Islamic Finance Taps Into Mobile Phone Airtime

The use of mobile phone airtime as an underlying asset in structuring financial products is making a comeback especially in the Islamic finance space. Malaysia’s Axiata Group Berhad, one of Asia’s largest telecoms operators, is setting the pace in using mobile phone airtime as one of the underlying assets to back its sukuk issuances.

The Group launched a $1.5 billion Sukuk Al-Wakalah Issuance Program a few weeks ago, followed by a RM5 billion Sukuk Al-Murabaha offering last week by its mobile phone subsidiary, Celcom Axiata Berhad, which was issued through its unit Celcom Transmission (M) Sdn Bhd.

But it was the Saudi telecoms operator Etihad Etisalat (Mobily) which was the pioneer of using mobile phone airtime in their financing requirements.

In March 2008, Mobily raised a $2.875 billion syndicated Islamic financing facility, which was based on mobile phone airtime, whereby Mobily was able to sell minutes of airtime to the financiers involved, and then taking on the role of agent to these banks and selling the minutes for a profit.

The facility, whose proceeds were used to refinance the Saudi telecoms operator’s short-term debt and to fund its operations and infrastructure expansion, was arranged by a consortium of banks which included Samba Financial Group, National Commercial Bank, Saudi French Bank, Calyon Bank, Saudi Hollandi Bank, ABNAMRO and National Bank of Abu Dhabi.

Similarly, in August 2009, Malaysia’s RHB Islamic Bank, pioneered the first tawarruq (Islamic cash management) product based on the use of mobile phone airtime, which the bank claims was the first commodity murabaha type product based on mobile phone airtime.

Tawarruq is used as a cash management instrument by some Islamic banks which allows customers to raise funds. Normally in a tawarruq transaction, according to RHB Islamic Bank, the purchaser will buy a commodity from the bank on a deferred payment plan and thereafter, sells it to the market to raise instant funds. In the past, commodities such as precious metals and crude palm oil have been used as the intermediary asset for tawarruq.

Under the airtime-based RHB Islamic Bank tawarruq offering, the minimum financing was RM3,000 and the maximum financing was RM150,000. The bank bought the mobile phone airtime from a broker at cost price and sold it to the customer at the mark up price depending on the rate of the facility at the point of application and the customer then chose the payment period between 2 years up to the maximum of 10 years. RHB Islamic Bank signed an agreement with Sedania Media Group and E-Pay for the introduction of telecommunication airtime in its tawarruq offerings, with Sedania being the ready buyer and E-Pay the ready seller for the commodity.

With Asia and the Middle East seen as two of the largest growth areas for mobile phone ownership, the prospects for using airtime as an asset class for structuring various types of financing structures are both exciting and potentially big.

In a statement, Jamaludin Ibrahim, Axiata Group President and CEO, emphasized that “both programs are in line with Axiata Group’s on-going group-wide initiative to optimize its balance sheet and improve its financial flexibility, while supporting the government’s vision of developing Malaysia into a major Islamic financial hub and reaffirming Malaysia’s position as a leader in the global Islamic capital market.”

In July, Axiata Group Berhad, through its wholly owned subsidiary, Axiata SPV2 Berhad, launched a $1.5 billion Sukuk Al-Wakalah Issuance Program, which the issuer stresses is the Asia Pacific Region’s first internationally rated multi-currency sukuk program and whose underlying is based, inter alia, on mobile phone airtime.

Axiata is one of Asia’s largest telecommunications companies with controlling operations in Malaysia, Indonesia, Sri Lanka, Bangladesh, Cambodia and Thailand and minority operations in India and Singapore, and joins a growing number of companies using mobile-phone airtime to back Islamic transactions. In fact, airtime joins other non-tangible asset classes as underlying for Islamic finance transactions including sukuk issuances, which has been introduced into the market over the last few years. These include intellectual property, tariffs due on electricity meters, and receivables due on petrochemical marketing contracts.

This indicates the growing innovation in structuring sukuk and the increasing flexibility by Shariah advisories especially in recognizing the legitimate use of assets, which would have been non-existent and thus inconceivable during the last 1,430 years following the advent of Islam. It also signifies an important Ijtihad (discourse among the Muslim jurists) albeit in the context of modern finance which perhaps has been absent in other areas or sectors of life in Muslim countries.

Airtime as an asset is set to flourish in debt financing deals, given that Asia is projected to see a massive increase in mobile phone ownership in the world over the next few years. ROA Holdings Inc. in Tokyo, for instance, estimates that Asia will account for a staggering 65 percent of 7 billion mobile phone owners by 2015.

In the Islamic finance space, its use in tawarruq deals may proliferate in the short-term but given the uneasiness due to Shariah concerns over the use of certain tawarruq structures, its use could be more increasingly used to form a component of the asset pool to back sukuk transactions.

The $1.5 billion Axiata Sukuk Issuance Programme, which was lead arranged by CIMB Bank (L) Limited, HSBC Amanah Malaysia Berhad and Merrill Lynch (Singapore) Pte. Ltd., and which was approved by the Shariah advisory board of HSBC Amanah, has an innovative structure which provides for the issuance of sukuk under the principle of wakalah (agency arrangement), which allows the use of assets comprising airtime vouchers (representing an entitlement to a specified number of airtime minutes on the mobile telecommunications network of subsidiaries of Axiata for on-net calls), Shariah compliant shares, lease assets and murabaha receivables arising from the sale of commodities as the underlying assets. The three banks also acted as dealers and bookrunners for the transaction.

According to Jeremy Stoupas, Partner at Allen & Overy, the international law firm which acted for Axiata, “this transaction represents a significant development in the fast evolving market for Shariah compliant products in Asia Pacific. It is particularly pleasing to see this program come to market as it meets the challenge of trying to accommodate Shariah requirements without compromising on the robustness of the structure from an English law perspective.”

Axiata, which is not in urgent need of funds, will not immediately issue a sukuk tranche under the program, which is more a part of a future funding and development strategy. The multi-currency structure is also intended to attract investors from various parts of the world.

Equally importantly, according to a statement from Axiata, the sukuk program, “is in line with Axiata’s commitment to support the government’s ongoing initiatives and efforts in positioning Malaysia as an international Islamic finance center.”

At the same time, in August, Celcom Axiata Bhd successfully priced its RM5 billion sukuk in nominal value, of which RM3 billion attracted orders of RM10 billion via a bookbuilding process from asset management companies, financial institutions, insurance companies and corporates, and the remaining RM2 billion was privately placed with strategic investors comprising 8-year, 9-year and 10-year tranches respectively.

The sukuk, which was lead managed by CIMB, HSBC Amanah Malaysia and Maybank Investment Bank, which also acted as bookrunners, has been assigned a rating of AAAIS with a stable outlook (the highest credit rating available from the Malaysian rating agencies) by the Malaysian Rating Corp. Bhd (MARC), which stressed in a statement that the rating reflected the credit strength of the Axiata Group.

Proceeds from the sukuk, with tenors ranging from 3 to 10 years, will be used to refinance Celcom Transmission’s existing debt of RM4.2 billion and the company’s capital expenditure and working capital requirements.

Saudi Gazette