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Kuala Lumpur, 28 February 2008 ¿ Calyon London and Kuwait Finance House (Malaysia) Berhad (KFHMB) have successfully signed a Master Terms of Reference agreement to conclude an Ijarah Rental Swaps-i (IRS-i) transaction. A signing ceremony was held today to mark the first such agreement between a global financial institution and one of the world's leading Islamic banks.
Dato' K Salman Younis, the Managing Director of KFHMB signed on behalf of KFHMB, whilst Mr Collin Willis, Director, Calyon, Global Islamic Bank, Bahrain represented Calyon London. Mr Goh Ching Yin, Executive Director of Strategy & Development, Securities Commission witnessed the signing.
The Ijarah Rental Swap-i enables clients to hedge their market risk exposure through employing a fully Shariah compliant structure. It is designed to tailor to the unique needs of each corporate client, with tenures varying in accordance to the preferences of the client. Ijarah Rental Swaps-i usually incorporates a maturity of up to five or ten years, but KFHMB has transacted deals for even longer tenures.
The conclusion of the Agreement between the two industry giants is indeed a milestone. It not only demonstrates the acceptance of the structure in countries such as Bahrain and London, but it offers corporate clients an alternative that is more viable and price competitive in the market.
In the very new and exciting arena of Islamic hedging structures, financial institutions are now able to create optimal liquidity, and enhance market depth, in order to meet the demands of clients.
Prior to the development of the Ijarah Rental Swap-i, the market had minimal transactions at an international level.
"At Kuwait Finance House, we are excited and honoured to have successfully partnered with an internationally recognised and highly-rated global financial institution such as Calyon," said Dato' Salman. "The agreement executed today not only strengthens the mandate of Kuwait Finance House in promoting Shariah-based products, but also attests to the fact that our business models are being being widely accepted and hence acknowledged, in both the domestic and international markets."
"An innovation of the KFHMB Treasury Division, the KFH Ijarah Rental Swap-i is a risk management tool which marries the demands of Islamic Capital Market users, who intend to actively manage cash flows arising from either assets or liabilities, with the strict Shariah standards governing Islamic Finance activities," Dato' Salman added.
"The KFH Ijarah Rental Swap-i will enable our customers to effectively hedge against the risks market rate exposure. Companies can convert either their fixed or floating rate cash flow commitments into more manageable rate exposure suitable with their risk appetite, which will help mitigate the occurrence of any negative impact to volatility and uncertainty in the movement of market rates."
The KFH Ijarah Rental Swap-i structure combines various Shariah contracts which allow KFHMB and its customers to pay each other a series of agreed fixed rental payments and vice versa over a stipulated period of time. Both parties may also agree on the dates and the manner in which the exchange of cash flows will take place. Depending on the requirements of the customer, suitable Shariah concepts are employed allowing the netting-off of the cash flows on the settlement date.
More importantly, the KFH Ijarah Rental Swap-i is not a financing tool. Any underlying Ijarah facility will continue to be governed by the terms and conditions set out in the facility agreement, even though customers are allowed to exchange or modify their Ijarah rental obligations. The Ijarah Rental Swap-i can therefore be used in conjunction with any variable or fixed Ijarah-based facility, such as the Ijarah contract financing, Ijarah project financing, Ijarah auto financing, Ijarah asset acquisition financing, or even Ijarah-based Sukuk.
The signing ceremony was held in conjunction with the Regional Capital Market Conference 2008 hosted by The Malaysian Investment Banking Association (MIBA). With a focus on attracting investors from Asia and the Middle East, the conference offers an effective platform to link these investors to many interesting projects and investment products in Malaysia and the region. KFHMB and Calyon were signing ceremony sponsors during the conference.
Dato' K Salman Younis, the Managing Director of KFHMB signed on behalf of KFHMB, whilst Mr Collin Willis, Director, Calyon, Global Islamic Bank, Bahrain represented Calyon London. Mr Goh Ching Yin, Executive Director of Strategy & Development, Securities Commission witnessed the signing.
The Ijarah Rental Swap-i enables clients to hedge their market risk exposure through employing a fully Shariah compliant structure. It is designed to tailor to the unique needs of each corporate client, with tenures varying in accordance to the preferences of the client. Ijarah Rental Swaps-i usually incorporates a maturity of up to five or ten years, but KFHMB has transacted deals for even longer tenures.
The conclusion of the Agreement between the two industry giants is indeed a milestone. It not only demonstrates the acceptance of the structure in countries such as Bahrain and London, but it offers corporate clients an alternative that is more viable and price competitive in the market.
In the very new and exciting arena of Islamic hedging structures, financial institutions are now able to create optimal liquidity, and enhance market depth, in order to meet the demands of clients.
Prior to the development of the Ijarah Rental Swap-i, the market had minimal transactions at an international level.
"At Kuwait Finance House, we are excited and honoured to have successfully partnered with an internationally recognised and highly-rated global financial institution such as Calyon," said Dato' Salman. "The agreement executed today not only strengthens the mandate of Kuwait Finance House in promoting Shariah-based products, but also attests to the fact that our business models are being being widely accepted and hence acknowledged, in both the domestic and international markets."
"An innovation of the KFHMB Treasury Division, the KFH Ijarah Rental Swap-i is a risk management tool which marries the demands of Islamic Capital Market users, who intend to actively manage cash flows arising from either assets or liabilities, with the strict Shariah standards governing Islamic Finance activities," Dato' Salman added.
"The KFH Ijarah Rental Swap-i will enable our customers to effectively hedge against the risks market rate exposure. Companies can convert either their fixed or floating rate cash flow commitments into more manageable rate exposure suitable with their risk appetite, which will help mitigate the occurrence of any negative impact to volatility and uncertainty in the movement of market rates."
The KFH Ijarah Rental Swap-i structure combines various Shariah contracts which allow KFHMB and its customers to pay each other a series of agreed fixed rental payments and vice versa over a stipulated period of time. Both parties may also agree on the dates and the manner in which the exchange of cash flows will take place. Depending on the requirements of the customer, suitable Shariah concepts are employed allowing the netting-off of the cash flows on the settlement date.
More importantly, the KFH Ijarah Rental Swap-i is not a financing tool. Any underlying Ijarah facility will continue to be governed by the terms and conditions set out in the facility agreement, even though customers are allowed to exchange or modify their Ijarah rental obligations. The Ijarah Rental Swap-i can therefore be used in conjunction with any variable or fixed Ijarah-based facility, such as the Ijarah contract financing, Ijarah project financing, Ijarah auto financing, Ijarah asset acquisition financing, or even Ijarah-based Sukuk.
The signing ceremony was held in conjunction with the Regional Capital Market Conference 2008 hosted by The Malaysian Investment Banking Association (MIBA). With a focus on attracting investors from Asia and the Middle East, the conference offers an effective platform to link these investors to many interesting projects and investment products in Malaysia and the region. KFHMB and Calyon were signing ceremony sponsors during the conference.
