Sunday, Jan 15, 2012

-- Two Gulf Banks launch issues in New Year

-- Can raise sukuk at attractive rates

-- Pool of liquidity for Islamic finance

(This story was originally published on Thursday.)

By Nicolas Parasie

OF ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Tighter funding conditions in Europe are pushing Middle East issuers to tap the still-liquid Islamic finance markets for funds, with several debt sales announced since the start of the year and more likely to follow.

This week alone, two regional banks have sold Islamic bonds, or sukuk. Dubai-based Emirates Islamic Bank issued a $500 million, five-year Islamic bond with a profit rate of 4.718%, while Abu Dhabi-based First Gulf Bank (FGB.AD) announced plans to issue a $500 million, five-year sukuk. And Saudi Arabia's General Authority of Civil Aviation said it plans to issue a government-guaranteed sukuk to fund a new terminal at Jeddah airport.

Bankers said that sukuk borrowers can borrow at relatively attractive rates, given the troubles in the euro zone which are curtailing the availability of funding from European banks. And they're advising other borrowers to act sooner rather than later, in case political conditions in the region worsen or traditional sources of bank financing become even scarcer.

"Our message is: guys, do it, the window is good. It is as good an environment we can get given the global environment, given the eurozone environment," said Georges Elhedery, head of global markets for Middle East and North Africa at HSBC.

Issuers of Islamic bonds can still draw on a relatively plentiful pool of liquidity earmarked for Islamic finance, according to bankers.

"Sukuk issuers in 2011 and 2012 are taking advantage of the intact regional Islamic liquidity pool which has remained relatively untapped over the past couple of years following the 2008-2009 financial crisis," said Raphael de Ricaud, head of Islamic Finance at Rothschild. "The traditional providers of liquidity for regional banks on the interbank market have been battered by the sovereign debt crisis in Europe, forcing them to look for alternative sources of financing such as Islamic finance," he added.

Reflecting the improved liquidity, the yield of HSBC-Nasdaq Dubai's Gulf sukuk index has tightened to 4.38% from around 6% in March last year, when concerns over the Arab Spring were pushing up risk premiums.

Sukuk find ready buyers among Middle East investors who follow Islamic principles and can only participate in shariah-compliant instruments. But many non-Islamic investors are also keen to participate. For example, the allocation of the Emirates Islamic Bank sukuk was 57% to Middle Eastern investors and the rest to buyers in Asia and Europe.

"Sukuk provides diversity of funding by tapping into the substantial liquidity pool available with Islamic investors, and at the same time is also acceptable to the regular conventional investors. So it maximizes the liquidity pool thereby providing better certainty of execution and pricing in these uncertain times," said Afaq Khan, chief executive of Islamic Banking at Standard Chartered Bank. "Even the conventional investors in Europe prefer a sukuk offering by a regional issuer, since they know there will be a ready bid from the regional Islamic investors in case of market turmoil," Khan added.

Last year, the Gulf region saw 29 Islamic bond issues with a total value of nearly $19 billion, up from eight issues worth about $6 billion in 2010, according to Zawya.com data. Dubai-based Majid Al Futtaim recently set up a $1 billion Islamic bond program, while Doha Bank (DHBK.DO), Bahrain's Al Baraka Banking Group (BARAK.BH), the U.A.E.'s Emirates Telecommunications Co. (ETISALAT.AD) and Abu Dhabi National Energy Co. (TAQA.AD) among others could all be looking to issue Islamic debt this year.

For the remainder of 2012, demand from all these markets could keep the bond market in the region active.

"A good pipeline of sukuk issuances has built up for 2012 and we are seeing several issuances being lined up in regular issuer markets such as the UAE and Malaysia, as well as in newer markets in Asia Pacific, Central Asia and Africa," said Muneer Khan, partner and head of Islamic finance at the international law firm Simmons & Simmons.

-By Nicolas Parasie, Dow Jones Newswires; +9714 446-1681; nicolas.parasie@dowjones.com

Copyright (c) 2012 Dow Jones & Co.

(END) Dow Jones Newswires

15-01-12 0346GMT