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Sunday, 30 June 2013

HSBC sees record 2013 sukuk sales on yield resilience

Sukuk sales in 2013 will pick up speed to beat last year’s record because of the relative resilience of Islamic debt to surging global bond yields, said HSBC Holdings and Deutsche Bank, the top two underwriters.

Issuance will reach $55bn to $60bn, from $46.5bn in 2012, Rafe Haneef, chief executive officer at HSBC Amanah Malaysia, said in a June 20 interview in Kuala Lumpur.

Second-placed arranger Deutsche Bank also forecasts an all-time high this year, even though offers are currently 11% less than at the same point in 2012 and on track for the slowest quarter since 2011, data compiled by Bloomberg show.

“The sukuk market has been more resilient during periods of volatility because it’s often been a sellers’ market,” said Rafe. “When the volatility starts to creep in, many want to hedge their bets by getting the maximum number of investors.”

The prospect of the Federal Reserve tapering its monetary stimulus has pushed the average yield on global sukuk up, the HSBC/Nasdaq Dubai US Dollar Index shows.

The Shariah market has many “buy-and-hold” investors, reducing price swings, said Michael Zorich, chief investment officer at Kuala Lumpur-based CIMB-Principal Islamic Asset Management.

“If investors get the feeling rates are going to continue to go up, then it will encourage issuers to come to the market this year,” he said in a June 21 interview. “So although we may see a pause, we may catch up toward the end of the year.”

Islamic debt has lost 2.5% in 2013, according to the HSBC/Nasdaq gauge, while non-Islamic bonds dropped 11.2%, JPMorgan Chase & Co’s EMBI Global Index shows.

The extra yield investors demand to hold emerging-market debt over sukuk increased 55 basis points to 2.11 percentage points this year, the most since October 2011, according to the HSBC/Nasdaq and JPMorgan Chase indexes.

Felda Global Ventures Holdings set a June 7 deadline for banks to submit proposals for its multi-currency sukuk programme, three people familiar with the matter who asked not to be named because the information is private said June 4. They would be the debut Islamic bonds from the Malaysian palm-oil producer, which completed the world’s third-largest initial public offering of 2012.

Singapore’s Swiber Holdings, an offshore oil and gas engineering company, is planning to raise S$150mn ($118mn) selling Shariah bonds via private placement in its debut offer, a person with knowledge of the deal who asked not to be named because the information isn’t public, said on June 5.

Islamic Development Bank sold $1bn of 2013’s lowest- priced sukuk, with a profit rate of 1.535%, earlier this month. The offer drew bids of about $1.5bn from sovereign wealth funds, supranational agencies and central banks, according to Standard Chartered, one of the arrangers.

“The high borrowing costs in the conventional markets contributed heavily to the current growth” of Shariah-compliant sales, Salah Jaidah, Dubai-based Islamic finance chairman at Deutsche Bank, which also helped manage the IDB sale, said in an e-mailed response.

Worldwide sales of debt that comply with Islam’s ban on interest are at $18.8bn so far in 2013, according to data compiled by Bloomberg. The $5.8bn of offers this quarter is the least since $5.2bn in the three months through September 2011.

“We’re behind pace to date,” CIMB-Principal’s Zorich said. “We have heard that some deals are re-thinking coming to the market,” he said, adding that if that happened then total sales would probably be less than last year.

The amount of outstanding sukuk worldwide reached $267.6bn at the end of 2012, according to a March report by Malaysia’s Securities Commission. That’s still less than one-third of the $950bn of international demand for the notes predicted by 2017, according to a report by Ernst & Young LLP released in December.

Shariah-compliant bond sales will finish this year at “near the same levels” as in 2012, Wasim Saifi, chief executive officer at Standard Chartered Saadiq, a unit of the third-placed sukuk arranger, said in a June 20 interview.

“The current market volatility may have some effect on the issuance timing but the relative pent-up demand for Islamic instruments from investors may mitigate this effect,” Kuala Lumpur-based Wasim said. Sales will be supported by “the liquidity available with the Islamic investors,” he said.

(Gulf Times  / 30 June 2013)

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