Sales of Islamic bonds may rise to $44 billion this year as demand outstrips supply and as Asian and Middle East investors tap the market complying with Islamic banking rulings, HSBC Holdings Plc said.
“We expect a significant increase in sukuk issuance this year because it performed well against the financial crisis and liquidity crunch in 2011,” said Mohammed Dawood, managing director of Islamic global markets at HSBC Amanah. “The sukuk market is already off to a strong start in 2012. This January is the busiest we’ve seen in this market.”
Companies and governments are tapping the Islamic bond market as borrowing costs decline amid rising investor demand. Global sales of sukuk, which pay asset returns to comply with Islam’s ban on interest, rose to $10.7 billion this year from $125 million in the same period in 2011, according to data compiled by Bloomberg. Offerings reached $26.5 billion last year, the second-best annual total after $31 billion in 2007.
“Sukuk is favored by investors because it has been less volatile than conventional issuances, especially in the last four months of 2011,” Dawood said in an e-mailed statement today. “Issuers on the other hand, like sukuk because it gives them access to a new investor base.”
Emirates Islamic Bank PJSC, a unit of Emirates NBD PJSC (EMIRATES), and First Gulf Bank PJSC (FGB) of Abu Dhabi raised $500 million each from sukuk sales this week. Tamweel PJSC (TAMWEEL), the United Arab Emirates mortgage lender controlled by Dubai Islamic Bank PJSC, plans to raise $300 million.
Sukuk Gains Shariah-compliant bonds gained 7.2 percent last year, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets rose 8.5 percent, JPMorgan Chase & Co.’s EMBI Global Composite Index (JPEGCOMP) shows.
The difference between the average yield for sukuk and the London interbank offered rate, or Libor, widened five basis points to 295 yesterday, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The average yield rose one basis point to 4.09 percent.
“Infrastructure projects in Asia and the Middle East are likely to be the other driver of sukuk issuances in 2012,” Rafe Haneef, managing director of Islamic global markets at HSBC Amanah in Asia, said in the statement.
PLUS Bhd., Malaysian state-owned highway operator, raised 30.6 billion ringgit ($9.7 billion) from the sale of Islamic bonds in the past month. Saudi Arabia’s General Authority of Civil Aviation plans to sell sukuk to build a 27 billion-riyal ($7.2 billion) airport in the Red Sea port city of Jeddah, Al- Eqtisadia newspaper reported on Dec. 12.
“Sukuk issuances in Saudi Arabia are expected to be highest ever in 2012, both in terms of number of issuers and the amount raised through Sukuk issuances,” said Fahad Alsaif, Director and Head of Debt Capital Markets at HSBC Saudi Arabia.