Malaysian and Persian Gulf infrastructure spending will boost sukuk issuance in 2011, said Badlisyah Abdul Ghani, Kuala Lumpur-based chief executive officer at CIMB Islamic Bank Bhd. Photographer: Goh Seng Chong/Bloomberg
Islamic bonds are outperforming emerging-market debt for a second month as new note sales rebound, Malaysia boosts spending on roads and power plants and confidence returns to the Persian Gulf.
Global Shariah-compliant notes returned 1.2 percent in December, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows, while bonds in developing regions fell 0.7 percent, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index. Emerging- market returns have dropped as rising yields on U.S. Treasuries gave dollar-based investors less incentive to buy riskier fixed- income assets.
Islamic debt sales increased 34 percent in the second half compared with the first six months as investor confidence was boosted by Dubai World’s September agreement with most of its creditors to restructure $24.9 billion of debt. Developing nation bond funds suffered net outflows for three consecutive weeks until Dec. 8, the longest stretch since the first quarter of 2009, according to Cambridge, Massachusetts-based research firm EPFR Global.
“Demand for sukuk is outstripping supply,” Mohd Noor Hj A Rahman, the head of the Islamic fund management unit at Kuala Lumpur-based OSK-UOB Unit Trust Management Bhd. that manages about 250 million ringgit ($81 million) of assets, said in an interview yesterday. “The better outlook and the debt restructuring in the Gulf has given comfort to investors.”
‘Scrambling’ For Sukuk
Global sales of sukuk, which pay returns based on asset flows to comply with Islam’s ban on receiving and paying interest, fell 24 percent this year to $15.3 billion. There were $6.52 billion of offerings in the first half and $8.75 billion in the second. Issuance reached a record $31 billion in 2007.
“Everyone is scrambling to buy sukuk and the supply is limited,” Noripah Kamso, chief executive officer at CIMB- Principal Islamic Asset Management Bhd. in Kuala Lumpur, said in a telephone interview yesterday. “Pension houses are coming to us and saying I want this money to be invested in sukuk. For the first quarter, we still expect very good pricing for sukuk.”
A Malaysian government 10-year private-led project initiative, including a nuclear power plant and an underground rail network, will spur sales of Shariah-compliant debt next year, Prime Minister Najib Razak said in an Oct. 25 speech in Kuala Lumpur.
Saudi Arabia’s 1.44 trillion-riyal ($384 billion) stimulus plan may see the kingdom’s borrowers overtake Malaysia as the largest issuer of Islamic debt next year, Tariq Al-Rifai, director of Islamic Market Indexes in Dubai for Dow Jones Indexes, said Dec. 17. The world’s largest oil exporter announced in August a five-year development plan to spur growth, create jobs and diversify its economy away from hydrocarbons.
Malaysian and Persian Gulf infrastructure spending will boost sukuk issuance in 2011, said Badlisyah Abdul Ghani, Kuala Lumpur-based chief executive officer at CIMB Islamic Bank Bhd., a unit of CIMB Group Holdings Bhd., this year’s top sukuk arranger. Islamic bond sales may match 2007 levels next year, he said in an interview on Dec. 22.
Average yields on Shariah-compliant bonds from the Gulf Cooperation Council countries fell for a third consecutive week, down 13 basis points, or 0.13 percentage point, this week to 5.5 percent yesterday, according to the HSBC/NASDAQ Dubai GCC Dollar Sukuk Index.
The yield on Dubai Department of Finance’s 6.396 percent sukuk due November 2014 fell 33 basis points this month to 6.48 percent, according to data compiled by Bloomberg. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s narrowed 62 basis points to 336, Bloomberg data show.
The difference between the average yield for emerging- market sukuk and the London interbank offered rate narrowed 172 basis points this year to 297 yesterday, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. In the GCC, the gap shrank 185 basis points to 359.
“We see that the sukuk spread over Libor has narrowed, reflecting that demand for sukuk is stronger,” Zamri Shariff, head of asset management at Asian Finance Bank Bhd., the Kuala Lumpur-based unit of Qatar Islamic Bank SAQ, said in an interview yesterday. “We should start seeing other issuers coming into the fray, the non-traditional sukuk issuing countries like Thailand, Korea and the Philippines.”