Al Busaidy Mansoor Jamal & Co.

Barristers and Legal Consultants

Islamic Banking and Finance

Oman’s new sukuk regulation to spur issuances

Filed under Capital Markets, Islamic Banking and Finance, Sukuk

Oman Islamic finance - sukuk regulation

A detailed regulation governing the issue and management of sukuk transactions came into force on April 11, 2016. Issued by the Capital Market Authority (CMA), the body authorised to regulate sukuk by an earlier amendment to the Capital Market Law (Royal Decree 59/2014), this is the latest development in Oman’s evolving Islamic regulatory landscape. Investor protections and procedural clarity introduced by the new rules are forecast to spur sukuk issuances particularly among private sector corporates seeking to diversify their financing bases and risk.

The new regulation codifies the trust structure to be adopted for an issuance and the powers and duties of the trustee to manage and invest the trust property and allows the issuance of a sukuk programme. It details the procedure for applying to the CMA for the issuance approval and grant of a licence to establish a special purpose vehicle in the form of a limited liability company or any other dedicated legal entity. The choice of shariah supervisory board (SSB) tasked to ensure that the issuance is shariah-compliant, is left to the issuer. Sukuks may be denominated in omani rials or a foreign currency. There is no restriction on the amount of the sukuk based on the beneficiary’s capital. The CMA has the option to require the issue to be credit rated.

The new regulation will provide a much-needed liquidity management tool and investment avenue base for both conventional and shariah-compliant investors. As a late entrant to the Islamic finance segment, Oman has benefited from the experience and best practice in other jurisdictions and this latest legislative move is no exception. The detailed and transparent nature of the regulation is expected to provide additional comfort to investors and give Oman an edge over regional sukuk markets which lack dedicated sukuk regulations and which, instead, issue sukuk by reference to conventional bond regulatory frameworks with shariah-compliant add-ons. According to Kemal Rizadi Arbi, an adviser at the CMA, “We are confident that this new regulation will have a positive impact on Oman’s capital market and the economy”.

Since this landmark development, approval has been granted for a major corporate to issue a US$150 million sukuk by way of private placement and interest among Oman companies to tap into capital market financing is rapidly rising. For more information on sukuk and other Islamic finance instruments, contact Mansoor Jamal Malik or Asad Qayyum.

AMJ partners the Islamic Finance News

Filed under AMJ News, Banking and Finance, Capital Markets, Islamic Banking and Finance

IFN Oman Dialogue and Seminar

AMJ partnered the Islamic Finance News, a leading online industry journal, in organising the inaugural IFN Oman Seminar and Dialogue 2016 in Muscat earlier this year. The event brought together around 170 industry leaders, banks, investors, issuers, legal experts and other key stakeholders in the Islamic finance industry in Oman and the UAE to discuss the future of Islamic Finance in Oman and its role in diversifying the economy of the country.

Strongly supported by the regulators, the seminar opened with a keynote address from Hamoud Sangour Al Zadjali, the executive president of the Central Bank of Oman (CBO), in which he highlighted the successes of Oman’s Islamic financial institutions in achieving, within a short span of three years, OMR2.25 billion (USD582.25 billion) in gross assets and a market share of 7.75 per cent as of December 2015. Overall, Islamic banks and window operations are expected to ramp up market share to 10 per cent of the banking industry by 2018.

Featuring a series of panel discussions, case studies and presentations, the event highlighted the opportunities available in the fast-growing Omani Islamic market for both capital-raising and investment. AMJ’s managing partner, Mansoor Jamal Malik took part in a panel discussion on recent developments shaping Oman’s Islamic Capital Markets in which he summarised the current regulatory and legal framework for structuring Shariah-compliant transactions. Senior associate, Asad Qayyum, participated in a closed afternoon session of experts to discuss a roadmap for the further expansion and development of industry in Oman.

AMJ has also entered into an exclusive media partnership with the IFN’s Islamic Finance Corporate, a new monthly e-newsletter dedicated to promoting Oman’s Islamic Finance.

For more information, contact Bernadette Bhacker-Millard

Oman’s long-awaited Takaful law enacted

Filed under Capital Markets, Islamic Banking and Finance, Takaful

Oman takaful insurance law

Oman’s Takaful Insurance Law,approved by Oman’s State Council (upper house) in February 2015, finally came into force on March 6, 2016 (Royal Decree 11/2016). The law is based on the AAOIFI guidelines and provides a robust and comprehensive framework covering all aspects of the shariah-compliant insurance sector. According to Oman’s insurance regulator, the Capital Market Authority (CMA), takaful insurance premiums in Oman totalled OMR39 million (US$101 million), representing a market share of 8.7% of the insurance sector as a whole in 2015.

The new law regulates all aspects of a takaful operator’s activities including oversight and reporting requirements, product standards and liquidity levels. It requires takaful insurers to be publicly listed on the Muscat Securities Market (MSM) with a minimum capital of OMR10 million. This aligns with regulations introduced in August 2014 doubling minimum capital requirements for conventional insurers from OMR5m to OMR 10m and requiring all insurers to list on the MSM by 2017.

Under the law the conduct of takaful insurance business is restricted to dedicated takaful companies. This prevents conventional underwriters from setting up Islamic insurance windows (in contrast with the Islamic banking sector where the regulations allow non-Islamic banks to own and operate Islamic ‘windows’). These combined capital-centred and market regulatory provisions aim to create a level playing field for Oman’s fledgling takaful industry which, like in other GCC markets, faces the challenge of an established and fiercely-competitive conventional insurance industry.

The CMA has extensive powers including to licence, control and oversee takaful operators. Takaful operator licences will be granted for renewable periods of five-years provided the regulator deems the issue of a licence in the economic interests of the country. The CMA may suspend issuance of new licences at any time if it is of the opinion that the market is saturated and may, at any tim, withdraw a licence for breach of a condition. The CMA also has powers to intervene in the management of a takaful insurer in certain circumstances, by conducting administrative investigations, requiring the company actuary or another actuary to report on the financial standing of the company, appointing an non-voting auditor to the board or dissolving the board and appointing a committee to run the company until a new board is constituted.

The law imposes obligations on the takaful operators to constitute a Shariah committee with a minimum of three members including Fiqh specialists in financial transactions and a takaful expert. Other provisions govern the maintenance of solvency margins, fund set-up and management and the transfer of takaful business from one company to another.

This latest regulatory development in the sector is expected to raise awareness and fuel consumer appetite for takaful insurance as well as other faith-based products and services. Industry analysts predict significant growth potential for takaful insurance in Oman due to the low current rate of insurance penetration (1.1%). The global takaful market led by Saudi Arabia and GCC (63%) and Malaysia and Indonesia (30%) has maintained double-digit growth since 2011 and is forecast to be worth $20bn by 2017.

Even prior to its enactment, investor response to two takaful insurer IPOs at the end of 2013 indicate a strong appetite for Shariah compliant insurance products. AMJ advised on these successful deals, one a conversion of Al Madina Insurance into Al Madina Takaful, and the other, Takaful Oman, a new company backed by investors including Kuwait’s T’azur Takaful. Both of these ‘first of a kind’ IPOs were heavily subscribed.

AMJ wins global Islamic finance award

Filed under AMJ Awards, AMJ News, Banking and Finance, Capital Markets, Islamic Banking and Finance

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AMJ has won an international award for its advisory role on Oman’s OMR250million inaugural sovereign sukuk issuance.

The firm received the prestigious global Sovereign Deal of the Year 2015 award from the industry leading Islamic Finance News (IFN) at its annual Deals of the Year Awards ceremony in Dubai on February 28.

The Awards recognise those who have participated in the industry’s most groundbreaking transactions each year. The sovereign issuance also won an honourable mention in the top global ijarah and sukuk categories.

Commenting on the award, managing partner, Mansoor Jamal Malik said, “We are delighted that Oman’s first-ever sovereign sukuk issuance has been recognised as the standout sovereign deal of the year in the global Islamic finance space. We are pleased to have contributed to a successful debut offering which is expected not only to boost Oman’s emergent Islamic finance industry but also to strengthen the capital markets and to support the government’s economic diversification drive.”

Although the last of GCC states to embrace Islamic finance, Oman has over the last three years built a strong Shariah compliant banking and finance industry. Today the sector comprises two fully-fledged Islamic banks and six Shariah compliant banking windows, as well as two takaful operators and a several Shariah compliant investment funds. Islamic banking assets accounted for 7.4% of the total banking sector at the end of 2015 and are forecast to reach 10-12% within the next two years.

Malik led AMJ’s team which included corporate and capital markets partner, Ardeshir Patel, and senior associate, Asad Qayyum.

For more information, contact Bernadette Bhacker-Millard

AMJ advises on Oman’s debut sovereign sukuk

Filed under AMJ Deals, Capital Markets, Sukuk

Oman's sovereign sukuk

AMJ acted as Oman Counsel to Bank Muscat as issue manager and joint lead manager with Standard Chartered Bank on the first-ever sukuk offering by the Omani Government. The OMR200 million (US$517.17 million), 5-year benchmark sovereign sukuk issuance was oversubscribed close to 1.7 times, attracting 22 orders totalling OMR336 million (US$869.75 million) from a wide base of both conventional and Islamic institutions during the subscription period, which ran from Oct. 8 to 22.

The Ministry of Finance expanded the program by 25% to OMR250 million (US$647.13 million) at a yearly 3.5% cut-off yield to accommodate the strong order book. Results of the sale and allocations are awaited.

AMJ’s role included advising Bank Muscat and Standard Chartered on the listing, regulatory and settlement mechanics of the sukuk issue under Omani law as well as on Omani law aspects of the transaction structuring and documentation. Since this was a debut sovereign issue and as the draft sukuk regulations circulated by the Capital Market Authority are not yet in final form the transaction raised a number of novel issues, both substantive and procedural. The issuance also set the record for being the first debt capital market instrument – Islamic and conventional – to be priced through a book-building process with a uniform price auction.

Commenting on the deal, AMJ managing partner, Mansoor Malik, said: “We are pleased to have been involved on this ground-breaking, sukuk issuance which involved a number ‘firsts’ and a steep learning curve for all stakeholders. As such, it establishes a useful benchmark and precedent which we expect to spur future issuances, both by government and private sector.”

The issuance which is rated A1 by Moody’s Investors Service, in line with the Sultanate’s long-term issue rating, is seen as a key development for Oman’s capital markets, broadening Shari’a compliant investment avenues for private and public players, allowing them to diversify their financing base and spread risk.

Mansoor Malik led AMJ’s team which included corporate and capital markets partner, Ardeshir Patel, and senior Islamic Finance associate Asad Qayyum. Allen and Overy acted as international Counsel on the transaction.