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Kuala Lumpur, October 2006 - OSK Investment House (Malaysia) Berhad (KFHMB) a wholly-owned subsidiary of OSK Investment House, Kuwait (KFH) and Malaysia's first foreign Islamic bank, following the approval from Bank Negara Malaysia (Central Bank of Malaysia) on 14 September 2006, has started to introduce the KFH Ijarah Rental Swap-i to its customers. KFHMB is the first Islamic bank in Malaysia to obtain approval to launch this product by Malaysia's Central Bank.
The KFH Ijarah Rental Swap-i is a risk management tool suitable for customers who have ijarah financing arrangements that are either subjected to fluctuations of the reference rates such as cost of funds, or fixed over the ijarah facility period. It is part of the Treasury solutions offered by KFHMB, where an arrangement is entered into between the Bank and its customers. The customers could be a payer or receiver of lease rental payments, to exchange the series of payments or receipts from floating to fixed rental amounts or vice versa over a stated lease period. The tenures of the product varies in accordance with the requirements of the customer and can be priced for longer tenures of 10 years or more thus enabling ijarah customers to effectively hedge their longer tenure risk.
"The KFH Ijarah Rental Swap-i will enable our customers to hedge their Ijarah rate commitments. This includes hedging long term commitments which was never possible until now. Companies can convert either their fixed or floating rate commitments into a more manageable rate exposure thus minimizing the occurrence of any negative impact to volatility and uncertainty in rates over a period of time," said Mr K. Salman Younis, Managing Director of OSK Investment House (Malaysia) Berhad.
KFH Ijarah Rental Swap-i is not a financing tool. While it allows the customer to exchange or modify their ijarah rental obligations the underlying ijarah facility will continue to be governed by the terms and conditions set out in the facility agreement. It can therefore be used in conjunction with any variable or fixed ijarah based facility such as ijarah contract financing, ijarah project financing, ijarah auto financing, ijarah asset acquisition financing, or even ijarah-based sukuk.
This innovative product was structured with detailed attention to strict Shariah compliance required by KFH's Fatwa and Shariah Supervisory Board (Shariah Committee) based in Kuwait. KFHMB obtained Shariah approval on 29 August 2006. KFH Ijarah Rental Swap-i is structured based on a combination of various Shariah contracts which allow KFHMB and its customers to agree to pay each other a series of fixed rental payments and a series of floating ijarah rental payments over an agreed period of time. Both parties may also agree on the dates and the manner in which the exchange of cash flows will take place. Depending on the requirements of the customer, a suitable Shariah concept could be employed to allow for the netting-off of the cash flows on the settlement date.
KFHMB successfully closed the first transaction denominated in US Dollars for a tenure of more than 10 years. The response from other potential customers has been very encouraging and the bank hopes to quickly finalize more transactions of various maturities denominated both in Ringgit and US Dollars.
The KFH Ijarah Rental Swap-i is a risk management tool suitable for customers who have ijarah financing arrangements that are either subjected to fluctuations of the reference rates such as cost of funds, or fixed over the ijarah facility period. It is part of the Treasury solutions offered by KFHMB, where an arrangement is entered into between the Bank and its customers. The customers could be a payer or receiver of lease rental payments, to exchange the series of payments or receipts from floating to fixed rental amounts or vice versa over a stated lease period. The tenures of the product varies in accordance with the requirements of the customer and can be priced for longer tenures of 10 years or more thus enabling ijarah customers to effectively hedge their longer tenure risk.
"The KFH Ijarah Rental Swap-i will enable our customers to hedge their Ijarah rate commitments. This includes hedging long term commitments which was never possible until now. Companies can convert either their fixed or floating rate commitments into a more manageable rate exposure thus minimizing the occurrence of any negative impact to volatility and uncertainty in rates over a period of time," said Mr K. Salman Younis, Managing Director of OSK Investment House (Malaysia) Berhad.
KFH Ijarah Rental Swap-i is not a financing tool. While it allows the customer to exchange or modify their ijarah rental obligations the underlying ijarah facility will continue to be governed by the terms and conditions set out in the facility agreement. It can therefore be used in conjunction with any variable or fixed ijarah based facility such as ijarah contract financing, ijarah project financing, ijarah auto financing, ijarah asset acquisition financing, or even ijarah-based sukuk.
This innovative product was structured with detailed attention to strict Shariah compliance required by KFH's Fatwa and Shariah Supervisory Board (Shariah Committee) based in Kuwait. KFHMB obtained Shariah approval on 29 August 2006. KFH Ijarah Rental Swap-i is structured based on a combination of various Shariah contracts which allow KFHMB and its customers to agree to pay each other a series of fixed rental payments and a series of floating ijarah rental payments over an agreed period of time. Both parties may also agree on the dates and the manner in which the exchange of cash flows will take place. Depending on the requirements of the customer, a suitable Shariah concept could be employed to allow for the netting-off of the cash flows on the settlement date.
KFHMB successfully closed the first transaction denominated in US Dollars for a tenure of more than 10 years. The response from other potential customers has been very encouraging and the bank hopes to quickly finalize more transactions of various maturities denominated both in Ringgit and US Dollars.
