The Gulf-based Islamic bond market is poised for a revival as large corporate and supra-national issues come to market but it may be a fragile recovery with skittish investors fearful of any more bad news, market experts said.
Until last month, Islamic bonds, or sukuk, in the region were at a virtual standstill, with Saudi Arabia's Dar al Arkan 4300.SE holding the only international sukuk issue. But as the Islamic holy month of Ramadan came to a close, a flurry of activity resumed.
Since August, the region has seen offerings as varied as Kuveyt Turk's three-year $100 million Islamic bond -- the first sukuk out of secular Turkey -- to Qatar Islamic Bank's $750 million sukuk, which market experts say has been a runaway success.
And with Islamic Development Bank's (IDB) $3.5 billion sukuk programme in place, which will be dual-listed on both the Malaysia and London stock exchanges, the tide seems to have turned in the beleaguered market.
"There looks to be a pretty decent pipeline and the activity we're seeing seems to be going back to what we saw before 2009," said Rizwan Kanji, senior debt capital markets attorney at law firm Norton Rose. "There's a lot of excitement that perhaps the worst is behind us, subject to no other bad news."
The sukuk market is also awaiting issues from Bahrain-based Al Baraka Bank BARKA.BH, which plans to launch a $200 million sukuk by the end of the year and more from Jordan and Turkey.
Property developer Nakheel is also in preliminary talks with the NASDAQ Dubai to list a $1.6 billion Islamic bond as part of its restructuring plan, the chairman told reporters earlier this week.
Analysts have said troubled state-owned conglomerate Dubai World's accord with 99 percent of its bank creditors followed by Dubai's successful $1.25 billion conventional bond issue in late September has restored investor confidence in the debt capital markets.
The Islamic bond market in particular should benefit from the upturn in confidence given the pent-up demand among Islamic financial institutions, which can only invest in sharia-compliant issues.
"It is purely a supply and demand issue right now," Thomas Christie, an institutional sales trader at Wallich & Mathes. "There are very few internationally traded sukuk as compared to conventional bond issues. There is definitely an appetite there."
However, the sukuk market remains volatile, with issuers and investors keeping a close eye on global events as they move back into the market, both Christie and Norton Rose's Kanji said.
Kanji said the industry had seen some signs of recovery before the Greek economic crisis sent investors running for cover and while there have been more green shoots since, investors were again nervous over weak economic growth in Portugal, Spain and Ireland.
Emad Al Monayea, chairman and managing director of Liquidity Management House, a unit of Kuwait Finance House, was also cautious.
"If I am optimistic, I would say that recent successful issuances should convince other issuers to approach the market again," said Monayea. "But currently with the unpleasant market, things can change by the minute."
source : Reuters