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Sunday, 24 May 2009

Asian Currency Sukuk Sales to Jump on Risk Appetite, CIMB Says

May 22 (Bloomberg) -- Islamic bond sales in Asian currencies may jump in the next six months as companies compare borrowing costs and investors become more willing to accept risk, according to the top underwriter of the securities since 2007.

“The supply pipeline looks pretty good and momentum is very strong,” Lee Kok Kwan, CIMB Investment Bank Bhd.’s head of treasury, said in phone interview from Kuala Lumpur. “People are beginning to regain their risk appetite and issuers are looking at dollar credit spreads versus local-currency credit spreads and seeing the local-currency space is much cheaper.”

Sales of Islamic bonds, known as sukuk, plunged to $13.9 billion last year amid the global credit crisis after soaring to a record $31 billion in 2007 as oil earnings boosted Arab wealth. Sales by Asian nations including Singapore and Indonesia are bringing “vitality” to an otherwise dormant market as governments seek to position themselves to win business when volumes recover, Moody’s Investors Service said last month.

Indonesia’s first international sale of dollar sukuk drew orders for $4.7 billion, seven times the $650 million of securities on offer, debt management office Director General Rahmat Waluyanto said April 17. The Monetary Authority of Singapore in January sold Shariah-compliant bonds as the city seeks to attract a larger pool of international investors.

Yield Spread

Indonesia’s sukuk due 2014 were priced to yield 8.8 percent, or 705.3 basis points more than the yield on similar- maturity U.S. Treasuries, according to data compiled by Bloomberg. State-owned aircraft lessor Penerbangan Malaysia Bhd. in March sold 1.5 billion ringgit ($426 million) of five-year sukuk priced to yield 3.85 percent, or 49 basis more than Malaysian government debt, the data show. A basis point is 0.01 percentage point.

Sukuk use asset returns to pay investors instead of interest, which is prohibited by Shariah law.

“The ringgit market has had a very good start, the rupiah market is coming along quite nicely and even the baht market for corporates is reasonably strong,” Lee said. “Governments in the region have been doing quite a bit, especially Singapore, but it helps to have a core Muslim population large enough because at least there is always that base to work from.”

The Monetary Authority of Singapore on May 7 issued rules to boost the city-state’s share of Islamic banking assets, including giving incentives for banks to offer Shariah-compliant services and equalizing tax, regulatory and liquidity treatment of Singapore-dollar Islamic bonds with government securities.

Top Underwriter

CIMB Investment, a unit of Malaysia’s third-largest financial services company, is the biggest sukuk underwriter this year after helping clients including Penerbangan, Cagamas Bhd. and Danga Capital Bhd. sell $794 million of sukuk, Bloomberg data show. The bank arranged $2.91 billion of sales last year, ahead of HSBC Holdings Plc with $1.42 billion.

Issuers that have said they plan to sell sukuk include Terengganu Investment Authority Bhd., the first wealth fund set up by a Malaysian state, and PLUS Expressways Bhd., Malaysia’s biggest toll-road operator.

“Transactions that were shelved at the end of last year are coming through now, so I expect this market to be very active for a while,” Lee said.

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