BNI to issue sukuk in Malaysia; Turkey's sukuk "should not be belittled"

PT Bank Negara Indonesia (BNI), the third largest state-owned bank in Indonesia, may issue up to $50 million in sukuk in Malaysia. The issue will depend upon market conditions for sukuk in Malaysia. Many new sukuk issues are likely to depend heavily on the market conditions during 2009. Estimates of sukuk are $4-5 billion for 2009 for Malaysia and Southeast Asia, but I would not be surprised if there were as few as $3 billion (if conditions stay the same or worsten) or as much as $8-$10 billion (if there is a significant recovery in global credit markets, particularly if the price of oil leads to a resumption of funds into the GCC region.

I don't know whether this was in response to my blog post yesterday where I said Turkey's first sukuk 'was a flop' (kidding, my blog isn't that widely read), but the head of Turkey's Capital Market Board said "The demand for the revenue-indexed bonds should not be belittled. For a start, it's a good figure". In part, this is true because the bonds are the first from Turkey, are not explicitly called 'sukuk' and are being launched in a time of unprecedented credit constraint.

Indian-based Benchmark Asset Managment will launch India's first Shari'ah-compliant exchange traded fund (ETF), a passive fund tracking the S&P Nifty Shari'ah Index, an index that tracks 37 Indian stocks accounting for nearly ½ of the market capitalization of the National Stock Exchange.

Shari'ah screens have in the past eliminated many companies that have subsequently went bankrupt amid fraud. One prominent examples are Enron and Worldcom, which were excluded from Shari'ah screened investment portfolios more than a year before it collapsed because it exceeded the allowable debt ratio. I looked at the press release at the inception of the S&P Nifty Shari'ah Index on February 18, 2008 and it included among its largest ten companies Satyam Computer Services. As far as I can tell, it was still included in the index at the time its founder revealed a massive fraud. Although Shari'ah screens can provide additional safety, this demonstrates that they are not always completely effective.