Islamic Finance 2015: Views from , and London

Doha - Amjad Hussain Dubai - Natalie Boyd and Simon Mabin London - Jonathan Lawrence and Jessica Gaddes

24 March 2015

© Copyright 2015 by K&L Gates LLP. All rights reserved. Welcome and introduction to Islamic finance at K&L Gates

klgates.com 1 Doha : Overview of market

• Population: 2.2 million (citizens: 350,000) • Strong GDP Growth: 6.6% (2012 – CIA World Factbook) • World's third largest natural gas reserves • World's richest country per capita, ahead of Luxembourg and Singapore • Hosting FIFA World Cup 2022 • Investing billions in building infrastructure (Lusail City, Qatar Integrated Rail Project, Hamad International Airport, Stadiums, Ras Laffan Industrial City) Qatar: Banking sector overview

• Two regulatory regimes dealing with banking sector: • Qatar – 18 licensed financial institutions • Qatar Financial Centre – 60+ licensed firms • Robust asset growth - 11.6% in 2013 • Third largest banking sector in the GCC • Strong net profit in 2013 and 2014 • Strong investment-grade ratings • 6 Independent Islamic banks Dubai The : Overview of market

• Dubai is aiming to be capital of the global Islamic economy by 2016

• Islamic banking assets in the UAE exceed US$100bn

• Islamic banking expected to increase market share from 25% to 50% by 2020

• Local market comprises a mix of Islamic banks and conventional banks with Islamic windows The United Arab Emirates: Regulatory framework • Securities & Commodities Authority and the UAE Central Bank regulate the onshore market

• The Dubai International Financial Centre (offshore) is regulated by the Dubai Financial Services Authority

• 2012 - UAE Central Bank considers closing Islamic windows

• Federal Law concerning Islamic Banks, Financial Institutions and Investment Companies

• Regulatory framework expected to be consolidated London United Kingdom: Overview of market

• First seen in 1980s but key growth since 2000

• London aiming to be capital of the Islamic finance industry outside of Muslim world

• Islamic banking assets worth approximately USD$19 billion

• London Stock Exchange raised over US$38 billion through 53 sukuk issues

• Market comprises a mix of Islamic banks and conventional banks with Islamic windows

• UK market generally uses sukuk, murabaha and ijara structures United Kingdom: Islamic Banking

• 6 Fully fledged Sharia Banks • Al Rayan Bank (formerly IBB/Islamic Bank of Britain) • Bank of London and The Middle East (BLME) • QIB.UK (formerly European Finance House) • Gatehouse Bank • European Islamic Investment Bank (EIIB) • Abu Dhabi Islamic Bank (representative office)

• Over 20 international banks offering Shariah products or services

HSBC Bank Saudi American Bank (UK) Ltd Qatar National Bank

Habib Bank Arab Bankers Association Arab African International Bank

National Bank of Pakistan Habibsons Bank Ltd Bahrain Middle East Bank

Riyad Bank Arab Banking Corp Dallah Al Baraka United Kingdom: Development of Islamic Banking

Development of Islamic Financial Institutions in the UK - UK Excellence in Islamic Finance by gov.uk/ukti Doha Qatar: Regulatory framework: Qatar Central Bank Regime • Qatar Central Bank: established August 1993 • 18 banks licensed; last license issued in 2009 • 4 Islamic banks • 2011 QCB Circular: • Separation of Islamic and conventional banking • Closure of Islamic finance windows of conventional banks • New QCB Law (No. 13 of 2012): • Supreme financial regulator: control, regulatory responsibility and supervisory power over all financial services providers in Qatar • Governor has leading function for QCB, QFCRA and QFMA • Financial Stability and Risk Control Committee established Qatar: Regulatory framework: Islamic Banks licensed by QCB Qatar Islamic Bank Qatar International Islamic Bank Qatar Islamic Bank founded in 1982. Qatar International Islamic(QIIB) Bank was founded in 1991. Fully fledged Islamic bank with 30 branches, 160 ATM Historically a private banking offering but now installations. Most well established. diversifying.

Paid up capital of QAR 2.36 billion at the end of 2014. It has 16 branches and offices around Qatar and some 75 ATMs across Qatar. Overseas affiliates include: . QIB UK Paid up Capital of QAR 1.5 billion. . AFH in Lebanon, Looking to raise up to QAR 3 billion ($825 million) . AFB in Malaysia, through a capital-boosting sukuk issue. . QIB Sudan.

Recently announced that its shareholders had approved the issuance of sukuk for up to QAR 5 billion ($1.37 billion) to boost its Tier 1 capital.

Upgraded from A to A+ Qatar: Regulatory framework: Islamic Banks licensed by QCB Masraf Al Rayan Barwa Bank Masraf Al Rayan was founded in 2006. Barwa Bank was founded in 2009.

Fully fledged with focus on retail; wholesale and private Fully fledged bank providing retail, corporate and banking. commercial banking, business banking, private banking, real estate finance, structured finance, investments and Paid up capital of QAR 2.1 billion. asset management.

In 2008 established investment banking arm in QFC Paid up capital of QAR 3 billion. (Al Rayan Investment LLC) Privately held. Looking to list on Qatar Stock Al Rayan Brokerage Company was established in Exchange soon. 2011. In 2009 acquired investment bank, The First Investor. Recently announced it will be launching two debut funds, an ETF fund and a sukuk fund. In July 2010 acquired First Finance and First Leasing Company.

Actively involved in global sukuk and corporate finance transactions. Qatar: Regulatory framework: Qatar Financial Centre (QFC) • Has its own rules and regulations – based on English law

• No geographical delineation – all on shore

• QFC license is valid in the State

• More attractive to foreign firms

• QFC Authority is offering incentives to develop Islamic and conventional: • Asset Management • Reinsurance • Captive Insurance Qatar: Regulatory framework: Qatar Financial Centre (QFC) • Separation of Islamic and conventional banks – Category 5

• 2 independent banks licensed

• Qatar Finance and Business Academy: IF Training

• Mega Islamic Bank?

• Islamic Finance bridge between UK and Malaysia? Qatar: Regulatory framework: Islamic Banks in the QFC Qatar First Bank (QFB) QInvest LLC Licensed by the QFCRA in April 2008. Licensed by the QFCA in April 2007.

Fully licensed Islamic bank. Investment banking focus. Main business divisions: Investment Banking, Principal Investments and Asset Management. Paid up capital of QAR 2 billion. Paid up capital of US$ 750 million. Wide shareholder base: financial institutions, prominent individuals, banks, pension funds and other strategic Shareholders include Qatar Islamic Bank. investors from the Gulf region. Offices in Doha, Riyadh and Istanbul, as well as Successful in cross border private equity transactions. affiliates in India and the UK.

Successful in global sukuk and advisory mandates. Qatar: Recent developments and trends

• Foreign Expansion • Diversification • Over-banked market • Better returns • Single borrower limits • Regulatory caps on profit • Likely to lead to further foreign expansion and M&A Qatar: Recent developments and trends

• First Islamic Exchange Traded Fund (ETF) • Masraf Al Rayan: shareholder approval obtained • Largest Islamic ETF in the world

• FIFA World Cup 2022 • $200bn spending • Railway-metro: $60 billion • Highways, roads and a new airport: $28 billion • Port: $11 billion

• Islamic consortia: • The Golden Line: QAR3.65 billion (US$1 billion) syndicate Dubai The United Arab Emirates: Recent experience, deals and trends

• Recent sukuk listings and IPO of Shariah compliant REIT

• US$2.5bn theme park financing

• US$500m Garuda Airlines financing

• Derivatives The United Arab Emirates: Requisites For Shariah Compliant Derivatives

• All financial instruments (including derivatives) must be free of the following: • Riba (usury) • RishwahI (corruption) • Maysir (gambling) • Gharar (unnecessary risk) • Jahl (ignorance) The United Arab Emirates: Common Islamic Hedging Products

• Profit rate swaps (2007)

• Cross Currency Swaps

• Futures/Options

• Islamic repos The United Arab Emirates: Challenges For Growth

• Investor demand pales in comparison with conventional derivatives market/varies significantly between jurisdictions

• Lack of progress of exchange traded market

• Conflicting views/opinions (fatwas) between Shariah scholars

• Limited standardisation of documentation - ISDA/IIFM Tahawwut Master Agreement (2010) London United Kingdom: Regulatory framework

Development of Islamic Financial Institutions in the UK - UK Excellence in Islamic Finance by gov.uk/ukti United Kingdom: Sukuk market

• UK government Sovereign sukuk • Issued in June 2014 • Raised £200 million • Matures 22 July 2019

• UK sukuk Market: an overview • US$38 billion through 53 sukuk issuances • Home to seven Shariah compliant exchange traded funds • UK Export Finance / Emirates airline sukuk United Kingdom: Recent trends and opportunities

• Foreign investment into the UK • The Shard • Chelsea Barracks • Harrods • Olympic Village

• Infrastructure opportunities

• Islamic Insurance United Kingdom: Case studies

• What we are seeing in the UK Islamic Finance Market Conclusion

Growth Islamic Finance is growing

Development Regulation of the Islamic industry is developing

Opportunities Opportunities are on the horizon

Deals Cross border deals are more prevalent

Locations K&L Gates is well placed in key jurisdictions

Industry Exciting time to be involved in the industry

klgates.com 31 K&L Gates Contacts

Amjad Hussain Jonathan Lawrence Doha London

+(0) 974 4424 6119 +44(0) 20 7360 8242

[email protected] [email protected]

Natalie Boyd Jessica Gaddes Dubai London

+(0) 971 4 427 2731 +44(0) 20 7360 8181

[email protected] [email protected]

Simon Mabin Dubai

+(0) 971 4 427 2730

[email protected]

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