Singapore: The month-long rally in Malaysia's sovereign Islamic bonds is paving the way for a revival in issuance of Sharia-compliant debt.
The yield on the government's 3.928 per cent dollar sukuk due in June 2015 fell to 2.89 per cent, down 35 basis points from a five month-high of 3.24 per cent on December 15, Royal Bank of Scotland Group prices show. The rate on state-run oil company Petroliam Nasional Bhd.'s 4.25 per cent notes due in August 2014 dropped 44 basis points over the same period to 2.75 per cent.
Malaysian sukuk recovered as concern over Europe's debt crisis eased and Dubai's debt restructuring allowed for new issuance of debt that meets Islam's ban on interest. Dubai plans to sell bonds this year in Malaysia, strengthening Kuala Lumpur's role as a global hub for Islamic finance. Emaar Properties PJSC, the developer of the world's tallest tower in Dubai, set up a $2 billion (Dh7.34 billion) Islamic bond programme, according to a prospectus obtained by Bloomberg last week.
"If this recovery in demand is sustained, it will certainly bode well for new issuances and entrench the sukuk market both in Malaysia and the Middle East," said Yahya Sultan, a bond trader at Noor Islamic Bank in Dubai.
Global sales of sukuk, which pay asset returns to comply with Islam's ban on interest, fell 15 per cent to $17.1 billion in 2010, according to data compiled by Bloomberg. In Malaysia, ringgit-denominated issuance fell 11 per cent to 28.5 billion ringgit ($9.3 billion).
The difference between the average yield for emerging-market sukuk and the London interbank offered rate narrowed 21 basis points in the past month to 285, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The spread reached a two-year low of 280 on January 13.
