Kazakhstan joins sukuk bandwagon; South Africa to follow?

29 July 2012

Global Sukuk Review - July 2012

July was yet another exceptional month in the sukuk landscape as it witnessed the issuance of two debut sukuk, the first being the long-awaited Development Bank of Kazakhstan (DBK) issue that came in the form of a Malaysian ringgit tranche of MYR 240 million (USD 75 million) marking the first ever Islamic bond by a CIS country or former Soviet republic issuer.

The move is expected to leave a positive impact on the growth of the industry in the majority Muslim Kazakhstan and is likely to spur more issues in Central Asia's largest economy. DBK is the largest development financial institution in Kazakhstan and is wholly owned by the government through its sovereign wealth fund, Samruk-Kazyna. In line with our expectations that new countries will sell sukuk, Kazakhstan turned out to be the first new country this year. Question is, who is next? South Africa?

The second sukuk was a dual-tranche USD 4 billion that Qatar sold in the international market, which marked a strong comeback for Qatar to the international sukuk landscape. It was no surprise that the sukuk was heavily oversubscribed and sold at competitive prices.

The UAE had its share as well in July with two sukuk issues from Emaar and Emirates Islamic Bank (EIB) worth USD 500 million each. Emaar's sukuk came on the heels of a similar issue in 2011 under the same USD 2 billion program. If anything, Emaar's sukuk reflects renewed confidence in Dubai's real estate sector after a turbulent period in the wake of the global financial crisis.

EIB's sukuk is the second outstanding and third issued under the bank's USD 1 billion program. It received bids of USD 5 billion with oversubscription again showing the thirst of investors for Islamic paper. 

Olayan continues Saudi story

Saudi Arabia was absent in July. However, the absence of any issuance can be attributed to the approach of the holy month of Ramadan. The Saudi story gained strength this year with USD 8.8 billion of sukuk sold. The last sukuk was sold on June 27 by Olayan Financing Company via its SPV ORECO Sukuk Limited.  The SAR 650 million (USD 170 million) privately placed five-year sukuk was of  Al-Istithmar structure and carries a coupon of 150 basis points over three-month SIBOR, paid quarterly.

Bahrain's sukuk moves remain unique and unpredictable. Following a conventional international USD 1.5 billion bond in June, the Central Bank of Bahrain sold its 19th long-term BHD 160 million (USD 420 million) five-year Ijara sukuk besides its monthly Salam and short-term Ijara sukuk. Corporate issuance from the kingdom remained absent.

Malaysia remains domestic

Malaysia maintained its top ranking in July despite the enormous issue by Qatar. However, GCC states are doing better when it comes to international deals. Malaysia's market remains mostly a domestic one. Malaysia also continues to be the most appealing market for sukuk issuance for cross-border borrowers. The latest example is the Khaz DBK sukuk. The government of Malaysia launched a new program called IPI in July, with the first tranche of MYR 1 billion bearing the Al-Istithmar structure.

With around USD 15 billion sold in July according to Zawya's data, and counting the USD 68 billion reported in the first six months in Zawya's Quarterly Sukuk Bulletin for 2Q12, we are already at USD 83 billion in the first seven months of 2012 - almost the same amount issued in the full year 2012.

While the market seemed hesitant to take a break in July despite the holy month of Ramadan, we expect activity to slow down in August and to pick up only after Eid and peak in the third quarter of this year. Until then, 2012 has already secured a record ranking in terms of sukuk issuance.

Adnan Halawi is content manager of Zawya's investment monitors and can be reached at

© Zawya 2012

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