Saturday, December 26, 2009

Pipeline of sukuk grows, despite uncertainty about bankruptcy laws; GFH buys back sukuk

There has been reports that the pipeline of 'planned sukuk' is quite high with past estimates of $45 billion which has been increased to $50 billion by Standard & Poor's as reported in the DIFC Sukuk Guide. However, as the new issuance seized up again following the Dubai World standstill request, these estimates may not necessarily turn into actual new issues in the foreseeable future. With the myriad of issues about the legal enforceability by investors raised by the Dubai World and Nakheel crisis, many potential issuers may delay or cancel planned issuances. To take an optimistic perspective, the well reported confusion over bankruptcy laws may move some of the new issuance to other countries outside of the Gulf and may also lead to the development of new bankruptcy laws.

Gulf Finance House announced it was going to repurchase $9 million of its $200 million sukuk. This is in contrast to other sukuk issuers which had a chance to repurchase their issued sukuk at distressed levels, some of whom have subsequently defaulted on their sukuk. It is an interesting idea for issuers to take advantage of distressed prices in secondary markets known for its illiquidity. However, in many cases, distressed prices, despite the illiquidity, do reflect the prospects of a default.

Other News

  • The DIFC Sukuk Guide (pdf), which was released recently, reports that the total issuance of sukuk in the GCC between 2000 and 2008 was $26.8 billion.
  • The Investment Dar, the Kuwaiti financial institution which defaulted on $100 million in sukuk, has reached agreement with enough creditors to approve its restructuring plan. Details of the plan have not yet been released. Most reports of the plan say that The Investment Dar will sell most of its assets in order to repay creditors.
  • The bill to provide tax breaks to put sukuk on a level playing field with conventional bonds in South Korea has been held up in the National Assembly.
  • Italian insurance company Generali is considering a joint-venture with Qatar Islamic Bank to launch a takaful company in the GCC with possible expansion across Europe in Asia.

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