Global Islamic bond sales, which had the busiest first three quarters on record, are mired in what’s set to be the worst end to a year since 2008.
Borrowers have raised $1.9 billion in the fourth quarter so far, 73 percent less than in the same period a year ago, according to data compiled by Bloomberg. Issuers have also sold the fewest number of securities in six years, Bloomberg data show.
During the first nine months, the U.K., Luxembourg, South Africa and Hong Kong were among debut issuers of Islamic bonds entering a market that Ernst & Young LLP estimated will exceed $3.4 trillion by 2018. Some borrowers probably accelerated sales on concern borrowing costs may rise as the Federal Reserve ended its bond buying program, according to Jefferies International Ltd.
“It will end up being a very slow quarter, with dismal sentiment,” Richard Segal, the London-based head of international credit strategy at Jefferies, said by e-mail on Nov. 10. Explanations include “expectations of possible Fed tightening,” which encouraged borrowers to bring their sales forward, he said.
The slowdown threatens to derail issuance in a year that some banks -- including CIMB Group Holdings Bhd. and Standard Chartered Saadiq -- had expected to exceed 2012’s record of $46.8 billion.
Borrowers in Malaysia, Saudi Arabia and the United Arab Emirates, all oil producers, are the biggest issuers of sukuk, according to data compiled by Bloomberg. Sales this quarter may have slowed after crude prices declined 14 percent in the period to $80.96 a barrel at 11:10 a.m. in Dubai, the lowest in four years. Economies in the six-nation Gulf Cooperation Council in the Middle East rely on oil revenue to fund growth.
“There was a lot of volatility at the end of September and the beginning of October,” Abdul Kadir Hussain, chief executive officer of Mashreq Capital DIFC Ltd., which manages about $1.2 billion, said by phone from Dubai on Nov. 10. “There were major sell-offs and major volatility, which has caused a lot of issuers to wait longer than they would have wanted to.”
The average yield on global sukuk rose to 2.82 percent on Nov. 10 from 2.77 percent on Sept. 9, the lowest since May 2013, according to a gauge compiled by Deutsche Bank AG.
While the quarter has started slowly, Hussain said “the pipeline for the remainder of the year is quite strong.”
Issuers including Bahrain Mumtalakat Holding Co. and FlyDubai may sell debt this quarter, according to people familiar with the deals. CIMB and Standard Chartered, which rank first and fourth in arranging sukuk sales this year, said in June that issuance may rise to about $50 billion from $43.1 billion in 2013. Borrowers have raised $38.8 billion this year.
“There’s been a surge in issuance in the past few years, so a lull would be natural at some point,” Segal said. “Unusual first time issuers such as the U.K. and South Africa have entered the market, as will other non-traditional borrowers, but they are more likely to take their time.
KUALA LUMPUR: There is a growing role for Japan in the development of the Islamic finance market, says RAM Ratings at an Islamic Finance conference on Wednesday.
RAM said tax reforms were introduced in 2011 to level the playing field for the issuance of J-Sukuk and conventional bonds for tax purposes, and amendments had also been made to Japanese Securitisation Law to facilitate the issuance of J-Sukuk.
It said while there had yet to be any issuance of J-Sukuk in the Japanese market, BTMU Malaysia Bhd – a wholly-owned subsidiary of Bank of Tokyo-Mitsubishi UFJ, Japan's largest lender – had taken the first important step.
In September this year, it became the first Japanese bank to enter the Sukuk market in when it debuted a US$500mil Sukuk programme in Malaysia.
The conference was jointly organised by RAM and the Rating and Investment Information Inc (R&I), Japan's largest credit rating agency with nearly 40 years of bond market and credit rating experience.
More than 150 members from financial institutions, insurance companies, pension funds and corporates from Tokyo.
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