Kuala Lumpur: Global sukuk sales will challenge this year's record of $46 billion in 2013 as countries such as Oman, Tunisia and Egypt tap the market for the first time, CIMB Group Holdings and OCBC Al Amin Bank say.
Borrowing costs on Sharia-compliant debt have fallen 11.4 percentage points to 2.82 per cent since the end of 2008 as central banks in Europe, the US and Japan pumped funds into their economies to spur growth.
Demand will be driven by the rise in Islamic banking assets, which may reach $1.8 trillion next year, compared to $1.3 trillion in 2011, led by Saudi Arabia and Malaysia, Ernst & Young forecast in a December 10 report.
Sales of bonds that comply with Muslim tenets jumped 24 per cent in 2012 as companies sold debt as part of government programmes in Asia and the Middle East to build railways, ports and roads. Thailand and South Africa have also announced plans to issue sukuk once legislation has been passed that will open up new markets for investors.
|"Sukuk is an attractive channel to explore for those countries looking to expand funding sources," Kuala Lumpur-based Alhami Mohd Abdan, head of international finance and capital markets at OCBC Al Amin, a unit of Singapore's Oversea- Chinese Banking Corporation, said in an interview. "Liquidity in the Islamic space is growing quite significantly."
The biggest sales came out of Saudi Arabia and Qatar amid development programmes of $373 billion and $130 billion, respectively. Malaysia has embarked on a $444 billion spending spree over 10 years that helped spur Islamic bond offerings to an all-time high of 95 billion ringgit ($31 billion) in 2012, according to data.
Saudi Electricity sold $1.75 billion of notes due in 2017 and 2022 in March. The yield on the five-year 2.665 per cent securities has since dropped 55 basis points, or 0.55 percentage point, to 1.95 per cent, according to data.
Borrowing costs on global Sharia-compliant bonds fell 117 basis points this year and reached a record low of 2.76 per cent on November 30, HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. Qatar completed a $4 billion offering in July. The yield on the 2.09 per cent notes due in 2018 declined 14 basis points since the sale date to 1.96 per cent.
"There's an increasing number of governments from the Middle East and North Africa region looking to tap the sukuk market as part of efforts to widen their funding sources following the European debt crisis," Zakariya Othman, head of Islamic ratings at RAM Ratings Services, said in an interview in Kuala Lumpur.
"They're also probably doing so to meet demand from their Muslim populations as there's now greater awareness of Islamic finance globally."
Sharia-compliant bonds sold on the international market returned 9.5 per cent this year, compared to 7.2 per cent in 2011, according to the HSBC/Nasdaq gauge. JPMorgan Chase's EMBI Global Composite Index of emerging-market securities gained 18.2 per cent, versus 8.5 per cent.
The difference between average yields on sukuk, which pay returns on assets to comply with Islam's ban on interest, and the London interbank offered rate narrowed 92 basis points in 2012 to 181 basis points as of December 21, according to HSBC.
In Malaysia, borrowing costs on the 3.928 per cent dollar- denominated Islamic notes due in 2015 dropped three basis points this month to 1.29 per cent, near the all-time low of 1.28 per cent reached on December 14, according to data.
The difference between Dubai's 6.396 per cent securities maturing in November 2014 and Malaysia's debt narrowed 14 basis points in December to 79 basis points as of December 21.
Central banks in the US, Japan and Europe have eased monetary conditions to support growth. The Federal Reserve has pledged to keep borrowing costs near zero until late 2014, while rates in the euro area and Japan are at 0.75 per cent and zero to 0.1 per cent, respectively. That compares to 2 per cent in Saudi Arabia, 3 per cent in Malaysia and 5.75 per cent in Indonesia.