UFS: Islamic Bond Market in Q3 2012
October 9, 2012
In the third quarter 2012 sukuk primary market continued to grow at a quite rapid pace. Thus, during three months (July – September) the market saw $40 billion issued, which twice exceeds the amount issued during the same period last year.
After 9 months the volume of sukuk primary market reached $109 billion, which is 69.0% more than after 9 months 2011.
Despite noticeable growth, the market’s main characteristics remain largely unchanged. Sovereign issuers still prevail: in the third quarter they issued $28.4 billion, or about 74.0% of the total volume of issued sukuk. The largest share of the market is still dominated by the government of Malaysia, which uses sukuk as a traditional refinancing instrument.
In total Malaysian issuers placed sukuk worth $32.0 billion, comprising about 80.0% (!) of the entire market. Besides the state, Bank Negara and the local telecom company Edaran are other leading issuers in Malaysia. Unsurprisingly, about 80.0% of all sukuk placements in Q3 were made in Malaysian ringgits.
It should be noted that Malaysian sukuk market remains interesting not only for local issuers. Foreign companies are also borrowing in this market due to high liquidity and developed regulatory procedures that protect investors and issuers. It is no coincidence that several months ago it was Malaysian market where the first CIS issuer – Development Bank of Kazakhstan – placed its sukuk. In addition, Zawya reports that last month Malaysia developed a legal and regulatory framework for the new type of sukuk – AgroSukuk – that provides access to the market for agricultural companies. Nevertheless, new names also appear on the market. Thus, in mid-September Turkey placed a debut issue worth about $1.5 billion. The issuance was conducted in the local currency – Turkish liras. As early as the beginning of October Turkey entered the market again having borrowed about $905 million.
It is now evident that activity in the sukuk market will not wane till year-end. Many issuers announced plans to place sukuk in the fourth quarter. Among them we should note Saudi Arabian companies Sadara and Saudi Hollandi and the Turkish bank Asia. Besides, Irish supply board is also considering issuing sukuk in Malaysia.
Zawya forecasts that by year-end the volume of sukuk primary market can exceed $150 billion. Yet for a good surge the market needs a larger influx of European and US issuers and foreign liquidity.
Dynamics on sukuk secondary market in September was generally similar to that on global markets. Before the FRS meeting market showed confident growth indicated by DJ Sukuk index (price return). Afterwards the market declined on European debt crisis. In early October the market is again demonstrating positive dynamics.
Yields in the secondary market also reached their several-year minimums. For instance, Dubai construction holding EMAAR Properties (В1/ВВ/-) might borrow for 4 years just at 4.6% per annum, taking into account the issue’s dynamics in the secondary market. In July this Eurobond yielded more than 5.0%. Undoubtedly, such low yields make the market even more attractive for issuers.
Issue — Turkey, 2.803% 26mar2018, USD
Country of riskTurkey
Redemption (put/call option)
М/S&P/F— / — / —