May 03 2011

Global Sukuk Markets - April in Review

Global Sukuk Markets - April in Review
$13.9bn GCC Sukuk maturing by 2012

Jordan and Bahrain sukuk announcements reassured MENA sukuk market in April while key fundamentals are expected to support the market in 2011, writes Adnan Halawi, Zawya's fixed income analyst

Despite the gloomy political picture in the Middle East and North Africa (MENA) region and the tragic events taking place from the Gulf to the Ocean, the region witnessed in April a reasonable amount of sukuk announcements and deals, thus sustaining its role in the development of the ever-growing sukuk markets.

Although closed in the first quarter, the JOD85 million (USD120 million) Al Rajhi Cement - Jordan sukuk was unveiled in April. The sukuk, which represented the first corporate sukuk ever out of Jordan, came in line with our expectations that Jordan will join the issuing countries after Yemen and Iran did earlier this year. The Al-Ijara Muntahia Bittamilik sukuk due in 2018 pays weighted average prime lending rate of reference banks plus a margin of 0.5% per annum on a semi-annual basis. It was solely arranged by Capital Investments and Brokerage Company.

Unrest-hit Bahrain made a big announcement when it issued its 17th long-term Government Ijarah Sukuk worth BHD200 (USD530 million). The five-year benchmark sukuk, which pays 5.5% on a semi-annual basis, demonstrated that demand for Shariah-compliant sovereign debt remains strong despite the turmoil. It was followed by a listing announcement on Bahrain Bourse.

Kuwait, which was absent for a while from the sukuk market, seems to be back on track. Following the GIC IMTN Sukuk sold in Malaysia in March, First Investment Company (Al Oula) chose to restructure its debt by issuing a KWD92 million (USD335 million) five-year Wakala Sukuk. In April, it was reported that Liquidity House is to manage sukuk of up to USD1 billion this year.

Saudi Arabia, UAE and Qatar remained the dormant sukuk markets. Once they wake up, it would give strong momentum to the market. The latest announcement came from Sharjah Islamic Bank, which is reported to be issuing its second sukuk in mid-May. Saudi-based IDB - a regular issuer of sukuk - also said it will start a global road show on May 1. Qatar's Al Mazaya Holding Company said it is planning to raise funds through equities and sukuk for its QAR1 billion Marina Mall project.

All of the above announcements reassure us that the GCC will witness a surge in sukuk issuance over the coming months supported by key fundamentals such as growing economies, increased government spending, huge project financing needs and debt refinancing coming due. According to the Zawya Sukuk Monitor, around USD13.9 billion in corporate sukuk will mature by the end of 2012 and some of this will undoubtedly be repaid through selling sukuk.

Elsewhere, Malaysia continued to be the most active market with both sovereign and corporate deals closed and launched in April. The largest issue from Malaysia was the third tranche in 2011 of the Government Investment Issue worth MYR3.5 billion (USD1.16 billion). Telekom Malaysia launched an MYR2 billion sukuk program and sold its first tranche of MYR150 million. The bulk of the issue will be used for TM's high-speed broadband project. The latter is in line with the government's 10th Malaysia Plan 2011-2015 which identified broadband as a key economic enabler with the government targeting a 75% penetration rate by 2015 - up 135% from 2010.

The Zawya Sukuk Monitor shows quite a number of Malaysian corporate sukuk in the pipeline, including KPJ Healthcare and Westports Malaysia.

Neighboring Indonesia, which is said to plan a gross bond issuance of over IDR200 trillion (USD23 billion) this year to help plug its budget deficit, issued a good amount of sukuk as well and announced its intention to visit the global market by issuing a USD1 billion sukuk in the second half of the year. This came on the heels of a previous announcement last month that the government is planning to sell Islamic T-bills with tenors of three, six, and 12 months, likely at the end of the second quarter. Zawya estimates Indonesia has issued sovereign sukuk worth USD2.17 billion thus far this year.

Pakistan is expected to auction a three-year PKR45 billion (USD530 million) Government Ijara Sukuk (GIS) on May 11. Senegal will likely launch a debut sovereign Islamic bond in 2011 of around USD200 million. Russia could follow suit with the first corporate sukuk materializing in 2011.

Adnan Halawi
Team Leader - Fixed Income

© Zawya 2011

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