Tighter spreads to drive sukuk issuance — HSBC

Dubai: Issuance of Islamic bonds will be stimulated by a tightening of yields versus conventional bonds as banks chase a finite amount of quality sukuk instruments, HSBC's Islamic arm Amanah has said.

HSBC has previously forecast global sukuk volume of $44 billion (Dh161 billion) in 2012, up from $26.5 billion last year. Malaysia is expected to continue to dominate issuance with about 60 per cent of the total; Malaysian toll expressway company Plus Berhad conducted a $10 billion sukuk issue in January.

Average yields on dollar sukuk in the secondary market are currently about half a percentage point lower than for conventional Middle East bonds, HSBC said in a report, which presents an opportunity for Gulf issuers.

The tightening spreads are a result of high demand for sukuk and a lack of supply to satisfy the liquidity available at Islamic banks in the region, it said.

"Mid-investment grade range is preferred by investors," said Rafei Haneef, director of Islamic global markets at HSBC, with liq-uidity becoming scarcer for high-grade issuance.

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Haneef also said there was scope to develop Islamic finance in more Asian markets including Hong Kong, a key offshore yuan centre, which is considering amending the tax treatment of Islamic financial products.