.
The availability of products where the banks will be able to invest immediately is rather limited. The growth will happen on the liability side much faster than on the asset side and there will be a problem in managing excess liquidity," Khalid Yousaf, director, Islamic Finance advisory services of KPMG in Oman, said.
Earlier, Yousaf said that capital market debt instruments like sukuk and Islamic banks should grow side by side. Developing a vibrant sukuk market is also important for government to raise money for funding infrastructure projects in a Sharia-compliant manner.
"The government of Oman has got commitment to infrastructure projects in excess of $35 billion, which is more than 50 per cent of the country's gross domestic product (GDP). So far, the government has been able to meet those commitments through its own resources, thanks to high oil prices. Of course, the oil production has also been increasing over the years.
Now, what is available to the government (for funding these projects) is sukuk instrument. They can help divert liquidity available from Islamic banks into these infrastructure projects. By channelising the domestic money into infrastructure projects, the government can have a much more comfortable position in the market by having a reasonable leverage against the debt in a Sharia-compliant way."
© Times of Oman 2013
