Masraf Al Rayan seeks UK foothold with bank buy |
Gulf Times - 14 June, 2012
Masraf Al Rayan's plan to take over a loss-making bank in the UK will provide Qatar’s biggest publicly traded Islamic lender a foothold in Europe’s largest market for Shariah-compliant financial products and services.
Masraf Al Rayan, which also offers Islamic banking in Oman and Saudi Arabia through affiliates, plans to acquire 70% of Birmingham-based Islamic Bank of Britain, while the Qatari government will buy the remaining 30%, the bank said on June 4. Qatar International Islamic Bank (QIIB), which owns 84% of the bank known as IBB, plans to buy shares it doesn’t own before selling the entire stake, the British lender said June 6.
Qatar and its companies are acquiring overseas assets as the world’s largest exporter of liquefied natural gas seeks to diversify revenues and tap asset growth in the $ 1tn Islamic finance industry, which the Islamic Financial Services Board predicts will expand to $ 2.8tn by 2015. The Qatar Investment Authority, a sovereign wealth fund with more than $ 100bn of assets, may spend $ 30bn in 2012, Hussain Ali al-Abdulla, a board member and Masraf chairman, said on April 22.
“For Masraf Al Rayan, which is a well-capitalised bank that hasn’t gone outside its domestic remit, IBB would give a new strategic direction,” Raj Madha, an independent regional banking analyst, said by telephone from Cambridge, UK yesterday. “Masraf is also in a better position to inject capital into IBB and take it in a new direction.”
A spokesman for Masraf who declined to be identified because of company policy didn’t return an e-mail or phone calls seeking comment, while a spokesman for QIIB declined to comment.
IBB has lost money every year since its establishment in 2004. The bank’s loss narrowed to £8.1mn ($ 12.6mn) in 2010 from £9.49mn the previous year, according to the latest data compiled by Bloomberg. Masraf Al Rayan posted an 8% increase in first-quarter profit to 353mn riyals ($ 97mn), the bank said in April.
“Masraf’s looking at it as long-term investment with hope of generating profits in the future,” Samer Mardini, vice president of fixed-income and Islamic finance products at Dubai- based SJS Markets Ltd, said by e-mail. “Qatar’s government wants to buy IBB as part of its expansion plan.”
Masraf Al Rayan’s entry into the UK market will mark the Doha-based bank’s first venture outside the six-nation Gulf Cooperation Council. The QIA has investments in the UK including Harrods Department Store Co, supermarket owner J Sainsbury and Barclays Bank. The UK is home to about 1.8mn Muslims, the UK Financial Services Authority said.
Masraf will be among lenders including HSBC Holdings, Lloyds Banking Group and Bank of London and The Middle East competing for a share of the UK’s $ 19bn of Islamic assets, according to TheCityUK, which promotes the nation’s financial industry overseas. That compares with 434.6bn ringgit ($ 136bn) in Malaysia.
QIIB, Qatar’s smallest publicly traded Shariah-compliant lender, acquired an 81% stake in Islamic Bank of Britain in August 2010 for £20mn after the UK bank placed ordinary shares at a discounted price of 1 pence each.
The lender “is an older, longer-established, smaller franchise and probably a bit more on the conservative side,” Khalid Howladar, a Dubai-based senior credit officer at Moody’s Investors Service, said by phone. “Where the synergies are with Islamic Bank of Britain don’t really stand out. They are a small domestic bank and the fit isn’t obvious. Masraf is much newer with more aggressive growth plans.”
IBB, the UK’s first Shariah-compliant bank, provides mortgages, loans and retail services through five branches, according to its website. QIIB plans to make any offer for the shares “solely” in cash, the British bank said on June 8.
Still, growth in Islamic financing in the UK has been hampered by an economic slump and the nation last year cancelled what would have been the first sale of Islamic bonds by a Western federal government. The Treasury had been mulling the sale of Islamic bonds denominated in pounds since at least April 2007.
Qatari banks are benefiting from rising government investment in infrastructure before the country hosts the 2022 soccer World Cup. Qatar, the world’s richest country based on per-capita income, is building new stadiums, roads, an airport and seaport, as well as a $ 35bn rail and metro system. The government may invest about $ 100bn in the “medium-term” on projects, according to International Monetary Fund estimates.
“There’s growth in Qatar until 2022 because of the number of projects,” Madha said. “It’s also true that Qatar’s banking sector is strongly linked to government spending, even the retail sector, which is dependent on government salaries. This isn’t the case in the UK. Masraf’s investment in IBB gives the Qatari bank growth diversification.”
European countries have sought to tap this growing market by drafting regulations to attract money from Muslim investors. Countries including France, Luxembourg and Ireland are considering sales of Islamic bonds. The UK government introduced tax concessions for sukuk in its annual budget in 2007 and authorities extended tax breaks to Islamic mortgages in 2003.
Worldwide sales of debt that complies with the Shariah principles have reached $ 16.6bn in 2012 compared with $ 8.4bn in the year earlier, data compiled by Bloomberg show.