Kazakhstan will revive plans this year for a $500 million debut sukuk issue that could create a benchmark for corporate lenders aiming to develop an Islamic finance sector in Central Asia's top economy.
Kazakhstan also plans to attract up to $10 billion in Islamic finance over the next five to seven years, Arken Arystanov, chairman of the state-run agency that regulates the Regional Financial Centre of Almaty (RFCA), said.
Oil-rich Kazakhstan, where 70 percent of the 16.4 million population are Muslim, is being touted as a potential new market for Islamic finance. Its economy has grown on average by 8 percent a year in the last decade to reach almost $150 billion.
Abu Dhabi-based Al Hilal Bank opened the first Islamic bank in Kazakhstan last year, with plans to invest as much as $1 billion over the next two years. Malaysian trustee firm Amanah Raya Bhd is expected to open the second Islamic bank this year.
Berik Sholpankulov, deputy finance minister, told reporters that Kazakhstan was drafting new regulations that would permit his ministry to issue sovereign sukuk before the end of 2011.
"The issue will be a benchmark for the corporate sector," he said on the sidelines of an Islamic finance conference.
The modern, $1 trillion global Islamic finance sector began three decades ago, but its major principles such as a prohibition on paying interest -- would have been familiar to Muslim traders on the medieval Silk Road through Central Asia.
Aset Isekeshev, deputy prime minister and industry minister, told the conference that Islamic finance would play a major role in funding Kazakhstan's drive to develop its industrial base.
"I hope Islamic finance will become one of the main sources of finance for our industrial programme," he said. Isekeshev led a delegation to the United Arab Emirates in January to drum up investments in sectors nsuch as petrochemicals and agriculture.
Kazakhstan first mooted the idea of issuing sovereign sukuk during the global financial crisis, especially as Western credit dried up. New money from the Middle East and Asia ensured that 2008 and 2009 were record years for foreign direct investment.
"The lesson learned from the crisis is that Kazakhstan cannot rely on one source of funding: Western investors. This is a move in that direction," said Milena Ivanova-Venturini, head of research for Central Asia at Renaissance Capital.
Authorities are working on legislative changes to widen the list of possible issuers, which is currently restricted to Islamic banks and state agricultural company Kazagro, as well as sovereign wealth fund Samruk- Kazyna and its subsidiaries.
There is still a question mark over who might set the benchmark for sukuk issuance in Kazakhstan, as private issuers, impatient after the postponement of the previous plan to issue sovereign debt, might push to tap the market first.
"Our wish would be for the pilot project, the benchmark, to be determined by the corporate sector," said Yerlan Baidaulet, chief economic adviser to the industry ministry.
When asked about the precise timing of the sovereign issue, Sholpankulov said: "Everything depends on the market. Everything depends on the law."
Article from Global Islamic Finance Magazine
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