Political tumult in the Middle East leaves Abu Dhabi looking attractive to sukuk investors.
Holding steady amid turmoil
Companies in Abu Dhabi and other stable Gulf areas are likely to enjoy smooth access to financing even as political turmoil sweeps across much of the Middle East, Islamic finance executives said yesterday.
Along with Qatar, the Abu Dhabi Government is the most highly rated sovereign in the Middle East, ensuring that its companies can raise money cheaply, Raja Teh Maimunah, the global head of Islamic markets at Bursa Malaysia, said at the Global Financial Markets Islamic Forum in Dubai.
"There's no other [regional issuer] that can lend [at "AA"] but Abu Dhabi, especially with the downgrade of Bahrain," she said. "Yields unfortunately have spiked, but we need stable jurisdictions like Abu Dhabi."
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Both Fitch and Standard & Poor's, the credit ratings agencies, rate Abu Dhabi as "AA", while Moody's rates the emirate "Aa2". Ratings agencies downgraded Bahrain last week.
Abu Dhabi does not have any traded sukuk on the market at the moment, but some government-related entities may be able to raise money more cheaply when issuing Islamic bonds because of the emirate's financial muscle.
Yields on Gulf sukuk have risen as investors seek to pull out of the Islamic finance market. Average yields have increased 70 basis points since January 25, when Egypt's unrest began, according to the HSBC-Nasdaq Dubai GCC US Dollar Sukuk Index.
Lim Say Chong, an executive vice president of Al Hilal Bank's investment banking group, said the launch of Islamic repurchase agreements, announced by National Bank of Abu Dhabi, would be "very important to develop the market for quality sukuk". The lack of a secondary market for sukuk has until now dissuaded companies from tapping credit markets for new funds, he said.