INTERNATIONAL. Gulf investors are launching a new US$10 billion Islamic investment bank and plan a US$3 billion initial public offering in the fourth quarter to tap interest in Shariah-compliant institutions, bank executives said yesterday.

Adnan Ahmed Yousif, Chairman of the Union of Arab Banks and CEO of Qatar's Al Baraka Banking Group said on the sidelines of a banking conference in Dubai the bank was in the “final stages” of establishing its founding shareholders.

“By the end of the year, you will have a private placement and an IPO,” Yousif said. “It will be about US$3 billion and will be listed in Bahrain and Dubai,” he said, adding it would be listed on NASDAQ Dubai.

Demand from the world’s 1.3 billion Muslims for investments compliant with their beliefs has soared, and assets that comply with Islamic law are estimated at US$700 million to US$1 trillion.

Islam bans interest, investing in prohibited sectors such as gambling, pornography and alcohol and stipulates that risk and reward be shared among all those in the business venture.

The bank, which is being promoted by Al Baraka’s Chairman Sheikh Saleh Abdulla Kamel, had already raised US$3.5 billion from private and semi-governmental Gulf investors, said Yousif.

“The bank has raised US$3.5 billion including US$1 billion from the management. We are hopeful it will be ready by the fourth quarter,” Sheikh Saleh said.

Sheikh Saleh said the new institution so far had about ten shareholders including the Islamic Development Bank, Saudi Investment Bank and the Kuwait Real Estate Bank.

The bank had originally planned to launch in the first quarter, but the global financial crisis had meant most investors were “rethinking their positions,” Sheikh Saleh said.

“The bank is being set up to invest and develop our area and to create financial paper,” Sheikh Saleh said, adding that the bank would be called either Al-Istikhlaf or Al-Emaar he added.

The Islamic finance industry in the Gulf Arab region is fragmented after new banks mushroomed during the six-year long oil boom in the region.

Bigger Islamic banks are seen crucial for the industry to realise its growth potential and to compete with Islamic windows or subsidiaries of Western conventional banks that have large market shares in wholesale banking services.

“Look at what’s happened globally, most countries have injected more capital into their big institutions. Big institutions can cope with big expansions, small institutions cannot cope with expansion,” said Yousif.

The IPO will be one of the largest this year in the Gulf Arab region, in which investors have been holding onto their funds for months in wake of the financial crisis.

“There are some small IPOs in the market now, and by Q3 and Q4 we might see more appetite, but US$3 billion will still be quite a challenging amount,” said Jitesh Gopi, head of research at Bahrain-based Sico investment bank.

“Bahrain offers the advantage of a strong regulatory environment, but the focus of the IPO will be wider, spread across the region. A significant part of interest will come from Saudi Arabia,” he said.

Gopi said the planned cross-listing on NASDAQ Dubai would help the IPO attract international investors.

“There is an increasing appetite for Islamic banking because it has been relatively immune to the crisis,” he said.

Islamic banks did not invest in structured products that turned out toxic for conventional peers, triggering the crisis.

Ernst & Young is advising on the new bank, which will be an investment wholesale bank not engaged in retail banking, Yousif said.

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