Wednesday, Mar 04, 2009

KUALA LUMPUR (Dow Jones)--Asset management firm Algebra Capital Ltd. is in the midst of developing a global sukuk fund with Franklin Templeton that could be launched this year, a top company official said Wednesday.

"For 2009, we are hoping to launch a product in the fixed income space and very possibly a Shariah compliant fund....It's in the product development stage," Mohieddine Kronfol, Managing Director of Algebra Capital, told Dow Jones Newswires.

The Dubai-based fund is developing the global sukuk fund together with Franklin Templeton, according to Kronfol, who was attending the Islamic Investment World Asia 2009 Conference in Kuala Lumpur.

Algebra Capital is also considering starting a conventional fund focusing on the Middle East and North Africa region, Kronfol said.

Whether any new funds are launched this year would depend largely on general market conditions, he added.

He said that there is still much demand for Islamic instruments, and growth prospects for the industry are bright, particularly over the longer term.

For now, however, "we are clearly in a risk averse environment and I think the better bet in the coming 12-18 months would be more on investment grade and government fixed income securities in the conventional space, and sukuk when it comes to the Islamic space," he said.

"We just feel that the risk-adjusted returns will be stronger in sukuks rather than equities or real estate," he added.

Kronfol said the global financial crisis had affected the MENA region but the overall health of the Gulf states and MENA region is "still better than other parts of the world."

Algebra Capital and Elaf Bank launched The Sukuk Fund in August 2008, targeting $100 million.

Kronfol said The Sukuk Fund is seeing an 18% deterioration in asset prices since inception, following the global financial crisis and economic slowdown.

"But the average yield to maturity now is about 18% and we think 2009 is going to be a very good year," he added.

He believes the fixed income market in the MENA region "will find a bottom this year."

"For real estate and equities, I don't think the outlook will improve until you see credit flowing, liquidity provided and basically the spreads of these sukuks and bonds come down some more to reasonable levels," he added.

- By Maria Khong, Dow Jones Newswires; (603) 2026 1233; Maria.Khong@dowjones.com

(END) Dow Jones Newswires

04-03-09 0631GMT