Dubai: Nakheel's Islamic bonds, which were issued to contractors and suppliers instead of cash as part of a $16.1 billion (Dh59.1 billion) restructuring plan, fell in their first week of trading as holders flooded the market.
The real estate developer saw the yield on its sukuk soar 108 basis points since September 9, or 1.08 percentage points, to 17.08 per cent on September 16, according to prices at Standard Chartered on Bloomberg.
It was little changed yesterday. The rate on Dubai government's 6.396 per cent sukuk due November 2014 gained eight basis points last week to 4.88 per cent on Friday, according to data compiled by Bloomberg. It rose three basis points yesterday.
Nakheel issued Dh3.8 billion of Islamic bonds to trade creditors after the developer was unable to pay them.
One sukuk-holder invited six banks, including Morgan Stanley and Abu Dhabi Commercial Bank, to bid for about Dh320 million of Nakheel's sukuk, two bankers familiar with the matter said on Thursday, declining to be identified because the information is confidential.
"There are more sellers than buyers," Mark Watts, head of fixed-income at National Bank of Abu Dhabi's asset management group, which manages Dh4.1 billion, said September 15.
Fundamental analysis
"Half of the game is doing good, solid, fundamental analysis, and knowing the supply and demand dynamics of the bond you're holding. These trade creditors are not natural bondholders."
"Nobody knows where to price Nakheel's sukuk," Adnan Haider, head of fixed income and equity at Abu Dhabi Commercial Bank, said in a phone interview on Thursday. "There aren't that many trades printed, and there's more sukuk coming into the market, so how do you determine the price?"
The developer plans to issue an additional Dh1 billion of bonds as part of an Dh8.5 billion programme.
The Islamic bonds are being used to pay 60 per cent of what's owed to contractors and suppliers.
The rest is being paid in cash. Sukuk pay asset returns to comply with Islam's ban on interest.
Sukuk sales in the Arabian Gulf jumped 51 per cent this year to $3.73 billion compared with the year-earlier period, data compiled by Bloomberg show.
The average yield on sukuk from the six-nation Gulf Cooperation Council climbed six basis points last week to 3.88 per cent on Friday, the HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index shows.
Islamic bonds in the GCC returned 1 per cent this quarter compared with a 1.6 per cent gain for bonds in developing markets, JPMorgan Chase & Co's EMBI Global Composite Index shows.
The Bloomberg Malaysian Sukuk Ex-MYR Index, which measures foreign-currency debt sold by companies and governments in Malaysia, has risen 1.7 per cent since the end of June.