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Dubai: Early Signs of Transformation

March 5, 2013

Dubai: Early Signs of Transformation

Following last week’s announcement by HH Sheikh Mohammed bin Rahsed Al Maktoum the emirate’s intention to become a global sukuk hub and the centre of Islamic economy and finance, and around that announcement, Dubai witnessed a number of developments that could be viewed as early signs of transformation into that hub.

SUKUK

As far as sukuk (shariah compliant bonds) are concerned, Dubai’s government kick started the year with sale of a USD750 million Sukuk in January the international markets and listed it on Dubai Financial Market, in a move that sounded more like aiming at supporting the local bourse.

Less than a month later, towards the end of February, government-owned Dubai’s Water and Electricity Authority (DEWA) sold a USD1 billion Sukuk in the international market and chose to list it on Nasdaq Dubai this time.

Few days later, the government’s investment arm Investment Corporation of Dubai – better known as ICD – said it is in talks with banks to launch its first Islamic bond to take “advantage of increased demand for Dubai debt, which has benefited from international investors seeking emerging market assets, but also improved sentiment driven by a recovery in the local economy and state-linked debt restructurings”.

While earlier in February, Dubai Investments renewed its hopes to sell sukuk in the near future and could visit the debt market in April. Dubai Investments is a publicly listed company, which is partly owned by ICD itself.

Just today, Dubai Islamic Bank, a traditional issuer and arranger of Sukuk, said in a statement that it hired banks to arrange for the sale of a Tier 1 Sukuk and that this sukuk could close in March.

Benefiting from renewed trust, and given the huge needs to finance projects and expansion, and refinance debt, we expect sukuk issue to grow exponentially this year in Dubai.

REGULATIONS, STANDARDS and INITIATIVES

Earlier this year, Dubai Financial Market issued a an exposure draft called DFM Standard for Issuing, Acquiring and Trading Sukuk and invited experts to comment before the end of March in a step to regulate and enhance sukuk issuance and trading in the emirate.

Few days after Sheikh Mohammed launched the transformation initiative, senior officials said Dubai plans to set up a central sharia board to oversee all Islamic financial products used in the emirate – a step that would nevertheless regulate the market, encourage investors, boost trust and safeguard and enhance the growth of the sector.

Similarly, a Memorandum of Understanding (MoU) was signed to establish a new asset management firm, specializing in Awqaf (Islamic endowments). Noor Investment Group, and Awqaf and Minors Affairs Foundation (Amaf) signed the MoU to set up Noor Awqaf LLC that will compliment the work of Amaf in offering enabling financial services to Awqaf entities around the world.

When Dubai once said it wants to build the tallest tower in the world, it did. When they said, they want the biggest mall, and biggest park, and biggest man-made island, they did. Will they be able to beat all other Islamic finance hubs and become the Islamic Finance and Sukuk capital? Early signs say they will!

Adnan Halawi

05-03-2013

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Dubai rings sukuk bells

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