Poll: S-E Asian sukuk mart to stay in doldrums

 

A recent flood of Islamic bond sales has slowed to a trickle as prospects of a global recession shuts down credit lines.

SALES of new Southeast Asian Islamic bonds are unlikely to recover from a four-year low this year as the global downturn weighs, although government issuance will keep the market afloat, a Reuters poll shows.

A recent flood of Islamic bond sales - which have helped fund Gulf property developers and European and Asian state budgets - has slowed to a trickle as prospects of a global recession shuts down credit lines.

Falling property and commodity prices have battered the US$1 trillion (US$1 = RM3.60) Islamic finance industry, dispelling ideas that the sector could soften the blow of the global downturn and offer investors a safer refuge.

Southeast Asia, which accounted for just under half of the US$15.8 billion global Islamic bond sales last year, is expected to see at least US$5 billion of new issuance this year, according to the Reuters poll.

New Islamic bond issuance in the region last year stood at US$6.6 billion, the lowest since US$5 billion in 2004, the Islamic Finance Information Service (IFIS) said.

Four of the survey's 10 respondents said issuance would total at least US$5 billion, two saw sales of at least US$7 billion, one each forecast at least US$6 billion and US$4 billion of issuance and two expect sales to fall below US$3 billion.

Government debt would probably drive the Islamic bonds, or sukuk, pipeline this year with many corporate issuers expected to be deterred by tough market conditions, the survey shows.

"Governments are likely to increase borrowings via sukuk to finance higher fiscal deficits," said Syed Abdull Aziz Syed Kechik, chief executive of OCBC Al-Amin Bank.

"This is based on the fact that most governments have committed to support expansionary policies to help to jump-start the sluggish economy."

Malaysia and Indonesia are expected to account for most of this year's sukuk issuance, with Thailand and Singapore also seen as growing markets. Singapore laun-ched its first Islamic bond programme, worth a total of S$200 million (S$1 = RM2.39), this month.

The infrastructure and financial sectors are likely to be most active issuers among corporates, according to the poll.

Asia's brisk economic growth in recent years had sparked a flurry of sukuk issuance by firms and governments eager to tap demand for ethical investments and assets which comply with Islamic beliefs.

"Widening market spreads over benchmark securities resulting in higher absolute yields will crowd out lower rated borrowers and push up investors mark-to-market losses thereby further exacerbating deteriorating market sentiment," said Cagamas.

Standard & Poor's has forecast that the global sukuk market will not recover before the second half of this year or early 2010 although long-term prospects are positive due to investment needs in the Gulf and the growing popularity of Islamic products. - Reuters