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Wed 1 Dec 2010 06:02 PM

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Nakheel plans sukuk sale in 2011 after slump: Islamic finance

Companies in the region have announced this quarter plans to sell as much as $3bn of sukuk

Nakheel plans sukuk sale in 2011 after slump: Islamic finance
SUKUK SALE: Nakheel is amongst 5 borrowers in the Gulf region that may offer Islamic bonds next year

National Commercial Bank, Saudi Arabia’s largest lender and Dubai developer Nakheel are among five borrowers in the Arabian Gulf that may offer Islamic bonds next year after sales dropped 40 percent in 2010.

Companies in the region announced this quarter plans to sell as much as $3bn of sukuk, according to data compiled by Bloomberg. Five companies in the Gulf raised $4bn through Islamic bonds this year, down from the $6.7bn raised in 2009 by seven issuers, the data show.

“There is a good opportunity to take advantage of the liquidity level among Islamic investors, which has remained high due to the shortage of sukuk sales this year,” Mohammed Dawood, Dubai based director of debt capital markets at HSBC Holdings, the second biggest underwriter of sukuk this year, said in a telephone interview Nov 28.

He added: “We have a number of mandates for the first half of next year for this region and beyond.”

Arabian Gulf companies plan to tap the Islamic debt market after state owned Dubai World’s agreement with creditors to alter terms on $24.9bn of debt boosted confidence. Ernst & Young estimates assets held by Shariah compliant funds are at around $52.3bn. Global sales of sukuk slumped 31 percent this year as concern about defaults prompted investors to demand higher returns from property related issuers. Islamic debt, which pays asset returns to comply with the religion’s ban on interest, is often linked to real estate.

Islamic bonds from Gulf Cooperation Council nations returned 11.5 percent this year, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. The GCC comprises Saudi Arabia, Kuwait, the UAE, Qatar, Oman and Bahrain. Bonds in developing markets returned 12.8 percent, JPMorgan Chase & Co.’s EMBI Global Diversified Index shows.

Dubai’s government hired CIMB Investment Bank, a Kuala Lumpur based unit of CIMB Group Holdings, the world’s top sukuk arranger this year, to manage a sale of between $1bn and $1.5bn of Islamic securities in Malaysia, a person with knowledge of the plan said Nov 24. Emirates Telecommunications, the UAE’s largest telephone company, will borrow as much as $8bn by issuing Islamic and non Islamic debt, the company said Nov 11.

Managers of Islamic endowments with $105bn in assets are seeking to diversify from bank deposits, providing Shariah compliant funds with the chance to capture new business, Ashar Nazim, Manama based executive director and head of Islamic financial services for Ernst & Young, Bahrain, said Nov 9. These “largely untapped” endowments have as much as $40bn of cash parked at commercial banks, he said.

Issuers from emerging markets, including China Investment Corp and Petroleos Mexicanos, raised $665bn from bond offerings this year, according to data compiled by Bloomberg. That compares with $633bn sold in all of 2009.

“If the conventional market becomes crowded with issuers, the marginal Islamic investor base may become more significant to companies that aren’t Shariah-compliant but can still issue sukuk,” Khalid Howladar, a Dubai based senior credit officer at Moody’s Investors Service, said in an emailed response to questions on Nov 28 from London.

Investors pulled money out of emerging market bond funds in the week ended Nov 24, snapping a 25 week run of net inflows, according to data from Boston based EPFR Global released Nov 29. Ireland joined Greece in the past week in accepting European Union led bailouts and North Korea shot artillery shells at a South Korean island, killing four people and prompting retaliatory fire.

“I don’t feel like we’re going to see a huge boom of sukuk issuance,” next year, Lilian Le Falher, the Manama based head of treasury, financial institution syndication and asset management at Kuwait Finance House Bahrain said in an interview yesterday.

He added: “There are a lot of people that are keen and ready to go but there’s still a lot of nervousness in the market and you need to have the right deal.”

The average yield on sukuk sold by Gulf Cooperation Council issuers jumped 10 basis points yesterday to 5.95 percent, climbing for an eighth day, according to the HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index. Yields advanced four basis points last month, the first increase since May.

The yield on Dubai’s 6.396 percent sukuk due November 2014 rose eight basis points to 6.89 percent today, data compiled by Bloomberg show. The difference in yield between Dubai’s notes and Malaysia’s 3.928 percent Islamic note due June 2015 rose eight basis points to 406.

National Commercial Bank, Saudi Arabia’s biggest lenders, plans to sell its first Islamic bond in the second quarter, Abdulrazzak Elkhraijy, executive vice president, said in an interview in Manama, Bahrain, on Nov 22.

Nakheel, the developer of palm shaped islands off Dubai’s coast, may issue a sukuk to trade creditors in the first quarter, Faisal Mikou, executive vice president at the Investment Corp of Dubai, said in Dubai on Nov 28.

QInvest, a Qatari Islamic investment bank, is in discussions with a borrower in the Gulf nation to arrange the sale of an Islamic bond in the first half of next year, Shahzad Shahbaz, chief executive officer, said Nov 28.

Paris based Credit Agricole is working on two or three sukuk from GCC countries, Simon Eedle, global head of Islamic banking at the bank, said Nov 23.

Noor Islamic Bank, a lender controlled by Dubai’s government, is working on two sukuk sales for the first quarter and may underwrite four to five Islamic debt offerings in 2011, Hussain Al Qemzi, chief executive officer, said on Nov 23 in an interview in Manama, Bahrain.

“As soon as this dust from the Irish crisis settles, the market will be very vibrant and you will see more GCC companies coming to the market,” Naeem Ishaque, senior manager of the international division at Abu Dhabi Islamic Bank, the UAE’s second biggest bank complying with Shariah banking rules, said in a telephone interview from Abu Dhabi Nov 29. “Those who didn’t tap the market in the first go will definitely come back.”

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