The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has proposed more detailed accounting standards for real estate while increasing disclosure for Islamic banks' investment accounts. The move by the Bahrain-based AAOIFI, one of the main standard-setting bodies in Islamic finance, suggests it is responding to the same kind of pressure to tighten standards that has been seen in the conventional finance industry since the global financial crisis erupted in 2008. Both proposals were discussed at a public hearing for industry participants in Manama and there will be another hearing in Doha on April 12. They could become effective as early as July this year and would be applied retroactively. The new real estate standards focus on valuation methodology, clarifying the differences between mark-to-market values and book values, and specifying how to treat buildings that are still under construction. Disclosure requirements are increased.
"Complex accounting issues have evolved in line with the expansion of the real estate sector," AAOIFI said, making the current standards look "very basic". Islamic investment houses across the Gulf have been under increased investor scrutiny over their exposure to the real estate sector and their approach to valuing those assets.
Bahraini investment house Arcapita, a major real estate investor, filed for U.S. bankruptcy protection last month ahead of the maturing of a $1.1 billion Islamic facility. AAOIFI standards are applied in Bahrain and used as guidelines in many other national jurisidictions.
ACCOUNTING ARBITRAGE AAOIFI also proposed merging two of its existing standards for Islamic banks' investment accounts, saying it wanted to eliminate "accounting arbitrage". The investment accounts are the equivalent of deposit accounts at conventional banks, and are a major source of funds for Islamic banks. Current requirements for banks to disclose risks surrounding the accounts are insufficient, considering the risk that investors are taking, AAOIFI said.
HONG KONG, Sept 28 (Basis Point) - Hong Kong loan volume fell 41% this third quarter from last quarter as large corporates shunned the loan market, opting instead for bonds and bilateral loans. Volume for the first nine months totalled US$32.4bn, compared to US$43.4bn for the same period last year. If not for a busy second quarter when a few large refinancings and acquisition deals boosted volume, this year would mirror the quiet market seen in 2008 and 2009 during the global financial crisis. Volume plunged in the third quarter to US$10.5bn from 2Q12's US$17.7bn. Going forward, bankers expect the rest of the year to be subdued as many companies have already refinanced maturing loans via bonds or bilateral deals. However, despite the muted demand for corporate loans, the main staple of the Hong Kong market, the city is witnessing one of its most exciting years for acquisition and leveraged buyout activity.
In the pipeline, there is an up to US$1.7bn three-part LBO financing backing the privatisation of Nasdaq-listed Chinese display-advertising company Focus Media, and a US$6-8bn facility for AIA Group's bid for Asian insurance assets from ING. Hong Kong has already seen several large bridge loans this year, including the US$2bn bridge for Alibaba's privatisation plan and a US$2bn facility for Hong Kong Exchanges and Clearing's acquisition of the London Metal Exchange.
Meanwhile, Hong Kong-listed Chinese firms and some top-tier Hong Kong names have been going to Taiwan to raise funds, contributing to loss of dealflow in the Hong Kong market. Cathay Pacific Airways, for example, got an upsized US$260m five-year bullet loan from Taiwan in May, while China Resources (Holdings) sealed a US$200m three-year deal in September that targeted only Taiwanese lenders. Besides this impact from Taiwan, some market players said a couple of Chinese banks, to secure assets on their new loan books, were offering borrowers attractive terms on bilateral loans.
So, with the loss of dealflow to bonds, bilaterals and Taiwan, the rest of the year could be quiet for the Hong Kong loan market. A bright spot, however, has been the increasing number of offshore Rmb or Dim Sum loans, with more than 10 so far in 2012 and all of them well received. Pedro Cheung, Bank of China Hong Kong's deputy general manager and head of corporate finance, said this new product was still in its early phase of development and there were many unpredictable factors which could affect it, such as changes in policy."We of course hope this type of loan will become more popular," Cheung said, "but deals that have surfaced so far were successful for individual reasons and this product has not become a mainstream phenomenon yet."