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Thursday, 29 May 2008

Gulf Islamic bond sellers shun dollar, eye ringgit

By Stanley Carvalho and Souhail Karam

ABU DHABI/RIYADH, May 28 (Reuters) - Two Gulf borrowers are planning to sell ringgit Islamic bonds in Malaysia, in the latest move that highlights the rising cost of borrowing in U.S. dollars, the previous Islamic bond denomination of choice.

A global credit crunch triggered by defaults on U.S. home loans has made dollar borrowing more expensive, and bets that Gulf states could allow their dollar-pegged currencies to appreciate to dampen inflation has seen dollar assets fall from favour.

National Bank of Abu Dhabi NBAD.AD (NBAD) plans to sell up to $925.6 million in ringgit-denominated bonds, which could include an Islamic tranche, the lender told Reuters.

The Saudi-based Islamic Development Bank also told Reuters it plans to sell $1 billion of ringgit-denominated Islamic bonds this year.

Meanwhile, Dubai Electricity and Water Authority (DEWA) priced its benchmark size dirham-denominated Islamic bond sale at 125 basis points above the 6-month Emirates Interbank Offered Rate, the top end of initial price guidance, arrangers said.

"We see a lot of investors saying they do not have U.S. dollars available...The cost of lending dollars has gone up tremendously," a banker at one of Asia's largest banks who declined to be named said.

Almost all Islamic bonds, or sukuk, issued in recent weeks have been priced in United Arab Emirates dirhams and Saudi riyals.

Bankers say Gulf firms are trying to diversify their investor base, and that more Islamic banks are looking to raise cash in Malaysia's Islamic bond market, which is more liquid and has a better regulatory framework than local markets.

"More Gulf firms are looking at Malaysia for Islamic bond issuance. There is a better regulatory framework and the market is more established," Shamsun Hussein, head of debt markets at Malaysia's CIMB Islamic, told Reuters in Manama.

The Islamic Development Bank said its ringgit bonds were likely to have a tenor of five years and would finance infrastructure and industrial projects in Malaysia.

NBAD's sale was to finance expansion, and is part of the bank's $5 billion Euro Medium Term Note (EMTN) program, launched in 2006, through which $2 billion of bonds have already been sold, Investor Relations Officer Abhishek Kumat told Reuters.

He declined to give a timeline for the sale.

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