June 30 (Bloomberg) -- HSBC Holdings Plc is overtaking CIMB Group Holdings Bhd. as the top underwriter of Islamic bonds as sales from the Gulf pick up and corporate issuance from Malaysia, the biggest market for the debt, declines.
HSBC, Europe’s biggest lender by market value, arranged $1.6 billion of global sukuk so far in 2010, about 25 percent of the total, led by Saudi Electricity Co.’s issuance in May, according to data compiled by Bloomberg. CIMB Group, Malaysia’s second-largest banking group, led $1.4 billion of sales of debt that complies with the religion’s ban on interest. Last year, CIMB was the top underwriter, managing $4.4 billion of offerings.
“The origin of the issuer may have an impact on the decision to hire which underwriter,” Azrul Azwar Ahmad Tajudin, chief economist at Bank Islam Malaysia Bhd., the country’s oldest Shariah-compliant bank, said in an interview in Kuala Lumpur yesterday. “If the issuance amount is huge, issuers may have some level of comfort with a foreign bank.”
Sales of Malaysian ringgit-denominated sukuk slumped 44 percent to 9.4 billion ringgit ($2.9 billion) so far this year as companies delayed infrastructure projects after the economy slipped into recession in 2009. The government began a 230 billion ringgit, five-year development plan on June 10, which may revive offerings of Islamic bonds, according to Malaysian rating company RAM Holdings Bhd.
Gulf issuers sold $2.5 billion of Islamic notes in the first half of the year, down 13 percent from a year earlier, Bloomberg data show. Issuers from the Middle East may sell more than $10 billion of bonds in the remainder of the year to refinance debt and fund projects, according to data compiled by Bloomberg. Malaysian companies may sell as much as $5.2 billion.
Global sales of sukuk fell 23 percent to $6.48 billion so far this year, according to data compiled by Bloomberg. Issuance totaled $20.2 billion last year, up from $14.1 billion in 2008.
“We’re a dominant player in the sukuk market” because of our major presence in markets like Dubai and Malaysia, Mukhtar Hussain, chief executive officer of HSBC Amanah, the Islamic banking unit of HSBC, said in an interview in Kuala Lumpur yesterday.
The difference between the average yields on sukuk and the London interbank offered rate widened 10 basis points yesterday, or 0.1 percentage point, to 443. The spread has narrowed 24 this year, and widened 42 basis points for the quarter, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index.
The spread on emerging-market debt and Libor widened three basis points yesterday to 585 based on the EMBI+ index from JPMorgan Chase & Co. The difference shrank 49 basis points so far this year.
Islamic securities returned 0.9 percent this quarter, according to HSBC/NASDAQ Dubai US Dollar Sukuk Index. Debt in developing markets gained 1.2 percent, JPMorgan Chase’s EMBI Global Diversified Index shows.
The yield on Dubai’s 6.396 percent Islamic note maturing in November 2014 has dropped 256 basis points to 7.719 percent since reaching this year’s high of 10.29 percent on Feb. 15, according to Bloomberg bond trader composite prices. The yield gap with similar-maturity U.S. Treasuries shrank 195 basis points to 616.
Malaysia used London-based HSBC and Barclays Capital, along with Kuala Lumpur-based CIMB to underwrite its $1.25 billion sukuk last month. Barclays ranks fifth in Islamic bond sales this year, Bloomberg data show. Samba Financial Group, Saudi Arabia’s second-biggest lender by market value, ranked third after co-managing Saudi Electricity’s 7 billion riyal ($1.9 billion) Islamic bond in April with HSBC.
Saudi Arabian Oil Co., the world’s largest state-owned oil company, and French producer Total SA plan to raise $8 billion, including the sale of Islamic bonds, for a refinery and petrochemical project in the “coming months,” Saleem Shaheen, chief executive officer of Saudi Aramco Total Refining and Petrochemical Co. said at a conference in Abu Dhabi on March 24.
Developer Qatari Diar Real Estate Investment Co. may sell $1.5 billion in 10-year conventional bonds and five-year Islamic securities, said a person familiar with the plan on May 12. HSBC and New York-based Barclays Capital are among banks expected to manage the sale, which could be completed in the next three months, the person said. Spokesmen for HSBC and Barclays declined to comment.
Saudi Arabia’s Islamic Development Bank, based in Jeddah, plans to raise $1 billion to finance projects in member countries, President Ahmed Mohammed Ali was quoted as saying by the Saudi Press Agency on June 9.
Issuers prefer global underwriters to regional banks to manage international bond sales, making it difficult for Malaysian banks, said Nazir Razak, chief executive officer at CIMB Group in Kuala Lumpur.
“There’s still some partiality to global names,” Nazir said in an interview on June 28. “Relationships of global banks with Middle Eastern corporates go back many, many years.” CIMB’s unit in Bahrain offers regular and Islamic financial services, according to its website.
Saudi Arabia, the world’s biggest oil supplier, plans to spend $400 billion by 2013 on infrastructure projects such as roads, airports and water works. The Qatari government and state-owned companies plan to spend as much as $100 billion in the next four years on roads, sewage and water treatment, ports and airports, Finance Minister Yousef Hussain Kamal told reporters in Istanbul on June 10.
“There’s huge investment needed in terms of infrastructure, utilities and transportation” in the Middle East, said Kuala Lumpur-based Zeid Ayer, who helps oversee $1.6 billion of Shariah-compliant assets for a joint venture between Principal Global Investors and CIMB. “They can issue debt to grow their economies and use oil revenue to back those debts. That is something that would be very positive” for the sukuk market, he said.
Indonesia, which has the world’s largest Muslim population, may name three finalists from 11 international banks to help sell its second overseas offering of sukuk in October, Dahlan Siamat, the finance ministry’s head of Islamic financing, said on June 15 in an interview in Kuala Lumpur. The government aims to raise as much as $650 million, he said.