Gulf investors are launching a new $10 billion Islamic investment bank and plan a $3 billion initial public offering in the fourth quarter to tap interest in sharia-compliant institutions, bank executives said on Sunday.
Adnan Ahmed Yousif, chairman of the Union of Arab Banks and chief executive of Al Baraka Banking Group
By the end of the year, you will have a private placement and an IPO, Yousif said.
The IPO will be about $3 billion and will be listed in Bahrain and Dubai, he said, adding it would be listed NASDAQ Dubai and would take place in the fourth quarter.
Demand from the world's 1.3 billion Muslims for investments compliant with their beliefs has soared, and assets that comply with Islamic law are estimated at $700 million-$1 trillion.
Islam bans interest, investing in prohibited sectors such as gambling, pornography and alcohol and stipulates that risk and reward be shared among all those in the business venture.
The bank, which is being promoted by Al Baraka's chairman Sheikh Saleh Abdulla Kamel, had already raised $3.5 billion from private and semi-governmental Gulf investors, said Yousif.
The bank has raised $3.5 billion including $1 billion from the management. We are hopeful it will be ready by the fourth quarter, Sheikh Saleh confirmed to Reuters.
Sheikh Saleh said the new institution so far had about 10 shareholders including the Islamic Development Bank
The bank had originally planned to launch in the first quarter, but the global financial crisis had meant most investors were rethinking their positions, Sheikh Saleh said.
The bank is being set up to invest and develop our area and to create financial paper, Sheikh Saleh said, adding that the bank would be called either Al-Istikhlaf or Al-Emaar he added.
The Islamic finance industry in the Gulf Arab region is fragmented after new banks mushroomed during the six-year long oil boom in the region.
Bigger Islamic banks are seen crucial for the industry to realize its growth potential and to compete with Islamic windows or subsidiaries of Western conventional banks that have large market shares in wholesale banking services.
Look at what's happened globally, most countries have injected more capital into their big institutions ... big institutions can cope with big expansions, small institutions cannot cope with expansion, said Yousif.
The IPO would be one of the largest this year in the Gulf Arab region, in which investors have been holding onto their funds for months in wake of the financial crisis.
There are some small IPOs in the market now, and by Q3 and Q4 we might see more appetite, but $3 billion will still be quite a challenging amount, said Jitesh Gopi, head of research at Bahrain-based Sico investment bank.
Bahrain offers the advantage of a strong regulatory environment, but the focus of the IPO will be wider, spread across the region. A significant part of interest will come from Saudi Arabia, he said.
Gopi said the planned cross-listing on NASDAQ Dubai would help the IPO attract international investors.
There is an increasing appetite for Islamic banking because it has been relatively immune to the crisis, he said.
Islamic banks did not invest in structured products that turned out toxic for conventional peers, triggering the crisis.
Ernst & Young is advising on the new bank, which will be an investment wholesale bank not engaged in retail banking, Yousif said.
(Additional reporting by Frederik Richter in Bahrain; Editing by David Cowell)
($1=3.640 Qatar riyals)