The Dow Jones Citigroup Sukuk Index, which measures the performance of Islamic bonds globally, closed at 120.53 yesterday, the highest since Nov. 30 and leaving it 3.8 percent short of the record set Nov. 25. The index has climbed 6.3 percent from its low in December, helped by Dubai World’s May 20 agreement to restructure part of its $23.5 billion of debt.
Shariah-compliant bonds have weathered the European debt crisis better than notes in emerging markets. Islamic bonds returned 6 percent so far this year, according to the HSBC/NASDAQ Dubai Listed US Dollar Sukuk Index, while regular debt in developing markets gained 5.45 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.
The World Bank predicted this month that economic growth in the Middle East and North Africa will accelerate to 4 percent in 2010 from an estimated 3.2 percent growth last year as oil prices rebound. Malaysia, the world’s largest sukuk market, is forecast by the government to grow 6 percent this year after shrinking 1.7 percent in 2009.
The yield on Malaysia’s 3.928 percent Islamic notes due June 2015 fell six basis points this week to 3.61 percent, the second-lowest level since the bonds were sold on May 27, according to prices from HSBC Holdings Plc. The difference over similar-maturity U.S. Treasuries has narrowed five basis points to 175 since then.
The spread between the average yield for emerging-market sukuk and the London interbank offered rate narrowed 37 basis points, or 0.37 percentage point, to 431 so far this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
The difference between the average developing-nation yield and Libor narrowed 49 basis points to 586 basis points, based on the EMBI+ index from JPMorgan Chase & Co. That is 156 basis points more than the average spread for sukuk.
Transactions in the $1 trillion Islamic finance industry are based on the exchange of assets rather than interest to comply with Shariah principles. Global sales of Islamic bonds have fallen 24 percent to $6.5 billion so far in 2010 from the same period last year, according to data compiled by Bloomberg. Sukuk issuances rose to a record in 2007.
Pakistan may sell sukuk in the domestic market for the first time in two years to fund its budget deficit, Syed Wasimuddin, a central bank spokesman, said June 23. Indonesia plans to sell $650 million of global Islamic bonds in October, according to Dahlan Siamat, the finance ministry’s head of Islamic financing unit.
Dubai World, one of the United Arab Emirates three main state-owned business groups, announced in November a plan to restructure $23.5 billion of debt. It reached an agreement with its main creditor group last month.
Dar Al Arkan Real Estate Development Co., Saudi Arabia’s biggest property company by market value, said on June 23 it agreed with creditors to cut the cost of a $450 million sukuk sold in February. Investment Dar Co., the Kuwait-based owner of half of Aston Martin Lagonda Ltd., and its creditors agreed to most commercial aspects of restructuring its debt, the company’s creditors committee said June 14.
Gulf Finance House EC, the Bahrain-based investment bank, aims to reach an agreement with creditors by early next month on renegotiated terms for a $100 million loan, Chief Executive Officer Ted Pretty said on June 10.
More restructurings might take place in Dubai as the region’s business hub seeks to repay loans over the next 12 to 18 months, Moody’s Investors Service said June 14.
Credit-default swaps tied to Dubai government debt narrowed 167 basis points to 484 as of June 24 from a year high of 651 on Feb. 15, according to CMA DataVision prices. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
“Let’s hope another Dubai-like crisis doesn’t happen,” said Muhammad Asad, who manages the equivalent of $210 million as chief investment officer at Al Meezan Investment Management Ltd. in Karachi, Pakistan. “There is a global economic recovery and if that continues to happen, Islamic bonds will be attractive.”
source : Bloomberg