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Friday, 2 November 2007

Gulf sukuk market set to bounce back next year

MANAMA: The Gulf Islamic bond market is likely to recover from the global credit crunch by April as companies get used to higher borrowing costs after a summer of turmoil that largely killed off sales, a poll showed. Ten of the 11 bankers and analysts polled by Reuters this week said the value of Islamic bonds, or sukuk, waiting to come to market by June 30 next year was worth at least $10 billion.
"Sukuk as an asset class is going to continue to grow," HSBC's managing director for Middle East Capital Markets Declan Hegarty said.
"There are a lot of discussions about the best time to come back to market. There's no shortage of liquidity for the right deals," he said.
A global credit crunch triggered in June by defaults on US home loans prompted firms to shelve bond sales as banks around the world became more reluctant to lend, driving up borrowing costs.
The crisis broke as bankers in the world's biggest oil-exporting region were cancelling holidays for a summer of sukuk sales in a what is already a record year for the Islamic bond market.
Gulf borrowers had raised about $13.2bn in sukuk at the end of August, topping last year's record of $9bn and overtaking sales in Asian Islamic finance hub Malaysia for the first time, according to ratings agency Moody's. Almost all the sales took place before July.
Seven of the 11 respondents expected Gulf Islamic bond sales to have recovered to pre-credit crunch levels by the end of March, and three said it would take until the end of June.
One thought it would take longer.
All 11 respondents expected borrowers to grow accustomed to wider spreads, rather to than wait for them to fall to pre-June levels before returning to the market.
Spreads for more than $15bn of Islamic bonds that are part of a sukuk index started by HSBC and the Dubai International Financial Exchange have more than doubled since the end of June to 125 basis points over the London Interbank Offered Rate compared with 65 basis points, according to HSBC.
"Any issuer will have to get used to somewhat wider spreads. Forget about the old levels," Deutsche's Head of Middle East Structuring Geert Bossuyt said.
Four of the 11 respondents estimated the value of the Gulf sukuk pipeline to June 30 to be at least $10bn. Three said it would be worth at least 13bn.
Only one forecast a pipeline of less than $10bn, with $19 bn the highest estimate in the poll.
Demand for sukuk has surged as more of the world's 1.3bn Muslims seek investments that comply with their beliefs. - (GD, 1 Nov 07)

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