Sukuk sales likely to be subdued

Respondents expected spreads on the DIFX index to be between 175 and 200 basis points more than Libor. (AFP)


Islamic bond (sukuk) sales in the Gulf are likely to be subdued this year compared with past expectations as the global credit crunch bites, but sales may still top last year's record of $12 billion (Dh44bn), a poll showed.

Five of 13 bankers polled said sales of sukuk could range between $15bn and $18bn. Four bankers expected sales at between $12bn and $15bn.

"There's still a disconnect between returns investors want and what many issuers are willing to pay," said Gilles Franck, head of capital markets at Standard Chartered.

Gulf sales of sukuk, which comply with Islam's ban on interest, were about $12bn last year, according to Moody's Investors Service. Gulf investors have raised about $4.3bn in sukuk so far this year, data showed.

Bankers say there is a backlog of sukuk sales waiting for borrowing costs to fall.

Four of the 13 respondents expected spreads on the GCC/DIFX sukuk index to be between 175 and 200 basis points more than the London Interbank Offered Rate (Libor) by October, when a spike in sukuk sales is expected after the summer holiday and a Ramadan lull.

The GCC/DIFX index tracks returns from Gulf dollar sukuk over Libor, and was at 225.85 basis points more than the benchmark on May 23, up from 175 at the start of the year and more than three times pricing in June last year before the sub-prime crisis.

An equal number of bankers expected higher pricing. Four respondents saw third-quarter spreads at between 200 and 225 basis points over Libor.

Bankers said dollar bond sales attract a wider range of buyers. Eight of those polled expected dollar sukuk to return to the market by the first quarter of next year.

However, nine out of the 13 polled cited differences in Islamic financial law, particularly a prohibition on the trading of debt, as the main constraint on greater Islamic deals between the Gulf and Malaysia, another major Islamic financial centre.