Gulf Islamic bond sellers shun dollar

Abu Dhabi/Riyadh: Two Gulf borrowers are planning to sell ringgit Islamic bonds in Malaysia, in the latest move that highlights the rising cost of borrowing in US dollars, the previous Islamic bond denomination of choice.

A global credit crunch triggered by defaults on US home loans has made dollar borrowing more expensive, and bets that Gulf states could allow their dollar-pegged currencies to appreciate to dampen inflation has seen dollar assets fall from favour.

National Bank of Abu Dhabi (NBAD) plans to sell up to $925.6 million in ringgit-denominated bonds, which could include an Islamic tranche, the lender said. The Saudi Arabia-based Islamic Development Bank also said it plans to sell $1 billion of ringgit-denominated Islamic bonds this year.

"We see a lot of investors saying they do not have US dollars available. The cost of lending dollars has gone up tremendously," a banker at one of Asia's largest banks, who declined to be named, said.

"It's forcing borrowers to look at any market with deep enough local currencies to take their instrument. This is the reason why you see all the dirham sukuk," the banker added.

Almost all Islamic bonds, or sukuk, issued in recent weeks have been priced in dirhams and Saudi riyals.