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Sukuks making strong comeback

Global issuance has touched $39b so far this year with October sales surpassing $5.3b

Gulf News

Dubai: Global Islamic bond (sukuk) issuance hit Dh144 billion ($39 billion) in the first ten months of the year with total issuance in October alone surpassing $5.3 billion, according to the latest data from Zawya's sukuk database.

"Data from Zawya Sukuk Monitor shows that sukuk in the GCC is back on track and the rest of the world is warming up to the benefits of Islamic bonds," said Adnan Halawi, Senior Sukuk Analyst, Zawya. "October was marked by diversity of issuing countries with major issues from Qatar, Saudi Arabia, Malaysia and Indonesia."

Last month Qatar Islamic Bank issued a $750 million sukuk. Rated A by Fitch and listed on the London Stock Exchange (LSE), the issue represented the first corporate issue out of Qatar this year.

The Saudi-based Islamic Development Bank (IDB) followed suit by issuing a five-year $500 million - part of its $3.5 billion sukuk programme. Listed on both the LSE and Bursa Malaysia, 54 per cent of the sukuk was allocated to Middle Eastern investors, 34 per cent to Asian investors, while the rest was allocated to buyers from Europe.

Improving risk appetite in the Gulf after Dubai World's agreement with creditors this year to restructure $24.9 billion has boosted the scope for more issuance from the region according to Moody's investor service. The improved risk appetite and potential liquidity flow from quantitative easing is expected to boost demand and supply of new issuance.

Issuance of Islamic bonds from the Gulf dropped 28 per cent so far in 2010 to $4.5 billion, from $6.2 billion last year, after a wave of debt restructurings, defaults and tumbling property prices hurt investors' confidence.

Sukuk sales from the GCC is expected to rise in 2011 according to Khalid Howladar, a senior analyst at Moody's. He expects expect some modest issuance from the GCC reaching perhaps $5 billion to $6 billion by year-end.

This month Abu Dhabi Islamic Bank (ADIB) is expected to issue a $750 million sukuk - part of its $5 billion sukuk programme. This benchmark sukuk will also be listed the LSE.

In the Gulf, Bahrain Fin-ancial Exchange (BFX) announced the launch of its Islamic Finance division with the establishment of ‘Bait Al Bursa', marking the creation of the region's first exchange operated platform dedicated to Islamic finance products, while Qatar's bourse may begin trading bonds and Sukuk in the first quarter of next year.

The long-delayed $1 billion Jubail Refining and Petrochemical Company's sukuk is expected to launch in the fourth quarter. Also from Saudi Arabia, Ahmed Salem Bugshan Group (ASB) is said to be planning to raise as much as $100 million, selling five-year Islamic bonds to fund projects.

The Islamic Development Bank, a Jeddah, Saudi Arabia-based multilateral lender, is likely to sell at least $500 million of the securities next year to meet funding needs of more than $1 billion annually, Vice President Abdul Aziz Al Hinai said in Kuala Lumpur on October 26. The newly created International Islamic Liquidity Management Corp. will sell the first of its short-term bills in 2011, Malaysian central bank Governor Zeti Akhtar Aziz said in Kuala Lumpur on October 28.

Global sukuk returned 12.1 per cent this year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. Bonds in developing markets gained 16.4 percent, JPMorgan Chase & Co.'s EMBI Global Diversified Index shows.

Standard & Poor's said in a recent note that the sukuk market has grown large enough to support a transformation in the Islamic fund industry. "Sukuk funds are increasingly popular among investors as they produce fixed-income returns similar to those from traditional fixed-income investment products. Sukuk funds also help investors to diversify away from pure equity and real estate funds, said S&P credit analyst Samira Mensah.