Al Baraka eyes $300 mln sukuk, further expansion

Sees $300 mln sukuk by Sept, no plans for sukuk programme; CEO says reviewing Oman Islamic banking prospects; Nomura Bank mandated as advisor for Islamic megabank
 
Bahrain's Al Baraka Bank expects to sell $300 million worth of Islamic bonds by September as it looks to secure long-term financing to fund its expansion plans, its chief executive said on Wednesday.

Previous plans to issue Islamic bonds, or sukuk, were thwarted by the onset of the financial crisis and, more recently, the regional unrest, said Adnan Ahmed Yousif in an interview with Reuters.

The Islamic lender had previously announced plans for a $500 million sukuk programme but had shelved that, he said.

"It is good with capital and deposits to also have long-term financing that can be used for ongoing expansion and ongoing investments," he said.

Yousif said strength from its current investments and growth in its international operations would lift Al Baraka's profits in 2011.

Al Baraka posted first-quarter net profit of $53.5 million, an 11 percent increase from the same period a year ago. Yousif expects similar growth in the second-quarter.

He added that the company plans to increase branches to 500 by 2015 from 400 and continues to look at new markets to enter. 
 
EYEING OMAN

Yousif said Al Baraka was reviewing proposals to provide assistance in setting up the first standalone Islamic bank in Oman, Bank Nizwa, through providing Islamic products or information technology (IT) services but would not consider a minority stake in the bank.

"Omani law does not allow foreigners to own a majority stake which gives flexibility to control their activities," he said. "If a new law was created to allow for that, then Al Baraka would consider that seriously."

Oman decided earlier this month to permit Islamic banking. Oman was the only Gulf Arab state that until now had not set up a bank specifically offering products and services complying with Islamic law. Its central bank head said in 2007 that Oman believed that "banks should be universal".

Yousif said Oman's entry into Islamic finance was a positive development for the industry as was the creation of an Islamic megabank to serve as a lender of last resort for the market.

The lack of a lender of last resort is seen as one of the nearly $1 trillion industry's greatest weaknesses, as few central banks issue liquidity instruments compliant with Islamic law, forcing Islamic banks to place their liquidity with large conventional banks.

Yousif said the creation of the megabank, seen as having an authorized capital of $3 billion, was now in the hands of the Islamic Development Bank (IDB).

"IDB is going ahead with it and have awarded the mandate to Nomura Bank to serve as the financial advisor for this," he said, adding that the megabank had received written approval from Bahrain to start operations and verbal approval from Qatar.

He said that while Malaysia was in consideration, the megabank would not be set up in the Asian country. 
 
MORE SUKUK TO COME

He said the company also expected to launch sukuk from its Turkish and Egyptian subsidiaries.

"The central bank of Egypt has already approved to issue a sukuk. Now it's just a matter of structuring it," he said. "It's a small amount of $150 million. Before the end of the year we are going to go ahead in Egypt."

Albaraka Turk Participation Bank, the largest unit of Al Baraka and the first bank in Turkey to operate on Islamic principles, will also launch a $250 million sukuk before the end of the summer, Yousif said.

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