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17 April 2024

Sukuk worth $10bn set for 2008 relaunch

By Nitin Nambiar

About $10 billion (Dh36.7bn) worth of Islamic bonds financing is likely to be relaunched in the first quarter of 2008 after being postponed due to the liquidity crunch that has hit global debt markets since June this year, a senior executive at ratings agency Moody’s Investor Services has said.

“We estimate that around $10 billion worth of largely sukuk financing was postponed in the last quarter of the year, but much of this will be coming back in 2008,” said Philipp Lotter, Vice-President, Moody’s Middle East.

While markets in the Gulf have not been directly affected by the global credit crisis, they have felt indirect repercussions in the form of widening spreads and more expensive borrowing costs since June.
“Local liquidity remains strong but those issuers wishing to attract international investors are paying up to 80 basis points more today than they were six months ago,” Lotter said.

Bond market volatility and a slowdown in investor demand forced some prominent regional companies and banks to postpone their financing this year. In the UAE, Amlak Finance and Tamweel said earlier in the year that they had postponed securitisation issues until markets calm down. Tamweel later entered the market with a $300m exchangeable sukuk issue. Abu Dhabi-based First Gulf Bank also postponed in July its $3.5bn Eurobond plan and Bahrain’s Ithmaar bank delayed a $300m sale of five-year Islamic bonds.

Sales of new sukuk jumped sharply in the first nine months of the year to $24.5bn as the market saw more Western banks and institutions invested in the asset class. But that was still lower than what bankers had expected earlier this year ahead of the credit crunch.

Jebel Ali Free Zone issued $2bn in local currency in November.
Mortgage lender Tamweel announced last week that its $300m exchangeable sukuk issue, whose order book was oversubscribed within hours of announcing the launch, has been successfully priced. “While borrowing costs may be higher today than earlier in 2007, the funding requirements in the region remain unabated,” Lotter said.

The cost of Islamic debt and financing in the Middle East has dramatically risen as a consequence of the credit crunch hitting the international markets. While most firms seem to be waiting for spreads to stabilise and credit volatility to slow down, there are no imminent signs of pricing levels coming down significantly.

“It is safe to say that there is no immediate prospect of levels shifting down to June 2007 pricing,” said Yavar Moini, Executive Director at Morgan Stanley.