Special Extended free trial for site members.
Japan Gets in on Islamic Finance Race: Shariah-compliant offerings pick up speed despite
Asset Securitization Report--SourceMedia (August 18, 2008)
The Japanese government is adapting its banking regulations to accommodate the rules of Shariah-compliant Islamic finance.
The Japanese private sector has increasingly been showing an interest in Islamic finance. But, so far, activity has been held back because, under Article 12 of the country's banking law, Japanese banks are prohibited from undertaking such structures.
Yasuo Kamai, communications strategist at Moody's Investors Service, said that at the moment, Islamic finance is still a very small portion of and holds little influence on business at Japanese financial institutions.
Last September, Japan's central bank joined the Islamic Financial Services Board, an international standard-setting body, as an observer to deepen its knowledge of Islamic finance.
Japan's Financial Services Agency (FSA) has since submitted an amendment to the banking law to the Japanese parliament, which would allow Japanese banks to offer Islamic finance products through a subsidiary. The government has been working to adapt these amendments to its financial rules to facilitate Islamic financings and is planning to get the changes through by the end of the year.
Nonetheless, while activity may be stalled on the domestic front, Japanese entities have tuned in to international markets to make their Shariah-compliant offerings.
Moody's said that the Japanese government has been looking to tap into the Sukuk market by placing a bond via the Malaysian market. The government planned to issue its first sovereign Islamic Sukuk, valued at between $300 million and $500 million, through Japan Bank for International Cooperation (JBIC) by the end of 1Q08.
However, disputes over the interpretation of the permissibility of the Murabaha Sukuk structure by the Shariah boards of the two advisers to the issuance, Citigroup in the Gulf Cooperation Council (GCC) and the Commerce International Merchant Bankers (CIMB) group in Malaysia, have delayed the issue.
JBIC would be marketing the offering primarily in the GCC countries, U.K. and Europe, Malaysia, Singapore and Hong Kong.
"Our understanding is that JBIC has been considering doing this Sukuk for two years but it has not happened yet," said Farmida Bi, a partner in Norton Rose's Islamic capital markets practice. "A number of legislative changes are needed to allow Japanese issuers to issue Sukuk easily, and these are on the political agenda but have not happened yet."
Other companies have already taken steps to join the Islamic finance bandwagon. According to published reports, Toyota recently announced plans to enter the Islamic bond market via a $306 million structure that would raise funds for its auto leasing and loans business in Malaysia.
Daiwa Asset Management, the second-largest asset management firm in Japan, and the global index provider FTSE Group also launched the FTSE Shariah Japan 100 Index, which includes Japan's top 100 Shariah-compliant companies.
Last November, Kuwait-based Boubyan Bank completed Japan's first property deal using Islamic financing. Market sources said that the bank used special-purpose vehicles to buy and lease back properties. It worked with the asset management company Atlas Partners Japan and Hypo Real Estate Capital Japan.
The Shariah-compliant investment management firm Japan Islamic Finance plans to sell about $1 million of yen-denominated Islamic bonds in a new structure that is based on cash flow generated from marketing Web sites, according to market reports. The deal will likely be privately placed.
(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.