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Philippines central bank in broad islamic finance push


In what could be one of the most ambitious efforts to facilitate Islamic finance in a non-Muslim country, the Philippines' central bank is pushing several initiatives to develop the sector and encourage financial inclusion of the Muslim minority. The effort follows a landmark peace deal signed in October last year which sought to end a 40-year conflict with Muslim separatists that has killed 120,000 people, displaced two million and stunted growth."There is renewed interest in this and the key drivers are the peace initiative in Mindanao as well as broad initiative of the BSP to create a more inclusive financial system," Nestor Espenilla, deputy governor of the Bangko Sentral ng Pilipinas (BSP) told Reuters."That is the arching principle."Mindanao island, roughly the size of Portugal, accounts for around one-quarter of the country's 97 million population and one-fifth of its economy. But decades of neglect, corruption and violence have impoverished parts of the island, despite being rich in natural resources which the government wants to develop."We have a significant Muslim population and they are economically active and if you want to create an inclusive financial system then you should also have financial products that are geared to that particular customer base."

Espenilla said the central bank has asked congress to have its charter amended, a move that would allow it to provide sharia-compliant instruments to Islamic banks, in particular interbank lending products. Islamic finance follows religious principles such as a ban on interest and gambling, making interest-based transactions a major problem for Islamic banks operating outside of the core industry hubs in the Middle East and Southeast Asia."That is just once piece of a broader initiative," he said. The BSP hopes an Islamic banking law can also help attract more market participants as there is only one Islamic bank, Al Amanah, which has struggled financially and is being privatised by the Development Bank of the Philippines (DBP)DBKPH. UL.

"Even if DBP is successful in privatizing it, it will just result in one Islamic bank in the country. If you want to fully enable an Islamic banking system, as opposed to one Islamic bank, we may have to come up with an Islamic banking law."The BSP would thus have to tackle an issue shared by other countries trying to encourage Islamic finance: taxation. Certain Islamic finance contracts, such as sukuk or Islamic bonds, can attract double or even triple tax duties because they require multiple transfers of title of the underlying asset. The BSP has setup a working group that is now drafting the proposed law which would then be presented to congress, Espenilla said, without giving a time frame.

Such a legislative approach would be complemented by a regulations-based approach, broadening the types of products which could also be delivered by conventional banks, he said."We also need to coordinate mutual-type products, with securities and insurance regulators as well," he added. The BSP has sought support from industry bodies such as the Malaysia-based Islamic Financial Services Board (IFSB), of which the central bank is an associate member. Last October, the IFSB signed a five-year agreement with the Manila-based Asian Development Bank (ADB) ADB. UL to promote Islamic finance, focusing on Indonesia, Bangladesh, Pakistan, the Maldives, Afghanistan, Kazakhstan and the Philippines. The IFSB and ADB also plan to hold a two-day Islamic finance conference in Manila in November.

Rpt fitch affirms thames water (kemble) finance plcs bond at bb


(Repeat for additional subscribers)April 10 (The following statement was released by the rating agency)Fitch Ratings has affirmed Kemble Water Finance Limited's (Kemble Water) Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook and senior secured rating at 'BB'. The agency has also affirmed Thames Water (Kemble) Finance PLC's (TWKF) GBP400m senior secured bond issue at 'BB', which is guaranteed by Kemble Water. Kemble Water is a holding company of Thames Water Utilities Limited (Thames Water), the regulated monopoly provider for water and wastewater services in London and the surrounding areas. The affirmation takes into account the pressure on credit metrics stemming from Ofwat's (the regulator for the UK water sector) risk and reward guidance for the price review covering April 2015 to March 2020. The ratings also reflect Thames Water's operating and regulatory performance. The company has scope to improve customer service, reduce sewer flooding incidents, move asset serviceability for sewerage infrastructure back to stable and become more efficient in terms of operating expenditure. KEY RATING DRIVERS Material Reduction of Earnings in the SectorThe regulator has guided towards a cost of capital of 3.85% for the regulated companies, lower than Fitch expected. Companies will be able to earn additional returns from incentives. However, earnings visibility regarding outcome delivery incentives may be limited and their scope to outperform total expenditure will depend on the level at which the regulator sets cost targets and the resulting efficiency challenge for individual companies, relative to their current cost performance. Ofwat appears to have done a lot of modelling regarding the hypothetically possible return on regulatory equity for the regulated companies, but has put limited emphasis on the timing and visibility of these returns. As the price control process moves forward, Fitch will re-assess companies' scope to outperform, consider funding mechanisms associated with incentives and establish forecasts with detailed sensitivities. Financial Profile Remains Within GuidanceFitch's preliminary forecasts for the next price control period indicate that Kemble Water can maintain gearing below 90% pension-adjusted net debt/economic regulatory asset value, post-maintenance interest cover at around 1.05x and dividend cover at around 2.2x. To establish the rating case forecast Fitch used the cost of capital of 3.85%, factored in the revenue adjustments related to the last price control period included in Thames Water's business plan and no outperformance. The forecast credit metrics continue to be in line with guidance for Kemble Water's 'BB-' rating.

Upstream Cash Flow TightensThe GBP750m of incremental debt at the holding level represents around 5% of RAV and incurs an annual finance charge of around GBP60m. The re-based dividend stream from Thames Water expected for the next price control period will still allow servicing of the debt. This is based on the assumption that Thames Water will maintain its current financial structure. If management decided to reduce gearing at Thames Water by retaining dividends, this would likely have a negative impact on Kemble Water's ratings. Similarly, if Fitch concluded after the price control process that business risk in the sector had increased or Thames Water was expected to underperform price control assumptions, a downgrade of Kemble Water would be likely considering that currently forecasted dividend cover only has little headroom in comparison with the established guideline. Meeting Regulatory Targets

In the financial year to March 2013 (FY13) Thames Water reported marginal asset serviceability for sewerage infrastructure and the number of sewer flooding incidents exceeded the target. The company met leakage targets for the seventh consecutive year. Customer Satisfaction Lagging BehindIn terms of the service incentive mechanism, which measures customer satisfaction in the water sector, the company scored 63 points out of 100 for FY13, ranking low compared with peers. In comparison, peers made some progress in improving scores during FY13. The bad debt charge remained at a high level. Hence, there is more work to be done to improve these factors. LIQUIDITY & DEBT STRUCTURE

Reliance on Upstream Cash FlowKemble Water mainly relies on dividends for debt service. As of December 2013, Kemble Water held GBP10.8m in cash and cash equivalents and had access to a committed GBP75m revolving credit facility to bridge short-term liquidity needs. Compared with Kemble Water's annual finance charge of around GBP60m, Fitch deems available back-up liquidity as adequate. RATING SENSITIVITIES Positive: Future developments that could lead to positive rating action are deemed to be unlikely at this stage due to the challenges posed by the upcoming price control. Negative: Future developments that could lead to negative rating action this site Decrease of dividend cover at Kemble Water below 2x, increase of gearing above 95% and/or decrease of post-maintenance and post-tax interest cover below 1.05x (as per Fitch's forecasts).- Possibility of a dividend lock-up at Thames Water.- Deterioration of operational and regulatory performance at Thames Water.- Increasing business risk in the sector following conclusion of the price control process.- Retention of dividends at the Thames Water level in order to reduce leverage.