Sukuk issuance in the region has slumped by more than half
29/06/2015 10:26 AST
This year is shaping up to be a disappointing one for Islamic bond sales in the six-nation Gulf Cooperation Council. Sukuk issuance in the region has slumped by more than half in the year through 28 June, according to data compiled by Bloomberg. It’s a setback for the Shariah-compliant industry, where deals are structured to adhere to the religion’s ban on interest and GCC sales accounted for 31 per cent of all global Islamic bonds in 2014. Below are the key takeaways for the Gulf’s Islamic industry in the first six months of 2015: Islamic bond issuance from the GCC has plunged 53 per cent, the steepest decline for the region since at least 2007. About $5.5 billion has been raised, compared to $11.7 billion in the same period last year. “People are concerned about U.S. Fed rates, Greece,” Abdul K Hussain, the Dubai-based chief executive officer of Mashreq Capital DIFC, which runs the best-performing Islamic fixed-income fund in the Middle East and Africa for the past 12 months, said by phone on June 25. “You need to get these things out of the way before we’ll see more issuance. If the Fed raises rates, we’ll see quite a bit of issuance. I’m hoping after Ramadan it will pick up.” Still, “it doesn’t look like it will be higher than last year,” he said. About 22 per cent more has been raised with Shariah- compliant loans from the GCC than in the same period a year ago.
Conventional and Islamic loans combined grew 31 per cent. “Loan growth has been much higher for both because of the competitive environment, because the banks in the GCC are flush with liquidity,” Anita Yadav, the head of fixed income research at Emirates NBD, Dubai’s biggest bank, said by phone from the emirate on 28 June. Volatility and uncertainty about the US rate increase are poised to continue and bank liquidity will slow down a “little bit, but not materially,” she said. The worst-performing Islamic bond from a GCC borrower was a ringgit-denominated sukuk due 2022 from Abu Dhabi National Energy Company, known as Taqa, according to data compiled by Bloomberg. The sukuk has lost 8.2 per cent this year.
The company’s first quarter profit dropped 6.6 percent as revenue from oil and gas declined, and the ringgit weakened 7.2 per cent this year through Friday, the most among Asian currencies, according to data compiled by Bloomberg. Taqa also requested in March that Malaysian rating company RAM Holdings Berhad withdraw the rating for its sukuk program.
“This has led to a knee-jerk reaction by the sukuk holders,” Fakrizzaki Ghazali, a credit strategist at RHB Research Institute Sdn. in Kuala Lumpur, said on 25 June. “The non-rated status of the ringgit sukuk has impaired secondary liquidity greatly, hence it has very limited reason to rally.” Sukuk from GCC borrowers are outperforming bonds this year, according to data compiled by Bloomberg. Islamic bonds returned an average 1.8 per cent, compared with 0.8 per cent for conventional bonds. “The primary concern is about the interest rate hike, and whoever is holding good quality, short-dated paper doesn’t want to sell,” Ahmed Shehada, the head of advisory and institutions at NBAD Securities LLC, the brokerage of the United Arab Emirates’ biggest bank, said by phone on 28 June. “With the last piece of information from the Fed suggesting that an interest rate hike might not come as quickly as anticipated, that could fuel a bit more volume over the next couple of months.”
Bloomberg
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