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Thu 23 Dec 2010 04:30 PM

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Malaysia's CIMB seeks to boost its Gulf business

Top global sukuk underwriter’s only GCC deal this year was a $125m sale in October

Malaysia's CIMB seeks to boost its Gulf business
A Malaysian government ten-year private-led project initiative will spur sales of Sharia-compliant debt next year (Getty Images)

CIMB Group Holding, the top global sukuk underwriter for a fourth year, is seeking to boost its business in the Arabian Gulf to fight off HSBC Holdings’s challenge to its dominance.

The Southeast Asian nation’s second-biggest lender arranged $3.6bn of notes complying with Islam’s ban on receiving and paying interest in 2010, or 23 percent of the total, data compiled by Bloomberg show. Arabian Gulf issues made up 3.5 percent of CIMB’s business this year. The Kuala Lumpur-based bank beat HSBC into second place for a fourth year. Global sukuk sales totaled $15.3bn so far this year, 24 percent less than in 2009. Sales reached a record $31bn in 2007.

“We should be able to do better” in 2011, Badlisyah Abdul Ghani, chief executive of CIMB Bank Islamic Bhd, said in a telephone interview December 22. “With the infrastructure developments in Malaysia and the Gulf Cooperation Council countries, I anticipate sukuk issuance will be about the same as 2007 or better. We are looking at several deals from the Gulf.”

CIMB’s only Arabian Gulf deal this year was a $125m sale in October for a unit of Saudi Arabia’s Islamic Development Bank. The bank also helped arrange IDB’s debt issuance in 2009.

HSBC arranged $1.6bn of sukuk sales in the Middle East to be the biggest underwriter in the region for a second year with 35 percent of sales, according to data compiled by Bloomberg. The London-based bank expects issuance from Arabian Gulf states to climb in 2011 as it tries to break CIMB’s dominance of the global Sharia-compliant market.

“Next year, we expect issuances from Saudi and the region to improve,” Mohammed Dawood, Dubai-based director of debt capital markets at HSBC Amanah, said in a telephone interview on Wednesday. “As a consequence that puts us in good shape to capture that top spot in 2011.”

CIMB helped Malaysia sell $1.25bn of global sukuk this year with HSBC and Barclays Capital and assisted Celcom Axiata Bhd, the nation’s second-largest mobile-phone operator, with a 1.8 billion ringgit ($575m) bond in August.

The bank has been hired by Dubai as lead arranger for a planned sale of $1bn to $1.5bn of multi-currency Islamic bonds in Malaysia, a person with knowledge of the plan, who asked not to be identified as the details are private, said last month. Badlisyah declined to comment on the matter.

A Malaysian government ten-year private-led project initiative, including a nuclear power plant and an underground rail network, will spur sales of Sharia-compliant debt next year, Kuala Lumpur-based RHB Investment Management Sdn’s chief executive Sharifatul Hanizah Said Ali said December 15.

Saudi Arabian companies may overtake Malaysia as the largest issuer of Islamic bonds for the first time in 2011 as the kingdom’s 1.44 trillion-riyal ($384bn) stimulus plan boosts spending, Tariq Al Rifai, director of Islamic Market Indexes in Dubai for Dow Jones Indexes, said December 17. The world’s largest oil exporter announced in August a five-year development plan to spur growth, create jobs and diversify its economy away from hydrocarbons.

HSBC arranged $2.6bn of sukuk in 2010, according to data compiled by Bloomberg. Kuala Lumpur-based Maybank Investment Bank Bhd. and AmInvestment Bank Bhd. ranked third and fourth. Three of the top four underwriters are based in Malaysia and arranged 39 percent of Islamic bond sales this year. The country’s investment banks have an advantage in the sukuk market as the nation’s issuers account for more than half of the $144bn of Sharia-compliant debt outstanding.

Sales by Arabian Gulf borrowers in Malaysia surged to 1 billion ringgit ($318m) this year, the most since 2008 when Gulf companies started tapping the Malaysian market, data compiled by Bloomberg show. Last year, 100 million-ringgit of debt was sold. Total Islamic bond issuance in the Gulf has declined 32 percent to $4.5bn so far this year.

“If there is more Gulf issuance next year, then it’s likely that a regional bank with strong local corporate ties will be on a lot of those deals, even if Gulf companies sell ringgit sukuk,” Khalid Howladar, a Dubai-based senior credit officer at Moody’s Investors Service, said in a telephone interview December 22.

National Bank of Abu Dhabi PJSC, the United Arab Emirates’ second-largest lender by assets, sold 500 million ringgit of ten- year sukuk this month. The bank’s 4.75 percent ringgit- denominated sukuk due June 2015 yielded 4.02 percent when the debt last traded November 19, according to prices provided by Bursa Malaysia Bhd.

The yield on Malaysia’s 3.928 percent Islamic notes due June 2015 was little changed at 3 percent today, according to prices from Royal Bank of Scotland Group Plc.

The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s has narrowed 74 basis points, or 0.74 percentage point, since June 30 to 342, data compiled by Bloomberg show. The yield on Dubai’s 6.396 percent sukuk due November 2014 was little changed at 6.50 percent today, according to Bloomberg data.

Global sukuk returned 12.6 percent this year, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. Emerging-market debt returned 11.9 percent, JPMorgan Chase & Co’s EMBI Global Diversified Index shows.

The difference between the average yield for emerging- market sukuk and the London interbank offered rate narrowed 170 basis points this year to 298 on Wednesday, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. In the GCC, the gap shrank 177 basis points to 368.

CIMB is working on ringgit-denominated sukuk in January from both Malaysian corporate and government entities, with “initial issuances” from 500 million ringgit to 1 billion ringgit, Badlisyah said.

“As far as prospects are concerned, the ringgit issuances will remain significant for 2011, but definitely there will be more issuances out of the gulf as the market has stabilised,” he said. “I think you’ll probably see a fairly balanced composition for next year in terms of dollar issuances and local currency issuances.”

CIMB has “the largest reach and the biggest pool of investors,” Edward Iskandar Toh, a fixed income manager at Areca Capital Sdn in Kuala Lumpur, said in a telephone interview on Wednesday. “They have been very aggressive and very professional and with more Gulf issuers looking at Malaysia, CIMB’s set to continue to lead.”

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