Tuesday, September 22, 2009

Sukuk markets, tax changes in France, sukuk could reach $16 billion in 2009

The Saudi Electric Company $1.87 billion sukuk could be the beginning of the resurgence in the sukuk markets according to an HSBC official. He cited a strong pipeline of sukuk. However, there has been a strong pipeline cited for nearly a year (up to $45 billion according to S&P). The catalyst could be the SEC sukuk because of its size (or the Petronas sukuk which came out of Malaysia shortly after). However, despite strong demand for the SEC sukuk which was oversubscribed, it still had a yield of SAIBOR+160bps compared to SAIBOR+45bps for the sukuk it issued in 2007. This suggests that although there is resurgent demand, it is still focused on sukuk issued by high-grade corporate issuers and sovereign issuers. Until there is a large sukuk outside of these categories or the pricing of new issues improve--which may improve following the resolution of the Nakheel sukuk by December of 2009--the sukuk in the pipeline will most likely stay in the pipeline.

France changed laws to facilitate the issuance of sukuk. The sukuk--by an unnamed financial institution--which would be the first in France and is expected to be up to €1 billion is being pushed back to later this year or early 2010 by "a number of challenges from the Shari'ah and legal point of view".

The global sukuk market will reach $16 billion this year according to Badlisyah Abdul Ghani of CIMB Islamic, with a majority coming from Malayisia. Also Gatehouse Bank in the UK executed a cross-border commodity murabaha transaction with CIMB Islamic using the Kuala Lumpur-based Bursa Suq Al Sila. Finally, CIMB Islamic confirmed it had invested "a couple of million dollars" in the Saad Group's Golden Belt 1 Sukuk. In the GCC, the sukuk issuance over the year to July 31 was $4.3 billion compared to $12.8 billion in conventional debt.

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