05 July 2011

Issuance of Islamic bonds more than doubled in the first half of 2011 compared to the same period last year as Qatar found its way into the market while Malaysia sustained its dominance. The year is expected to be the best on record as geographical expansion continues, writes Adnan Halawi, Zawyas fixed income analyst

Global sukuk review: June 2011

On course for a record year

As the first half of 2011 comes to a close, here is a recap of some of the developments that marked the sukuk landscape till June. In terms of geographical breakdown, Malaysia continued to dominate the market with over 62% of sukuk issued, followed by Qatar (20.6%). For the first time, Qatar beat the UAE as the main issuer of sukuk from the GCC.

Two MENA states joined the list of issuing countries, with Jordan witnessing its first corporate sukuk ever, even before its first sovereign Sukuk. Yemen managed to issue its first small sukuk just before the eruption of violence. Kuwait, which has suffered from a number of sukuk defaults, came back to the scene even though one of the deals was part of a debt restructuring plan. The second was issued in Malaysia (GIC Sukuk).

In terms of structures, HSBC Bank Middle East - which usually issues conventional bonds - issued its first sukuk ever under an innovative wakala-mudaraba structure.

On a regulatory and legislative level, the Egyptian Financial Services Authority approved the proposal of rules governing issuing and trading in Sukuk, a step that could finally bring a long-awaited giant to the sukuk market.

Despite mixed sentiments, big announcements, major delays, and a wave of political unrest in the MENA region, the first half of 2011 witnessed the issuance of USD43.8 billion in sukuk globally, according to data compiled by Zawya Sukuk Monitor, more than double the amount issued during the same period last year.

Malaysia issues, MENA plans

June itself was not different from the previous months in terms of generous issues out of Malaysia accompanied by generous announcements out of the MENA region. Yet, the month witnessed some accelerated events that come as no surprise with the month of Ramadan around the corner - a fact that pushed some issuers to sell their Islamic debt in June and July, or postpone their sale to September and October.

The ground-breaking news came from Malaysia as it priced a two-tranche international USD2 billion sukuk late June. The Sukuk, which will officially close early July, will be listed on three stock exchanges, was heavily oversubscribed and is the third global sukuk out of Malaysia. Analysts see that demand for this global sukuk was exceptionally high given the scarcity of such issues and the thirst of investors for such paper, among other reasons.

Malaysia also introduced the new Bank Negara Monetary Notes-Istithmar (BNMN-Istithmar). The first MYR500 million tranche that was sold in June and snapped up in no time is part of an MYR50 billion program that according to Bank Negara aims to increase the efficiency and flexibility of liquidity management in the Islamic money market. BNMN-Istithmar will contribute to expanding investment instruments and the investor base as well as promoting greater liquidity in the Islamic money market, the Central Bank said.

In the Gulf, Saudi International Petrochemical Company (Sipchem) launched its Saudi riyal denominated sukuk in the domestic market. The issue is expected to close in early July. The final size of the sukuk is not yet announced but is expected to be in the range of SAR1.5 billion to SAR2 billion. This is the second corporate domestic sukuk out of the Kingdom this year following Bank Al Jazira's in March. Meanwhile, the Saudi Arabian Basic Industries Corporation (SABIC) managed to pay back its first SAR3 billion Sukuk, followed by delisting from Tadawul, the Saudi stock exchange.

From Qatar, the Almana Group launched a five-year floating sukuk that will be listed on the London Stock Exchange. The size is not yet determined, but the sukuk is expected to be priced by mid-July. This would be the second sukuk by Almana following its AED600 million issue in 2008 and the first corporate sukuk out of Qatar this year. Many local banks unveiled plans to issue sukuk this year including Qatar Islamic Bank, Qatar International Islamic Bank and Masraf Al Rayan.

In the UAE, Nakheel might issue its restructuring sukuk in July while both Emirates NBD and National Bank of Abu Dhabi might issue cross-border sukuk in Hong Kong and Malaysia, respectively.

The second half of 2011 could witness sukuk out of Indonesia (a global US dollar denominated one), Palestine (its first ever), Jordan, Oman, Thailand, Kazakhstan, Tatarstan and Senegal among other countries, according to the pipeline of Zawya Sukuk Monitor. These could make 2011 the best year on record in terms of sukuk issuance.

Related Article: GCC sukuk roar back

Zawya 2011