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Friday, 1 February 2008

Islamic bond sales to cross $12bn

MANAMA, 1 Feb 08: Gulf Islamic bond sales this year may to top last year's record, but not by much, and borrowing costs that have risen on global credit jitters are unlikely to fall by April.
Ten of the 11 bankers and analysts polled this week said the value of Islamic bonds, or sukuk, to come to market this year would be at least $12 billion, roughly last year's record figure according to ratings firm Moody's.
A global credit crunch triggered last summer by defaults on US subprime loans strangled sukuk supply as firms shelved issuance due to higher borrowing costs.
Most respondents who thought sales this year would be higher than last year did not think they would exceed $16bn, a downward revision from a poll in October, in which 10 out 11 respondents expected sales of $10bn by July alone.
"We should expect the current credit downturn in global markets to result in an adjustment to risk pricing, which may put some issuers on hold," Saudi Arabia's Al Rajhi Corporate Bank head of specialised finance Joseph Rodriguez said.
Average sukuk spreads have widened in line with global credit markets as the US loans crisis has continued. The HSBC/DIFX Gulf sukuk index started the year at 175 basis points over three-month LIBOR and was at 217 basis points on January 23.
Eight of 11 of those polled expected spreads to be at least 200 basis points by April.
"The market is very careful and we have not seen the bottom of the subprime crisis yet," Bahrain-based Albaraka Banking Group's head of treasury and investments Abdulrauf Sivany said.
Demand for sukuk has surged as more of the world's 1.3bn Muslims seek investments that comply with their beliefs.
In the Gulf, growth has been powered by a quadrupling of oil prices since 2002.
European and Asian institutions looking for exposure to booming Gulf economies have also helped boost demand. Gulf sukuk sales overtook those from Malaysia, Asia's Islamic finance hub, last year for the first time.


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