The Sukuk market, once the darling of the Islamic finance industry, has been the subject of revival predictions for the past two years: predictions that have largely proved incorrect and ill-founded.
But it looks as if Sukuk might be once again about to have their day in the sun as the Gulf uses the bond-type instruments to deal with enormous piles of debt and expansion opportunities.
Taqa, the Abu Dhabi National Energy Company, has set up a $1.1bn medium-term note program - denominated in Malaysian ringgit of RM3.5bn to appeal to Malaysian investors - as a means of diversifying its funding sources.
According to a statement filed by Taqa on the ADX: "Once appropriate regulatory approval is received, the program will allow Taqa to issue quickly if and when the market conditions are optimal."
Malaysian investors have shown remarkable loyalty to Islamic finance instruments denominated in their own currency and this has not gone unnoticed in the Gulf.
Dubai home finance company Tamweel is said to be looking at a $300 to $500m Sukuk in Q4 this year according to its acting CEO Varun Sood, speaking on the sidelines of Cityscape - a Dubai property expo. The issue could be denominated in US dollars or Malaysian ringgit.
Home finance companies have tried funding their business through issuing Sukuk in the past with mixed results. There is a high risk involved in securing short-term funding through Sukuk with a tenor of five to seven years and then lending for the purchase of residential units, typically with a tenor of 25 years. The mismatch in the tenors of assets and liabilities can have disastrous results.
Also in the UAE, Nakheel has been using Sukuk for some years and the company is still in the process of issuing Sukuk as a form of part-payment to trade creditors. Readers of The Islamic Globe will already have heard all about the mooted Sukuk from KSA's oil industry in the form of a $1bn (SAR3.75bn) issue from Saudi Aramco and the French petrochem group Total.
It seems the issuer has now set an initial pricing guideline for the issue, which will be at six-month Saudi interbank offered rate (Saibor) plus 95 to 105 basis points.
The issuer will be an SPV called the Saudi Aramco Total Refining and Petrochemical Co (SATORP) and proceeds will be issued to finance the Jubail refinery project.
Deutsche Securities Saudi Arabia, Samba Capital and Saudi Fransi Capital are joint lead managers and joint bookrunners for the issue.
Meanwhile over in Doha, Qatar International Islamic Bank has indicated that it is planning to issue a significantly sized Sukuk. Although the bank has been coy about the precise size of the issue, it is likely to be several hundred million dollars.
Local player QNB Capital, the investment banking wing of Qatar National Bank, Standard Chartered and HSBC have been mandated as lead managers for the issue, which is expected to be issued later this year or early 2012.
Last time the Sukuk industry saw this level of activity it was subject to a series of bombshells in the form of widely misconstrued remarks from Taqi Usmani on the Shari'ah compliance of certain types of Sukuk, the credit crisis in general and The Investment Dar's stoush with Blom Bank over whether a transaction should have been entered into in the first place on the grounds of Shari'ah permissibility. Another such bombshell could easily derail the speeding Sukuk train setting the clock back to 2007 once again.
© The Islamic Globe 2011
