HSBC Holdings Plc said global sukuk issuance will probably be below its US$55 billion forecast in 2013, amid the worst quarter for sales in more than three years.
Worldwide offerings dropped 35 per cent to US$4.1 billion, the least since US$850 million was completed in the three months to March 2010, according to data compiled by Bloomberg. This year’s total of US$23.3 billion compares with 2012’s record US$46.5 billion and US$19.3 billion at the end of June, when HSBC, the top Islamic debt arranger in the past 21 months, made its prediction.
HSBC, Standard Chartered Plc and CIMB Group Holdings Bhd said they are seeing interest among potential sellers starting to pick up after the Federal Reserve maintained stimulus. While average Shariah-compliant yields are headed for the first annual increase since the financial crisis began in 2008, yields dropped 13 basis points this quarter to 3.89 per cent, and are down from a 28-month high of 4.29 per cent on September 6.
"Issuers were hesitant to come into the market earlier when credit spreads widened," Rafe Haneef, chief executive officer at HSBC Amanah Malaysia Bhd, the Islamic unit of Europe’s largest bank, said in a September 24 interview in Kuala Lumpur. "We have been saying that whatever volatility the market is witnessing, it will be temporary and sukuk will stabilize and rates will improve."
Average yields on global Islamic notes surged a total of 97 basis points, or 0.97 percentage point, in May and June after Fed Chairman Ben S. Bernanke first indicated the central bank was considering paring bond purchases on May 22.
Rafe said in a June 20 interview that worldwide sales could reach US$55 billion to US$60 billion in 2013 because of the relative resilience of Islamic debt to market swings. HSBC isn’t providing a new forecast, he said this week.
Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd, said 2013 issuance could still be close to last year’s, putting his estimate at US$40 billion. The Fed won’t cut stimulus for at least a year, he said.
The Middle East will lead sales in value terms, while Malaysia, the world’s biggest sukuk issuer, will dominate based on the number of new offerings, he said, supported by development spending in both markets.
Malaysia embarked on a 10-year US$444 billion programme to build roads, railways and power plants in 2010. Saudi Arabia announced a US$130 billion plan in 2011 to construct homes and create jobs, adding to a commitment in 2010 to spend US$384 billion over five years on housing, transport and education. Qatar, which is hosting the 2022 soccer World Cup, is seeking to invest US$45 billion on new stadiums and other infrastructure.
"Financing requirements for infrastructure development have always been there," Badlisyah at the Islamic unit of CIMB Group, Malaysia’s second-biggest sukuk arranger this year, said in a September 24 interview in Kuala Lumpur. "Now that the market has more stability, issuers are going to market aggressively."
While the six-member Gulf Cooperation Council accounts for 46 per cent of total sales this year, issuance for the quarter plunged to US$267 million from US$2.1 billion in the previous three months. Offerings will get a boost should Saudi Arabia’s Almarai Co complete its planned 1.7 billion riyal (US$453 million) sukuk by September 30.
Abu Dhabi’s state-owned Al Hilal Bank is also preparing to sell US$500 million of Islamic debt, with investor meetings set to end September 30. Saudi Arabia’s General Authority of Civil Aviation started the process to market a second portion of government- guaranteed sukuk on September 24.
Ahmed Shehada, head of trading at Qatar National Bank Financial Services in Doha, said many companies in the GCC front-loaded sales at the beginning of the year before yields starting rising on the Fed comments. Fourth-quarter issuance may be dominated by names from Malaysia, Indonesia and Turkey rather than the Persian Gulf, he said.
Offerings of GCC debt that pays returns on assets to comply with Islam’s ban on interest rose to a record US$8.5 billion in the first quarter, data compiled by Bloomberg show. Average sukuk yields in the region climbed 95 basis points in 2013 to 3.87 per cent and reached the year’s high of 4.24 per cent on September 6, according to the HSBC/Nasdaq Dubai GCC US Dollar Sukuk Index. They were as low as 2.75 per cent in the first quarter.
There are at least 13 companies from Malaysia and Turkey combined seeking to tap the Islamic bond market this year. The Turkish government started meeting with investors this week for a sale of Shariah-compliant debt, while Malaysian property developer UEM Sunrise Bhd plans to sell RM600 million before the end of 2013.
"Come December, once the Fed meets again and another disclosure is made, I think from there you might have a buffer of four or five months when you might have new sukuk issues coming round," Shehada at Qatar National Bank Financial Services said in a September 24 interview.
Islamic bonds sold on the international market handed investors a 0.6 per cent loss this year, a separate HSBC index shows. Debt in emerging nations dropped 6.6 per cent, according to JPMorgan Chase & Co’s EMBI Global Index.
The yield premium investors demand to hold global sukuk over the London interbank offered rate, or Libor, widened 21 basis points in 2013 to 203.
"There’s an indication that sales may improve in the fourth quarter as certain issuers are beginning to talk to us about arranging investor meetings," Wasim Saifi, chief executive officer of Standard Chartered Saadiq Bhd, a unit of this year’s third-largest arranger, said in September 24 interview in Kuala Lumpur. "Having lost out in the third quarter, sales are unlikely to surpass last year’s record."-- Bloomberg