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HSBC expects record sukuk mandates

More issues from Europe, Asia and Middle East forecast

Gulf News

Dubai: HSBC Amanah, HSBC Plc's Islamic banking unit, expects to manage a record number of sukuk issuance mandates this year, senior executives of the bank said in Dubai Tuesday.

"Our pipeline is very healthy indeed and we've seen a significant pickup in mandates. The year is not over in terms of new issuance and I think we'll see more companies coming to the market with sukuk over the next four to five weeks," said Mohammad Dawood, Head of Islamic Capital Markets at HSBC.

The bank forecasts issuers new to Sharia-compliant finance from Europe, the Middle East and Asia will sell sukuk this year.

The sukuk market has been very active this year — at one point HSBC had three sukuk deals in the market in one week. Broadly speaking, the market for sukuk this year has been buoyant and international investors have been keen buyers of sukuk issued in the Mena region. The year started with the Emaar sukuk, which effectively opened the market after a long pause.

Natural home

Part of the reason for the increase in issuance this year in the region is because the GCC is a natural home for buyers of sukuk — there's a ready investor base in the region. Regional investors are particularly keen on strong regional names — investors were keen buyers of the Sharjah Islamic Bank and Islamic Development Bank sukuks.

Global Islamic bond sales are up 24 per cent so far this year to $7.8 billion (Dh28.62 billion) from the same period last year as borrowing costs declined.

Issuance reached a record $31 billion in 2007. HSBC is the world's leading sukuk manager by value this year with 12 issues amounting to $2.1 billion, according to data compiled by Bloomberg.

The average yield on global Islamic debt fell to the lowest in more than six years on June 8, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The rate advanced three basis points to 3.84 per cent on June 13.

HSBC Middle East issued its own sukuk a few weeks ago. This was the first public sukuk issued by a conventional bank. At $500 million, the size was significant and the pricing was tight at 155 basis points more than the benchmark mid-swap rate.

Active buyers

"When we looked at who bought it, it had a number of GCC buyers — but importantly, international buyers were very active. We hope that other conventional banks will consider issuing of sukuk in order to access this vital market," Dawood said.

HSBC expects its sukuk issuance will prompt many conventional banks and corporates to follow suit. "We expect our sale to encourage other conventional banks that are somehow involved in Islamic finance to follow suit," said George Elhedery, head of global market, Middle East and North Africa at HSBC Bank Middle East.