Saudi companies set to lead 2011 debt sales

Kingdom may overtake Malaysia as the largest issuer of Islamic bonds for the first time
Saudi companies set to lead 2011 debt sales
ISLAMIC BONDS: Sales of Islamic bonds from six issuers in the six-nation Gulf Cooperation Council dropped 32 percent to $4.5bn in 2010 (Getty Images)
By Bloomberg
Mon 20 Dec 2010 09:16 AM

Saudi Arabia 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.

Saudi Electricity Co, the Arab
world’s largest utility by market value, will finance more than SR30bn ($8bn)
of projects, CEO Ali Al Barrak said in a December 14 interview.

Saudi International Petrochemical Co
said on December 14 it may sell as much as SR2bn of Shariah- compliant debt in
the first quarter. Sukuk from borrowers in the largest Arab economy totaled
$2.3bn this year, compared with $7.3bn of local-currency debt sales in
Malaysia, data compiled by Bloomberg show.

“The Saudi market could easily
become the largest sukuk issuer simply because Saudi sukuk are much larger,”
Tariq Al Rifai, director of Islamic Market Indexes in Dubai for Dow Jones
Indexes, part of a joint venture 90 percent owned by CME Group Inc and 10
percent by News Corp’s Dow Jones & Co, said in an e-mailed response to
questions on December 17.

The world’s largest oil exporter
announced in August a five-year development plan to spur economic growth,
create jobs and diversify its economy away from hydrocarbons. Borrowers from
the kingdom are tapping the Islamic debt market to fund expansion, John
Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh, said on December

State-controlled Saudi Electricity
and Dar Al Arkan Real Estate Development Co, the biggest Saudi developer, led
sales of sukuk from the Gulf this year, according to data compiled by

Saudi Electricity sold SR7bn of
20-year Islamic bonds in May at 95 basis points more than the three-month Saudi
riyal interbank offered rate. Investors placed SR27bn of bids, the company said
May 12.

Dar Al Arkan sold $450m of sukuk in
February. National Commercial Bank, Saudi Arabia’s largest lender, will sell
its first sukuk in the second quarter, Executive Vice President Abdulrazzak
Elkhraijy said on November 22.

Companies in the kingdom are in a
“unique position in raising much more cost competitive capital than anyone else
in the region due to the low risk profile of Saudi Arabia,” Sfakianakis said in
a telephone interview. “There is no doubt that 2011 will be a solid year for
private-sector growth.”

Economic growth in Saudi Arabia will
accelerate to 4.5 percent in 2011 from 3.4 percent this year, the International
Monetary Fund said in its World Economic Outlook report in October. The
country, which holds 20 percent of the world’s proven oil reserves, is rated
Aa3 by Moody’s Investors Service and AA- by Standard & Poor’s, the fourth-highest

Sales of Islamic bonds from six
issuers in the six-nation Gulf Cooperation Council dropped 32 percent to $4.5bn
in 2010, the least since 2005, after debt restructurings, defaults and tumbling
property prices hurt investors’ confidence.

The Malaysian government’s 10-year
initiative for private- led projects ranging from a nuclear power plant to an
underground rail network will spur sales of Shariah-compliant debt, Kuala
Lumpur-based RHB Investment Management Sdn.’s Chief Executive Officer Sharifatul
Hanizah Said Ali said on December 15.

“There is more demand from local
investors for Malaysian ringgit sukuk than there is local demand for sukuk in
the Middle East,” Naji Nabaa, a Dubai-based associate director of fixed- income
sales for the Middle East and North Africa at Exotix Ltd., an investment bank
specializing in infrequently traded assets, said in a telephone interview on
Sunday. “Malaysia will continue to dominate the sukuk market in 2011 in terms
of the number of Islamic bonds issued.”

The extra yield investors demand to
hold Dubai’s government sukuk rather than Malaysia’s narrowed 69 basis points
this month to 338, data compiled by Bloomberg show. The yield on Dubai’s 6.396
percent sukuk maturing in November 2014 dropped 2.2 basis points to 6.57
percent on December 17, according to Bloomberg data.

Shariah-compliant debt in the GCC
returned 12.9 percent this year, HSBC/NASDAQ Dubai GCC US Dollar Sukuk Index
shows. Global sukuk returned 12.9 percent this year, according to the
HSBC/NASDAQ Dubai US Dollar Sukuk Index. Bonds in developing markets gained
11.4 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
61 basis points this month to 300 on December 17, according to the HSBC/NASDAQ
Dubai US Dollar Sukuk Index. In the GCC, which includes Qatar, the UAE and
Kuwait, the gap shrank 67 basis points to 372.

Petrochemical makers in the Arabian
Gulf will invest $50bn by 2015 and boost output by 46 percent to 154 million
tons annually over the period, Abdulwahab Al Sadoun, secretary general of the
head of the Gulf Petrochemicals & Chemicals Association, said in Dubai on
December 6. Most of the investments are expected to be made in Saudi Arabia, he

“Saudi utilities and smaller
corporates will most likely look at riyal sukuk, just because the domestic
demand is there,” said Al Rifai.


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