x Abu Dhabi, UAESunday 23 July 2017

Sukuk sales start year in record style

The Gulf is on track for a strong quarter for sukuk sales, with the first six weeks of 2012 proving more popular for issuers than the entire first quarter of last year.

The Gulf has begun the year with record levels of sukuk sales, with funds raised so far this quarter already surpassing the region's pre-crisis peak.

Gulf sukuk sales totalled US$5.69 billion (Dh20.9bn) during the first six weeks of the year, according to data from Bloom-berg, higher than any quarter on record.

Companies in Middle East had built up a sizeable backlog of issuances as wholesale funding markets froze during the Arab Spring and the European sovereign debt crisis, forcing the cancellation or postponement of several planned sales.

The difficulty in issuing conventional bonds last year had convinced more companies that tapping Islamic markets was the easiest way to secure funding, said Debashis Dey, the head of capital markets at the law firm Clifford Chance. "With the current volatility in Europe and also a retreat by the financial institutions in Europe that might buy conventional instruments, there's a view that there's more desire to buy and better pricing in the Islamic market than the conventional."

The worldwide Islamic finance industryis also making a strong start to the year, with global sukuk sales also outstripping the same period last year.

Global Islamic bonds and loans during the first six weeks of the year totalled $6.7bn, compared with $5.9bn during the first quarter of last year, according to Bloomberg.

Deals have also been fewer than the corresponding period last year, with 22 sukuk issued so far this year compared to 33 in the first quarter of last year.

Financial institutions including UAE companies such as Emirates Islamic Bank, First Gulf Bank and Tamweel have taken the lead in issuing sukuk this year.

But companies outside of the financial sector are also dipping their toes into the Islamic bond market. Majid Al Futtaim Holding raised $400 million in sukuk last month.

But it is an issue by Saudi Arabia's General Authority of Civil Aviation that dwarfs all others. The sale of 15bn Saudi riyals (Dh14.6bn) of sukuk via private placement represents the first Islamic bond sale guaranteed by the kingdom's ministry of finance.

The government's stamp of approval for the deal has significance for the development of the region's capital markets, said Walid Khoury, the chief executive of HSBC Saudi Arabia, which advised on the deal.

"Prior to this issuance, issuers priced their new securities against US Treasury bonds - adding a premium for the perceived additional risk," he said. "With no risk-free local benchmark, it wasn't possible to use a local reference point, so instead issuers used this theoretical point. In effect this issuance therefore establishes a local pricing point for future sukuk."


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