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GCC sukuk activity rebounds

Abdul Basit / 4 November 2010

DUBAI — Sukuk in the Gulf Cooperation Council (GCC) nations are back on track as the Shariah-compliant products witness continued development with major issues originated from Qatar and Saudi Arabia during October.

Last month,  $5.3 billion worth of sukuk were issued globally taking the total issued in the first ten months of 2010 to $39 billion, according to data compiled by Zawya’s Sukuk Monitor.

Sukuk is known as Islamic bond, but actually its certificates of ownership. Sukuk are asset-backed securities designed to provide a relatively fixed stream of investment income without violating the Islamic prohibition on interest.

In November, the UAE witnessed $750 million sukuk by one of the country’s largest Islamic financial institutions. Abu Dhabi Islamic Bank, or ADIB, issued $750 million sukuk - part of its $5 billion sukuk programme. This benchmark sukuk will be listed on the London Stock Exchange.

“Data from Zawya Sukuk Monitor shows that sukuk in the GCC is back on track and the rest of the world is warming up to the benefits of Islamic bonds,” said Adnan Halawi, Senior Sukuk Analyst, Zawya. “October was marked by diversity of issuing countries with major issues from Qatar, Saudi Arabia, Malaysia and Indonesia.”

On October 7, Qatar Islamic Bank issued a $750 million wakala sukuk. Rated ‘A’ by Fitch and listed on the London Stock Exchange, the issue represented the first corporate issue out of Qatar this year.

The Saudi-based Islamic Development Bank (IDB) followed suit by issuing a five-year $500 million - part of its $3.5 billion IMTN sukuk programme on October 27.

The month concluded with Malaysia’s toll-road operator Konsortium Lebuhraya Utara-Timur (Kesturi) issuing an MYR820 IMTN sukuk in the domestic market to redeem existing sukuk.

The long-delayed $1billion Jubail Refining and Petrochemical Company’s sukuk is expected to launch in the fourth quarter. Also from Saudi Arabia, Ahmed Salem Bugshan Group is said to be planning to raise as much as $100 million, selling five-year Islamic bonds to fund projects. In Pakistan, the government may sell around Rs40 billion of sukuk in November.

Separately, sukuk and bond issuances in the Middle East and North Africa (MENA) region totaled $24.2 billion in the first half of 2010, staging a broad-based recovery and ushering in much needed stability to regional capital markets.

Planned capital expenditure and infrastructure investments are likely to drive the MENA debt markets in the coming quarters, staving off the period of uncertainty currently prevalent due to the European sovereign debt crisis and the Dubai World restructuring.

The Mena bond market with its huge untapped potential is a fertile ground for investors, particularly retail investors, according to a latest report ‘MENA Bond Market: Untapped Potential and its Impact on Your Portfolio’ by alternate asset management firm, Al Masah Capital.

“The sizeable sukuk pipeline for 2010 and 2011 indicates significant expansion of debt financing in the region. The situation has improved markedly as there have been key, successful issuances in the MENA bond markets in the first half of this year,” said Shailesh Dash, Founder and Chief Executive Officer of Al Masah Capital.

“The recent issuances have provided stability to bond markets, raising optimism over its future performance and lifting overall investor sentiment. We believe that the recovery in oil prices and high amount of economic activity in the form of massive investments in non-oil sectors will aid the future growth of debt markets in the region,” Dash said.


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