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Global Sukuk: Shorter And Wider

September 1, 2011

Sukuk issuance speeded up ahead of Ramadan, with short-term and cross-border sukuk witnessing a rising trend, writes Adnan Halawi, Zawya’s fixed income analyst.

July 2011 witnessed the issuance of benchmark sukuk globally. The month started with the closing of a two-tranche USD2 billion Wakala global sukuk by the Malaysian government and ended with the reopening of the Government Investment Issue which helped the government raise another MYR4 billion (USD1.34 billion) in the domestic market.

The Malaysian government also sold a series of BNM-IDMs throughout the month bringing the total of sukuk issued by the Malaysian government in July to USD5.7billion.

Similarly, the GCC region witnessed a relatively fast pace of sukuk issuance during July, albeit at a corporate level. The month started with the closing of an SAR1.8 billion (USD480 million) sukuk by Saudi International Petrochemical Company. Sipchem’s first sukuk was sold domestically, limited to local sophisticated investors, oversubscribed and got listed on Tadawul, the Saudi stock exchange.

Two weeks later, Saudi Binladin Group sold SAR1 billion one-year sukuk domestically. The company’s third sukuk comes on the heels of an earlier nine-month sukuk that was fully redeemed in April. Qatar’s Almana Group chose to sell its second sukuk internationally and managed to sell USD215 million of a sukuk that got listed on London Stock Exchange (LSE).

The biggest deal came out of the UAE, where the country’s fourth biggest lender, First Gulf Bank, announced the sale of a first tranche under its USD3.5 billion program. The bank managed to sell USD650 million to close on August 2 and will also be listed on LSE.

From Kuwait, Gulf Investment Corporation (GIC) priced its second tranche under the MYR3.5 billion MTN program. The MYR750 million (USD250 million) is of a five-year tenor and carries a coupon of 4.9%.

Besides a notable comeback for GCC sukuk, it is worth examining some of the dynamics that shaped the sukuk market in July and thus far this year, dynamics that are expected to persist through the rest of 2011.

Short-term sukuk a global phenomenon

One interesting development in the global sukuk market is the ever increasing number of short-term sukuk. In Malaysia, it is a very common phenomenon to see companies and Bank Negara Malaysia issue short-term Islamic paper – the latter aiming to manage liquidity. Similarly Central Bank of Bahrain and Central Bank of Gambia are regular issuers of short term Ijara and Salam sukuk for the same purpose.

However, this phenomenon seems to be changing into a global one. In July, Saudi Binladin Group issued its second short-term sukuk with a one-year tenor – the first being of a nine-month tenor issued last year.

It was also reported in the press that two Pakistani power companies are issuing six-month sukuk. The first was Kot Addu Power Company (KAPCO) which sold PKR1.5 billion (USD17.3 million) on June 25 while the second is Hub Power Company (HUBCO) which is about to sell PKR2 billion (USD23.1 million) in sukuk. Both are arranged by Meezan Bank and together constitute the first such move in the Pakistani market. This step brings Pakistan, which was absent – at least on a corporate level – back to the forefront of the sukuk market as it has always been.

In a similar direction, Indonesia – home to the biggest Muslim population in the world – reaffirmed plans to sell its maiden six-month Islamic Treasury bills on August 2 as part of its efforts to diversify its Islamic bond instruments.

More cross-border sukuk

Another trend is the increasing number of firms and governments choosing to sell their sukuk outside their home countries. The most prominent are GCC issuers selling sukuk in Malaysia. In July, GIC sold a second tranche of its MYR program in Malaysia, following National Bank of Abu Dhabi, which sold two tranches in Malaysia last year under an MYR1.5 billion program.

The Dubai and Abu Dhabi governments, the second through the transport department, and Bahrain-based Gulf International Bank are all whispered to be seeking to sell sukuk in Malaysia as they look at diversifying their funding options and benefiting from liquidity. Cross-border sukuk is mostly visible through GCC issuers selling debt in Malaysia; yet it is not restricted to these geographical areas. Malaysian Khazanah issued a dual-tranche SGD1.5 billion sukuk in Singapore in 2010.

Global regulatory workshop

Different jurisdictions continue to implement changes and enhancements either to allow or to cater for more sukuk issuance. The latest of these is the Securities Commission Malaysia issuing in July the revised private debt securities (PDS) guidelines, sukuk guidelines and trust deed guidelines to enhance the regulatory framework for fundraising and product regulation in the private debt securities and sukuk markets.

The revised PDS and sukuk guidelines streamline the approval process and time-to-market for the issuance of corporate bonds and sukuk. The revisions also facilitate a more informed investment decision-making process with additional provisions to ensure greater disclosure of relevant information to investors.

Listing and trading sukuk

According to data compiled by Zawya Sukuk Monitor, the value of sukuk listed this year is USD6.9 billion – or 13% of the total sukuk issuance. Knowing the important role of listing and trading sukuk in developing the market, global stock exchanges continue to compete to host the biggest possible number of sukuk.

While Qatar Stock Exchange and Abu Dhabi Stock Exchange are keen to start listing and trading sukuk by the end of this year, Bursa Malaysia and London Stock Exchange succeeded in grabbing the biggest share of listed sukuk this year while Nasdaq Dubai was the biggest absentee.

Other trends include the geographical expansion of the sukuk landscape which was addressed in “Slash Taxes, Spur Sukuk” and the introduction of innovative structures that will be addressed in upcoming issues.

Adnan Halawi
Team Leader – Fixed Income


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