Wednesday, April 29, 2009

A lot of news about the sukuk market

Sukuk

Some analysts believe that greater regulation of the sukuk market is needed to attract foreign issuers like Malaysia has. The greater availability of daily prices of sukuk would also help to make the asset class more transparent and appealing to both issuers and investors.

Bahrain is planning a $500 million government sukuk issue to cover the deficits caused by the steep fall in oil prices in 2008. The Central Bank of Bahrain, which issues short-term Al-Salam and Al-Ijara sukuk is planning to issue five year sukuk of unspecified size and coupon.

GS Caltex Corp, a South Korean oil refiner, will become the first Korean issuer of sukuk when it completes its RM1 billion ($278 million) raise in Malaysia.

The London Review of Books has an article on Islamic finance that is generally interesting although not everything in it squares with reality.

The Turkish government sold Lira 737.8 million ($461.1 million) in "revenue-indexed bonds" which links the coupon payments to the government's share of revenue generated by state companies. The government planned on selling up to Lira 1.854 billion in the Islamic bonds that resemble musharaka. Although the maximum issue amount was not met, the proportion of the maximum that was issued was greater than the country's first issue in January 2009 where one-quarter of the planned issue of Lira 1.89 billion was purchased.

Malayia's Securities Commission chairman believes that only $10 billion in sukuk will be issued globally in 2009. This would be significantly below the level in 2008 which was well short of the total issued in 2007. The first quarter was weak but if credit markets in general and sukuk markets in particular unfreeze, there is a large pipeline of sukuk waiting to come to market. Islamic banks are more optimistic, expecting to see between $4 and $7 billion in sukuk from Southeast Asia alone.

Other News

The Dow Jones Islamic Market Index commentary for April is available.

Amlak and Tamweel, two Islamic mortgage lenders in Dubai, will begin lending as separate entities before the final plan that is likely to lead to a merger is announced. Prices in the property markets in Dubai fell over 40% in the first quarter of 2009 according to the Colliers International Housing Price Index.

AAOIFI will initiate a study about how the Islamic finance industry "adheres to its benchmarks with a view to standardizing products". They will seek to determine the degree of Shari'ah-compliance with the institution's 40 standards.

Standard & Poor's and Moody's came out with reports on the GCC and Asian sukuk markets, respectively and the general message was that the market conditions in global credit markets had hampered new issuance, but that the industry was well positioned to grow.
Moody's said: "Sovereign sukuk issuance has already brought significant vitality to the Asian market in 2009. In the medium term this could allow activity to fully rebound,"

S&P said: "We believe that the underperformance in sukuk issuance is due in large part to the effects of the global economic downturn, specifically its influence on capital market issuance in GCC states. We are of the view, however, that notwithstanding the current state of the financial markets, the GCC will be the focus of most infrastructure and project finance sukuk activity in the short to medium term. This is because sukuk funding structures provide an alternative to the traditional bank financing that shows no immediate signs of return in the currently dislocated financial markets."

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