Kuala Lumpur: Islamic bond sales are heading for the slowest quarter since 2010 as an emerging-market sell-off and commodity prices at a 16-year low prompt issuers to shelve expansion plans.

There have been $2.8 billion of sales worldwide since the end of June, including just $979 million in August, data compiled by Bloomberg show. The last time quarterly issuance was less than $5 billion was in the first three months of 2010. The big oil companies have already cut spending by $60 billion this year as Brent crude falls toward $40 a barrel.

The sukuk pipeline is drying up as companies defer expansion plans in response to plunging resource prices and concern over the impact of a US interest-rate increase. Sharia-compliant bond yields have climbed to an eight-month high as China’s deepening economic slowdown prompted outflows from developing-nation assets.

“Even top credits will have difficulties placing a bond,” said Sergey Dergachev, a senior portfolio manager who helps oversee $13 billion of emerging-market debt at Union Investment Privatfonds GmbH in Frankfurt. “Investors are nervous since it is difficult to envisage how far the sell-off will go.”

Commodity slump

The slowdown in issuance comes as average yields on Sharia-compliant debt climbed 33 basis points in the past three months to 3.16 per cent, according to a Deutsche Bank AG index. They rose to 3.23 per cent last week, the highest since December.

Emerging markets from Brazil to Indonesia have been rattled by signs Asia’s largest economy is heading for a hard landing after the People’s Bank of China devalued its currency on Aug. 11. The central bank’s interest-rate cut last week, the fifth since November, did little to assuage concerns.

The deceleration in the economy of China, the world’s biggest consumer of energy and industrial metals, is compounding a slump in resource prices. The Bloomberg Commodity Index of 22 raw materials from oil to metals fell 0.9 per cent in August and 14 per cent so far this year. The gauge dropped to the lowest level since 1999 on Aug. 26.

“Capital expenditure plans have been cut substantially as commodities collapsed further during the month,” said Fakrizzaki Ghazali, a credit strategist at RHB Research Institute Sdn. in Kuala Lumpur. “This doesn’t provide incentives for companies to expand and borrow heavily.”

Sukuk Pipeline

Sukuk offerings from the six-nation Gulf Cooperation Council are down 41 per cent this year to $6.9 billion, according to data compiled by Bloomberg. Sales of Malaysian ringgit corporate Islamic debt fell 29 per cent to 31 billion ringgit ($7.5 billion) in 2015 from the same period last year. Worldwide issuance is down 26 per cent to $23.7 billion so far in 2015.

Some companies are still proceeding with sukuk sale plans. Saudi Arabia’s National Commercial Bank will sell 2 billion riyals ($533 million) of Islamic bonds before the end of the year, according to a Reuters report on Aug. 23 that cited unidentified sources. A unit of Malaysian power utility Tenaga Nasional Bhd. is planning to issue up to 10 billion ringgit of Sharia-compliant notes and telecommunications company TIME dotCom Bhd will set up a 1 billion ringgit debt program that complies with Islam’s ban on interest.

Most companies are likely to hold off for the next couple of weeks as they wait for more clarity on the outlook for emerging markets, according to Union Investment’s Dergachev.

“Any meaningful pickup in issuance needs to be accompanied by a stronger oil price, which still looks rather sluggish given the supply pressure,” said Winson Phoon, a Kuala Lumpur-based bond analyst at Maybank Investment Bank Bhd.