Russia: Tatarstan set for debut sukuk


Following the visit of President Rustam Minnikhanov of the Russian republic of Tatarstan to Malaysia in December and the signing of a memorandum of understanding (MoU) in Kuala Lumpur between the Tatarstan government, the local IFC Linova, Malaysia’s Amanah Raya Berhad Group and Kuwait Finance House Malaysia (KFH Malaysia) whereby the parties would cooperate in facilitating the issuance of the debut sovereign sukuk of Tatarstan, work on the feasibility study on the sukuk origination is set to start this month.

The study, which will be conducted by Amanah Raya Investment Bank, a subsidiary of Amanah Raya Berhad Group (the Malaysian government owned trust administration and inheritance legacy company), KFH Malaysia and IFC Linova will consider a range of issues including potential asset pools to be securitized in Tatarstan; the type of sukuk structure to be used; the possibility of a sukuk program as opposed to a single transaction; tax neutrality and enabling legislation on trusts and special purpose vehicles etc.

President Minnikhanov’s delegation included Iskander Muflikhanov, the economic adviser to the president; Ivan Yegorov, director general of Holding Company Ak Bars; Linar Yakupov, director general of IFC Linova; Yevgeny Tikhturov, head of the Tatneft Financial Board; and Yevgeny Pronin, deputy director general of Kamaz, the truck and transport manufacturing giant of Russia.

The MoU and the possibility of a Tatarstan sukuk origination in 2011 are just some of the developments on Islamic finance to emerge out of Russia. Indeed, Tatarstan is the most proactive Russian republic in this context which is manifested through its close relationship with the Islamic Development Bank (IDB) Group.

The IDB last year, for instance, established a joint venture Tatarstan Islamic Investment Company with the government in Kazan. Normally, it would be the IDB’s private sector funding arm, the Islamic Corporation for the Development of the Private Sector (ICD), that would be the equity investor. In this case it is the IDB itself.

“We are not allowed under our articles of memorandum to investment in the equity of companies in non-IDB member countries. So we are managing the investment on behalf of the IDB. In Tatarstan all the set up was done by ICD. When it came to the commitment stage, the IDB stepped in, because it has this mandate to promote Islamic finance globally and to help Muslim communities anywhere,” explained Khaled Al-Aboodi, CEO of ICD.

Al-Aboodi is very optimistic about the fit between Islamic finance and republics such as Tatarstan, albeit this is dependent on a number of factors including the willingness of state and national governments and regulators to embrace and facilitate the introduction of Islamic finance in their jurisdictions through enabling legislation, tax neutrality measures for such products and through regulatory and legal frameworks.

Russian businessmen and corporates see huge potential for the involvement of Islamic finance and investment in the Halal business space, which is nascent in Russia and the CIS region, despite its huge combined Muslim population of over 150 million. Halal business includes establishment of Islamic financial institutions such as banks, asset management companies, small ticket leasing companies; Halal food manufacturing businesses; Halal restaurants and supermarkets etc.

In November, in fact, the first Halal industrial park in Russia called Baltach was launched in Kazan, the capital of Tatarstan and which forms part of the larger Kazan Halal Hub. The park will house small and medium-sized enterprises (SMEs) involved in the Halal business industry. The main goal of the project is the processing of agricultural, livestock and meat processing products, grown and reared by surrounding local farmers. This would be in cooperation with foreign firms with proven expertise in the sector.

The promoters, which include IFC Linova and Amanah Raya Group Berhad of Malaysia as the main investor, stress that Baltach Halal Industrial Park will boost the SME sector in Tatarstan; will bring economies of scale to companies involved in the sector; will provide much-needed consultancy services to local entrepreneurs and employment and product quality assurance. The initial investment in the Baltach project is 150 million rubles and the project will be managed by a holding company called NHIDC, whose financing and investment activities of local companies and other partners will be exclusively under Islamic financial contracts such as Murabaha, Ijara, Musharaka, Mudaraba, Istisna and Wakala.

Indeed, investing in the Halal business activity is a major theme of the Kazan Summit 2011 which will be held in June and which will comprise a Halal Business Exhibition and Forum; an Islamic finance conference; and an investment and business conference.

According to the organizer of the summit, IFC Linova, the main objectives of the summit are to identify strategic development prospects of international economic relationships between Russia and Muslim countries; to develop cooperation in the sphere of direct investments in private sectors of Russia and Muslim countries; and to facilitate discussions and development of Islamic finance in Tatarstan, Russia and the CIS.