After several years of slow progress, Jordan has now put in place a complete framework for Sukuk issuance
On 24 July, under the auspices of the Prime Minister Dr Abdullah Ensour, Jordan officially inaugurated regulations for the issuance of Sukuk. The inauguration ceremony was organized by the Jordan Securities Commission (JSC) and followed its conclusion of the preparation of all legislation and instructions required by the Islamic Finance Sukuk Law No. 30/2012 and legislation governing the issuance process of Sukuk for all economic activities in both the public and private sectors alike. Available structures include Ijara, Mudaraba and Musharaka.
The ceremony followed just over a month after the Jordan Securities Commission held a training programme on Sukuk on 15 June. Attending the training session were underwriters from banks and financial services companies. The programme was part of an ongoing series of workshops organized by the JSC launched in June 2013 which aimed to identify involved parties, in particular banks and financial services companies and their underwriters, familiarising them with the requirements and procedures of Sukuk issuance, trading and redemption.
SUITABLE FOR ALL...'
The Chairman of the Board of Commissioners of the JSC. HE Mohammed Saleh Hourani, said, "Sukuk as an investment instrument has many forms and types of financial contracts. It can finance different projects and it is suitable for all economic activities in the public and private sectors. It mobilizes national savings for small investors, in particular. It is also a monetary instrument that contributes effectively to the management and planning of monetary policies, mainly the management of liquidity whether on the individual level of entities, in particular banks or on the country level as a whole via the Central Bank of Jordan
"Statistics indicate that the volume of new Sukuk issuances (in the world) in the primary market... is expected to reach $100 billion by the end of the year."
HE Hourani said that in Jordan the primary market is expected to witness Sukuk issuances from both the public and private sectors, and he stressed the preparedness of the three capital market institutions (the Jordan Securities Commission, the Amman Stock Exchange and the Securities Depository Center) to receive issuance applications for Sukuk. Jordan's Islamic finance sector includes four banks: Jordan Islamic Bank, Jordan Dubai Islamic Bank, Islamic International Arab Bank and a branch of Saudi institution Al Rajhi Bank.
SOLO SUKUK
At present only one Sukuk has been issued in Jordan, by Al-Rajhi Cement, a Jordanian unit of DIFC-registered Al-Rajhi Cement Holding, which is majority owned by Saudi firm Omar Al-Rajhi For Commercial Development and Investment Holding Co. Al-Rajhi Cement Jordan operates a cement manufacturing plant in Al-Mafraq, Jordan, producing gypsum, limestone, white cement and Pozzolana Portland cement. The firm issued a JOD 85 million ($120 million) Sukuk in 2011 with a tenor of seven years. The issuance was managed by Capital Bank unit Capital Investments and Shari'ah compliance approved by Jordan's General Ifta' Department under the aegis of Mufti (now Shaikh) Abdel Kareem El-Khasawneh.
The Sukuk was subscribed for by a number of Islamic and commercial banks, including Capital Bank, Cairo Amman Bank, Islamic International Arab Bank, Union Bank, Jordan Kuwait Bank, Bank of Jordan, and Arab Islamic Bank. At the time of issuance in April 2011, Capital Investments' CEO Omar Al Wir said, "We hope that this alliance [with Al-Rajhi Cement] will pave the way for future successful Islamic finance transactions in the Kingdom."
He also commended the General Ifta' Department's efforts in facilitating the Shari'ah-compliant structuring of the Sukuk and its contribution to the successful closing of the transaction. He also thanked Al-Tamimi & Company Advocates and Legal Consultants for their role as legal counsel.
"We appreciate Al-Rajhi Cement - Jordan's confidence in Capital Investments, and are proud to have been appointed as the lead manager for this issuance," said Al Wir. "This achievement is a valuable addition to our track record in the Jordanian market, and we trust that our collaboration with Al-Rajhi will continue to support their ambitious expansion and investment plans in Jordan."
PUBLIC SECTOR PROSPECTS
The Central Bank of Jordan (CBJ) is a regular player in the bonds market. Its latest bonds auction, on 24 July for JOD 50 million, was oversubscribed to the tune of JOD 119 million. The five-year bonds were issued on 27 July 2014 with a coupon of 5.438 per cent. A clear signal to local financiers and corporates would be an Islamic issuance by the CBJ, now that the legal framework is in place.
Jordan's total outstanding external public debt (Government and Government guaranteed) increased by JOD 455.6 million to reach JOD 7690.1 million at the end of May 2014, according to figures published on the Ministry of Finance's website, equivalent to 30 per cent of projected 2014 GDP compared to JOD 7234.5 million or 30.3 per cent of GDP at the end of 2013. Net outstanding domestic debt (budgetary and own-budget agencies) increased at the end of May 2014 to reach JOD 12230 million or 47.8 per cent of projected 2014 GDP compared to JOD 11862 million or 49.7 per cent of GDP at the end of 2013, reflecting an increase of JOD 367.4 million.
Net outstanding public debt (domestic and external) increased at the end of May 2014 compared to its level at the end of 2013 by JOD 823.6 million or 4.3 per cent to reach JOD 19920.1 million or 77.8 per cent of projected GDP for 2014, compared to JOD 19096.5 million or 80.1 per cent of GDP for 2013 reflecting a decrease by 2.3 percentage points.
© Islamic Business and Finance 2014